eWEEK at 30: Google's Wealth Brings Diversification, Public Scrutiny

 
 
By Todd R. Weiss  |  Posted 2014-02-22
 
 
 

eWEEK at 30: Google's Wealth Brings Diversification, Public Scrutiny


When it began operating in 1998 from a garage in Menlo Park, Calif., Google was a pure-play Internet search company with a starkly simple home page and a revolutionary plan to improve Web search using its own special algorithms.

Fifteen years later, search is still the crown jewel of Google's business, but the company used search as the springboard to become a highly diversified global company that dominates the Web with search-driven online advertising, cloud applications as well as myriad other tangential ventures that it can afford to pursue due to its wealth and influence.

So what made Google so successful just 15 years after its founding when other, more established companies had similar chances to achieve market leadership? For its 30th anniversary feature series, eWEEK asked four IT industry analysts for their insights into Google's past, present and future.

Though it began as a search provider like many other companies, even serving as Yahoo's search engine for a time, Google did something early that its competitors didn't think to do—it soon tied search into a well-oiled advertising revenue machine—and it's never looked back, said Rob Enderle, principal analyst for Enderle Group.

"What has made Google so different from other companies over the last 15 years is that Google has a near-monopoly on advertising revenue compared to competitors," he said. "It's an area that none of the other technology companies began to understand" until it was too late. "Microsoft looked at it initially and said there was no money in that. That came back to haunt them."

For Google, that early idea to translate search into ad revenue "gave them the equivalent of the goose that laid the golden egg," said Enderle. "Now that gives them kind of a blank check to expand on virtually anything they want to do. They do so much that is unprofitable. With other companies, that would stop. But they have so much money that they can do it."

And that's been one of the key reasons that Google can do so much of the experimentation and innovation that it does today, from exploring self-driving cars to developing Google Glass, to acquiring some seven robotics companies in recent months to delve into various marketplaces, said Enderle.

"The big thing is, because their revenue is not coupled to their products, they can do things that have hurt others like Chrysler and Sony," said Enderle. "For Google, it doesn't really matter if these other things are profitable or not. That's really what makes them different from everyone else."

Essentially, Google operates with a youthful dot-com mentality by investing in a host of projects without major concern about hurting its profitability. That's how Google can surprise the world with initiatives such as Google Fiber, Android, Chrome Web browsers, Gmail, Google Docs, Google Maps, Chromebooks and much more, according to Enderle. "They're making so much money that they have to work hard to spend it all."

 

eWEEK at 30: Google's Wealth Brings Diversification, Public Scrutiny


Scott Strawn, an analyst with IDC, said Google quickly started to rule the nascent search market when it began in 1998 because the company's founders and engineers looked at search in an innovative way—by identifying how articles linked to other articles in order to rank them and retrieve the best results for users.

"That was a similar process to how important scientific documentation is understood and done," said Strawn. "The more citations a document has, the more important it is generally considered to be. Essentially, that's the approach that Google took and that's what differentiated them and allowed them to break out."

At its core, though, despite all of its side operations, from the growth and promise of the Google Cloud Platform to other innovations such as Google Earth and the Project Loon Internet balloon experiments, Google's bread and butter remains with user queries and delivering the right results at the right time for each user, said Strawn. "They have grown beyond search but their greatest method of monetization is still from search."

In fact, he said, not only has Google pretty much owned the search business for the last 15 years, but the company has "really been seriously involved in every way that we connect to the Internet, through the entire pathway from users to the data center."

Google business is going beyond even more than that, said Strawn. "At an even higher level, they work to connect your brain to all of the information available on the Internet. It doesn't have anything to do with devices or screens. It has to do with the transfer of information."

That's where Google gains the power and wealth to do all the other things that it does in the world of innovation and research, according to Strawn. "Up to now, most of what we've seen from Google is really based on enhancing that whole process of being a more prominent player in each of those points along the pathway. It's hard to argue that they haven't done a good job of it. If you look at their market value, it's pretty incredible."

Dan Maycock, an analyst with OneAccord Digital, said that Google's business philosophy has been similar to that of Japanese automaker Toyota over time. "Ask Toyota what their business is about, and they will say transportation and not cars," said Maycock. "If you talk to Google and ask if their business is Google Glass, self-driving autos or some other product, they would say, 'no, our business is information.' So they'll do whatever it takes to continue to drive toward building better information, and they'll go into whatever business that makes sense in order to collect more information."

In essence, that's how Google is able to make sense of all of its diverse products, innovations, experiments and directions, even when competitors can't hold a candle to its activities, said Maycock.

 

eWEEK at 30: Google's Wealth Brings Diversification, Public Scrutiny


"It doesn't seem that random when you consider cars, Glasses and more, because it all results in information about people and that's why they are going into all of those diverse businesses," he said.

Charles King, principal analyst for Pund-IT, said the two things that stand out to him about Google's first 15 years are its corporate ambition and its smart business sense for finding and nurturing just the right partnerships with other companies.

"It seems clear to me that I can't think of another IT company or vendor out there that is more ambitious than Google is, and I mean that in the best sense of the word," said King. "They seem to be in a constant state of pushing the market, competitors and themselves."

At the same time, the smart, effective and often creative partnerships that it creates have been huge for the company, he added. "The success with Android is a good example of that," said King. "There was a time when Android was nascent—when the idea that it would ever surpass Apple and iOS was laughable. Here we are a few years later, and Android rules in market share. I think the company recognizes that it can't do everything by itself."

But it's not all been rosy and successful for the company. There have also been notable and serious pitfalls for Google in its first 15 years, including antitrust probes in Europe and in the United States regarding its search and advertising practices, as well as growing privacy concerns from people and nations around the world about what information Google collects from users and how that data is then used by the company.

Those antitrust probes, argued Enderle, have portrayed Google as sloppy at times. "Because they are doing so much stuff at once, they're tying products together and they shouldn't be doing that" due to antitrust concerns, he said. "It's the same thing that got Microsoft into trouble" in its own antitrust cases in the past. "[Google is] reaching a level of dominance where that same thing that could happen to them. It's like they are going down the road of the 'greatest hits of technology antitrust.' I think that's going to eventually catch up with them."

The biggest challenge for Google's future then, he said, is government intervention and potential regulation. "They've reached a level where nobody else can touch them. What makes Google very different [from other antitrust targets in the past] is that they seem to be hitting on all points at once," involving multiple products, business units and issues. "The corrective action on them [by governments] is going to be legendary. They're just [angering] too many people, too much of the time and they are scaring governments. That's when Standard Oil and Microsoft got hit."

 

eWEEK at 30: Google's Wealth Brings Diversification, Public Scrutiny


The Microsoft antitrust case, which began in 1998, involved the bundling and integration of its Internet Explorer Web browser with Microsoft Windows. Just a few years ago, in 2011, Google's Executive Chairman Eric Schmidt staunchly defended Google's business practices during a U.S. Senate antitrust hearing saying that that Google learned valuable lessons from Microsoft on how to conduct consumer-friendly business, according to an eWEEK report.

Instead, Google executives may not have learned as much as they thought about the Microsoft saga, said Enderle.

"For Microsoft, one of the great things for them was that they got slapped before they got more arrogant," he said. "It's better to be hit early and have a consent decree to get you back on track rather than be hit with it late and be broken up."

Meanwhile, Google is irritating people in its own back yard in the San Francisco Bay area. San Francisco resident protests against Google and other Silicon Valley tech companies have revolved around two key issues: the use of private commuter buses to bring their workers to their corporate offices while not paying fees to use bus stops and city streets, and tech-fueled real estate speculation that is making it hard for long-time residents to be able to afford to live in neighborhoods and apartments they have occupied for years, according to critics.

The protests are a symptom of the a growing sense of resentment against highly compensated employees of Google and other high-tech companies making San Francisco and other Bay Area cities unaffordable for middle class working families.

Maycock said he doesn't think that Google is evil at heart, but instead thinks that the dust-ups have occurred because Google and its employees are more focused on their work than on community issues they may not relate to on a day-to-day basis.

"This is why some people don't understand Google and why some see it as a company without a social conscience in regard to issues like the Google employee bus stops and gentrification issues in the San Francisco Bay area," he said. "They are a company of engineers and if you have a company full of engineers, and you ask them if they are worried about gentrification and traffic and such they'd say, 'no, we're worried about our company and its health and about things that are going to impact our core goals.'"

That, said Maycock, is why Google is focused on issues such as transportation to work for their employees. "The fact that they don't care as much about the implications of such things just means that it is not part of their core business. They need to be good corporate citizens, but probably not to the extent that some people otherwise might want."

 

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