Thinking About Google and The Turning Point

Has the worm turned? That's the question a lot of folks are asking about Google these days, not the least of which is John Heilemann, whose piece has opened up a great discussion in the comments area of my post about it. As we often do, John and I…

Gates1995TimeHas the worm turned? That’s the question a lot of folks are asking about Google theseTimegates1999 days, not the least of which is John Heilemann, whose piece has opened up a great discussion in the comments area of my post about it. As we often do, John and I beat this question around a bit this morning, and an interesting comparison came about. John, who wrote an excellent book on Microsoft called Pride Before the Fall, reminded me that while most peg Microsoft’s fall from its glory days to the attenuating DOJ trial of the late 1990s, the company’s true fall from grace came before that trial, when first the digerati, then the company’s potential partners started losing trust in Microsoft.

Why? John pegs it to a seminal 1997 Wall Street Journal article about the company in which Nathan Myhrvold (former MSFT CTO) speaks of his company taking a “vig” on nearly every transaction across the Internet. A year or so before that article, while managing editor of Wired, I met with Nathan. He pitched me his vision of Microsoft enabling – and profiting from – all commerce on the web (I wrote the meeting up for HotWired, but can’t find the damn link…). In any case, I recall Nathan taking out his wallet and slapping it on the table, and confidently predicting that anything you did with a wallet, Microsoft would own online. I was struck by the arrogance of such a claim, and the confidence with which he made it….I really believed that Microsoft was going to own ecommerce, and it both scared and fascinated me. Turns out, I was not alone.

As we discussed the finer points of the AAP lawsuit, John noted that Google is coming close to a “worm turning” moment – a moment when the world realizes that the company is *too powerful* and its ambitions are *too great.* When such a genie arrives, it is very, very hard to put back in the bottle. The one all encompassing difference, of course, is that Google has real competition – Microsoft in 1997 did not – but regardless, the cultural vibe is striking in its similarity. Remember in 1995, when Microsoft was literally at the top of its game, lauded on the covers of national magazines for saving the US economy via its launch of Windows 95? When Gates and Co. were heralded as ushering in a new era of digitized possibility?

I sure do. In seven short years, Google has gone from a geeky startup with one good idea into an agenda-shaping player responsible for navigating complex relationships with world governments, the personal privacy of millions, major trade organizations, and hundreds of thousands of businesses small and large. It’s an extraordinary weight to bear, it seems to me. It’s the kind of position that requires a balanced mixture of leadership, will, and diplomacy. There’s very little room for the go-it-alone mentality which got the company to where it stands today. Can the company shift its culture and avoid the fate which ultimately hobbled Microsoft? That, more than anything else, will define the next chapter in the company’s fascinating story.

43 thoughts on “Thinking About Google and The Turning Point”

  1. >>>Can the company shift its culture…?

    Can we name even one large company that ever shifted its culture for the sake of market share?

    I can’t think of one. At least not any that haven’t seen several consecutive quarters bleeding badly and turning pale. Company cultures shift after massive layoffs or serious management shakeups, not because of the public’s fickle perceptions.

  2. I think they have the leadership and will, but i’m not so sure about the diplomacy. I really think their “do no evil” mantra could seriously work against them. They set a standard and an expectation that they would be different. Amazingly, most of us bought into it. Regardless of how great their vision and technology is, the disappointment factor could be huge and create mass resentment in my opinion. So interesting watching it play out, that’s for sure!

  3. One extremely important point about Google and Microsoft — they are dependant in large part on Mass Public Acceptance. No one can possible force TENS of MILLIONS of individuals from AROUND THE WORLD to consistanly use a product regularly,when there are options!!!

    Google and Microsoft are very popular in part, because they fill a huge void, and they continue to grow and change with the demands of societies.

    It is probably the Academics and the Press who display their envy or paranoia – the average “joe” just want to get a dependable, easy solution to whatever problems or day to day challenges they face – (business or personal).

    Of couse, serendipity and marketing and business savy play an ongoing role in continuous successes ;-), but if all that existed were “glitter” surrounding a vaccuum – they certainly could not survive in this continuous, competative global market.

  4. There’s one important difference with google this time… so far they give apps away for free… and consumers are very forgiving for that, evil or no evil. And dont forget google seems to shift more power to the citizens, even sharing their profits with them and going for open source, etc.
    As long as they can keep up their “Robin Hood” image they’re fine, taking from the big companies and sharing the wealth with the common people…
    (The same reasoning for illegal downloading of music and movies – not fare priced, so no guilty feelings)

  5. If Robin Hood flew around Sherwood Forest in a 767 with the keys to the castle dangling from his belt, the people just might stop feeling like they can invite them into their shanty towns. Sheesh, this folksy image is sooo 2005.

  6. The biggest resource of Google is nothing but ” Human Resorce” and i think it comes from the Mr Ram Shriram the Angel behind google. He says that Only A grade people make A grade companies. Which makes me think that its true.

    Yes you are more or less right I guess. Genie is getting out. MSFT is totally different one. Google there goes its competitors.

    So getting a Market Cap bigger than Coca- Cola is great sustaining the share builders .. Aint think its easy..

    EPS of 70 is hard to cope up with..

  7. Did I miss something? Last time I checked, MSFT was still a massive world power, still absolutely owned the OS market, every pc that jumps off a shelf to anyone from Walmart to Circuit City runs Windows, MSN is on the move and starting to coagulate into a threat to google, XBox 360 dominates the gaming world, Scoble is king of blogging, etc etc.
    The idea that MSFT has ‘gone under’ becuase of public perception of its greed is a narrow view of folks in the development field, and though the criticisms are mostly well-placed, a negative view from the development community doesn’t negate a companies dominance of the market as a whole.
    What we are seeing with Google may be different, but maybe not. What may be happening is the ‘maturing’ of a company that got its initial juice from being ‘in’ with techies, but now is feeling the pains of becoming a real market player.
    ‘Good people make good companies’ is damn right, and MSFT is an example of this. I can’t imagine another company that could get clobbered by US Govt, Eurpean governments, the tech community at large, and every political cartoonist on the globe, and still maintain such dominance in the market, as well as positioning themselves at the wolves at the door of emerging technologies that they may have initially missed the boat on. If the ‘good people’ at microsoft have acheived this, then hopefully those meetings at 30,000 feet in the lap of luxury are about how Google shifts from a teenage wonder-startup to a serious blue-chip player.

  8. Certainly they’re aware of this problem, certainly they are discussing solutions, probably even at this moment.

    But comeuppance is a hard pill to swallow. I don’t think they’ve quite “jumped the shark” yet and they may be more nimble than others have been in this situation. I’ve been saying publicly for months that they are alienating too many server-side. I hope the best for them–not without self interest.

    And yes I think the release of MS W95 was seen clearly in the tech community for what it was: a Macintosh 89 ripoff, and there was already resentment over that. But the public perception was much further removed from the tech community in 1995 than in 2005. In 1995 investors didn’t read blogs.

  9. >>In 1995 investors didn’t read blogs.

    Exactly. It took Microsoft 15 years to get to 1995’s sense of world dominance. It took Google seven to get where it is today. And it has taken another 10 years for Microsoft to look seriously vulnerable – as it does now (though I agree with Lance that the company is still a major force).

    Things are happening much faster these days….

  10. A couple issues here, related, but somewhat different. One is market share and income, and the other is image. Microsoft still makes tons of money, as someone mentioned earlier, but their reputation is not good, particularly among next-generation web users who fear any group having too much power. These people may still use Microsoft products, but they are trying not to, and as more options arise, they will use other products even more. I put myself in this boat, still use powerpoint, but would not dream of using IE because I have more options in that area.

    Goole has a great image so far, but with things like Google Base in the works, taking on possibly eBay and Craig’s List, I think many see as being too hungry. And if they lose the trust of users, they will become the next Microsoft for the next generation, who set out to beat them. This may take awhile, but eventually if people lose trust it will happen. They could start by giving away some of their mass amount of money to show that they maybe be big, but they are doing so to make a better world, through both their products/services and their giving. If they are just out to make billions for the sake of making billions, I will gladly join the resistance!

  11. Bill has always wanted more than his share. After all, why would Microsoft’s mantra be complete domination in whatever market segment they’ve ever put their eyes on? If you look back, you’ll notice a pattern of releasing free software in order to crush the competition, always socking you with the big bill on other applications.

    Sergei and Larry still continue to create applications that are free of charge, thus easing our way into the true potential of computing and giving free access to the masses. Their revenue has always come from–wait for it–advertising.

    While Alfred Lord Tennison might have had a good reason to believe that absolute power corrupts absolutely, I happen to believe that absolute fear can also corrupt absolutely.

    Leave it to the men with torches–those who have always lived for their fears–to want to put Microsoft and Google in the same category…

  12. I for one can’t wait to kick google once they’re down. No one’s forgotten that they’ve gone out of their way to piss of bankers with their IPO, piss off publishers by ignoring copyright, piss off ad agencies (at least in the UK) by eliminating commission, piss off webmasters by providing no support, and generally piss of everyone with their “we’re so much smarter than you, just trust us” attitude. Google kids, if you’re so smart why have you let it get to the point that I hate you? We only play with you because we have to, not because we like you.

  13. Rod – Wasn’t Microsoft essentially sued by the Feds because they created “applications that are free of charge”, paying for it by monetizing a huge market share? (90% of desktops = 70% of searches?)

    BTW, it was, I believe, Lord Acton, not Tennyson.

  14. John,
    Ah, the memories. 1997 was about the high point of the Microsoft uber alles hype wave. Nathan M. flamed me for quoting him about “vigs.” But it came out in the email that was released in court that that’s exactly what they were looking for. In another excellent book on Microsoft 😉 I quoted an email from a member of Myhrvold’s team recapping a meeting with Visa: “We DID get the per transaction deal we wanted,” she said. Netscape was seeking a similar deal with MasterCard, and Microsoft wanted to form a united front to “steamroller” the credit card associations into giving the software companies a cut of every Internet transaction. “This seems to be the grail that we all lust for,” another Microsoftie wrote. Ultimately, neither Netscape nor Visa or MasterCard went along with Microsoft’s plan.

  15. Those TIME covers suggest another idea: My prediction of who will be Persons of the Year for TIME in 2005? The Google Guys. And as everyone knows, that’s a good sign your popularity has peaked.

  16. We’re supposed to be mad at Google for cutting out advertizing commissions? WE'[re supposed to be mad because they stepped on the poor bankers toes with their IPO?

    I think not. Google is far from perfect, but so far they’ve generally delivered on their arrogant attitude. Their services are quite useful, easy-to-use, and they’ve managed to keep their commercialism relatively unobtrusive.

    The whole book scandal is ridiculous and does nothing but remind me (once again) just how stupid copyright holders advised by blinkered copyright lawyers can be (for further examples see: the recording industry).

    Is Google being arrogant by stretching the copyright envelope? Sure, but bully for them as far as I’m concerned.

    Am I scared of Google? Not much, but I’ll keep my eye on them. But there’s no way they’ve reached the “worm turning” point yet. I’m far more afriad of the irrational publishers than of Google.


  17. I have mixed feelings about google. Its amazing that a company can go from the garage to mega-billions in such a compressed time frame. I think the world as we know it is moveing towards further time compression. One the one hand google has displayed high level of innovation and has filled numerous voids by providing valuable services to the consumer. As to wether they are “free” lets just say I believe there is no such things as a free lunch. I remember a while back before IBM was neutered (also a company that provided innovative services and products) that the word in the back room of tech companies was screw big blue every chance you get. Eventually I IBM losts its arrogance. It seems that than Microsoft has inherited the black hat another company that came out with superior products made a bunch of money and has had its share of cultural arrogance. Now you have goooglers at bat. I think they got a hell of a lot of good things going for it and judgeing by their stock price (which is basically walls streets clickstream poll) Im not alone. I like the idea of good honest competition.
    I also like the idea that these great american founded or based companies have to compete with each other and everyone else each and every day to stay on top. With the time compression that we are experiencing , and with opportunities afforded the
    other people with similar abilities , drive, arrogance (im talking educational, technological tools, and acess to venture capital) I expect there will be other superstars coming out of the s garages of stanford , or china etc that will eventually make Larry Page and Sergei Brin feel like Bill Gates feels right about now. Honestly I understand these companies have to prepare for battle and eventually all empires fall but somehow I dont feel to sorry for these guys.
    What does make me a bit uneasy is this whole extreme data base thing. I like idea of people making money. I dont believe that is evil. I do believe this extreme database that is being collected together with the “clickstream” info can really be a potential problem. I believe its a problem even without anyone abusing it and the potential for abuse is horrific. From an artificial intelligence point of view Im sure it is very very interesting (real hal or skynet potential) on the other hand something that is so subject to abuse should at least contain a scary warning (maybe like cigarettes ) or a corporate guarantee like do no evil or dont be evil or better yet something real that would actually protect the public from the dangers of these data bases. Even the advise that I recently saw in a magazine probably online from our Attorney General
    (NY) Elliot Spitzer went something like this
    dont write it if you can say it
    dont say it if you can do it with a nod
    and never never send an email
    I dont know him but I suspect he is very bright guy.

  18. OPK,

    possibly you’re a celebrity ala Kate Moss and should be scared of irrational publishers. If that’s the case you have my sympathies. For us simpletons I’m a bit more worried about the fact that Google, via adsense and analytics, is now tracking my surfing habits across a significant proportion of the web.

    That you have no sympathy for the publishing industry or bankers is your business. My point is simply this: Google, how hard is it to leave a few pennies on the table for the others? But then again, Google doesn’t really have any “partners” does it?

    Your opinion is your own, but I look forward to kicking Google when they’re down. Maybe then they’ll wish they had made a few friends along the way.

  19. The difference is this: Microsoft wanted to own things, and leverage the things it owned to acquire more things, with a strategy for selling the thing at each level. The one time they tried to give something away for free, they got burned, perhaps because it was so obviously a tactical suspension of their business model. Google does not want to own things. Google wants to be the network, not the portal, the market and not the product. I mean, this is just their model. This is what they do. They don’t want to own anything that will require their expensive brilliant people to focus on the problems of ownership: creation of content, judgment, legalities, politics. There’s money in owning and exploiting things, but not in the kind of profit-to-brainpower ratio Google thrives on. Ed wants vengeance on Google for not making partners, but that’s how they’ve been succesful *within their business model*, by not getting tied down with exclusive deals, format wars, licensing agreements.

    The thing about Googlebase is that it’s an invitation to Ebay and Craigslist to register their inventories with Google Search and Froogle through an API, so that a truly flattened marketplace will be created, making the contents of Amazon, Craigslist, Ebay, all the auction sites and every mom-and-pop business available in the search results for a single query.

  20. I think people are to focused on the day to day things and are totally missing the big picture.

    What we precieve to be the core of web 2.0 today is user generated content. This threatens every major media company, and any software company that caters to them. In other words News Corp, Yahoo and microsoft must find a way to harness and commercialize “web 2.0” or find a way to marginalize it before it destroys them.

    News Corp and yahoo are buying or attempting to create points of content creation ie myspace. Microsoft is building the channel in which this content flows to the end user, RSS and Vista as well as the RSS reader.

    In the web 1.0 world there are only 20 or so mega sites that the majority of people visit. In the web 2.0 after the dust has settled there will still only be 20 mega sites. Those remaining sites will either be web 2.0 upstarts or web 1.0 sites tack on something “web 2.0” and prevent competition from displacing them.

    So in short Yahoo and Mircrosoft are the enemy, everything they do is to protect their 1.0 revenue streams, and to find web 2.0 revenue streams that don’t hurt the 1.0 ones. Google on the other hand is your friend, they need to dig further into the web 2.0 model and find new revenue streams. They have nothing to protect and the world to gain.

    I think after this 2.0 hype seattles down those companies are in for another shock. A little while ago i created in my spare time. In the last year its grown from 700k pageviews a day to 10 million pageviews a day. Its the largest dating site in english canada, and probably the largest canadian owned site in terms of pageviews, and according to hitwise in the top 100 in the united states to.

    I wrote every single line of code myself, and set up all the network infustructure etc, without any investors, employees, constants or going in debt. There are only 4 other dating sites around this size and none of them have under 300 employees, and just their tech budget is $800,000+/month. My total budget hardware software hosting etc comes in at ~$15k/month.

    What i’m saying is now and more so in 2 or 3 years these mega sites are going to face competition from people who can create great sites in a matter of weeks, and have little cost associated with scaling to hundreds of thousands or millions of users.

  21. Another piece of evidence re Google’s “new” attitude can be seen in the new terms of service effective next month for use of the AdWords API.  Basically, AdWords advertisers are prohibited from using 3rd party apps. Period. 
    Apparently there is also a “commercial” API being readied for release early next year. 
    Instead of encouraging a thriving “Google Economy”, Google appears intent out of squeezing out every lost cent (dollar) on anything that runs through it’s servers.
    Pretty shortsighted when you consider that most of the apps being built to work with the API focus on making AdWords easier, more accesible, more profitable, etc. and that, in the end HAS to be good for Google, right?

  22. I hear and sense the word “Fear” associated with Google increasingly. Google’s once unquestionable intent is now being questioned, there are doubts about the trust and comfort that we (users, advertisers, web masters/SEOs) almost took for granted with that name. A collective rise in ‘fear’ leads to resistance and revulsion and at some point a revolution– and that is something that the company has to be aware adn address sooner rather than later.

  23. At the end of the present naivity, of all of the mainstream, and the paranoia (eventually rational) of the coders/techs, I’d like an answer to two points:

    1) Who forces us to use google

    [competition/history lesson: see: migration of excite by iwon]

    2) Is there FUNDEMENTALLY a single thing that google does that is actually unique for its 90+ % of users, that cannot be found elsewhere.

    Archilles Heeels:

    A) The obvious one is the network effect, that’s what’s so scary about google base, as ebay has proved: once dust becomes a planet, only more dust is attracted and it becomes hard to leave the system. Also, combine this with traditional globalisation and consolidation, but in 7 years from a standing start.

    => how many items from different product categories do you get from wal-mart?

    B) If only double-click et al had had the same foresight and not prematurely ejaculated over banners.
    Take away the ad network, and what are you left with, just another search engine/portal that relies on active traffic, if it goes, as every other failed search engine, it could go.

    What ensures that google is anchored firmly is that network of niche targeted sites, and in turn the metrics they provide, which in turn provide the data to improve its own targeting (and tracking) that all leads to a horrible, but profitable circle!
    [***This is the True (tracking) scary 1-way, no return part***]


    Shakir Razak.
    (what do i know…)

  24. I have read through the comments on Google. The whole value of this company is based on advertising revenue. Its share price is based on this. Now, I am not one to knock a big company but I have thought whether the following experiment would work if the internet community got involved. THe main revenue Google gets is from pay per click. Some of the big companies pay a fortune for categories such as car insurance, mortgages, savings etc. If you click through to their site, but dont buy, they still get charged. If a spurious competitor clicks through a lot Google can tell from the IP address and not charge the advertising company. But, if many individuals click through, for the sheer hell of it, Google will deduct the money from the advertiser. So, if a number of people every day search for say car or auto insurance and then click through to the top two or three advertisers then the advertising budgets of these companies would dwindle, with no successfull sales. If the internet community got behind this my experiement is whether the share price of google could be altered by the inertia of tens of thousands of people clicking thorugh and not buying to the premium advertisers thereby reducing the effectiveness of the pay per click.

    You may wonder why I want to do this, the reason is many individuals and small businesses have quality sites that are high up in the rankings on merit and content. Then a big company thinks “well have a piece of the action” throws a lot of money at it and then they get the responses because they are now top, not because of the contnet but the corporate and share holders greed. Call me stupid, but is this not fair? Shouldnt we try and make a stand. But the question is, how do you advertise this to the internet community?

  25. Ed-

    Just for the record my fame does not approach that of Kate Moss. I work rather anonymously in the media field. Why do I fear the publishers? Because they are interested in increasing scope of their copyright to the point that they will criplpe their side of the media business, much as the music business has with the idiotic provisions of DMCA, which did little to stop illegal downloading but did much to stifle uses that might have profitted the busuiness.

    Copyright holders are very resistant to reimagining their business models in the context of new technological capabilities, and their response is to try to hamstring thise technologies. This tactic helps very few people and hurts everyone it touches.

    Google, on the other hand, wants to make books searchable. I’ll be happy to be able to use this reseacrh tool. I will buy more books, not fewer. As will everyone who is actually interested in the tool, I’d imagine.

    As to the tracking capability: this is a matter for legislation. The capability is out there and it’ll get used in all sorts of ways unless someone steps in to regulate that use. And there are, of course, perfectly legitimate uses of this sort of technology. Better targeted marketing means less waste and more opportunity across the board. So more information is a good thing. That it should be aggregate information and not personal information is something the government will have to do something about.

    Google didn’t invent this capability. I don’t see why they should be pubished because it exists.


  26. Alfred Smith suggests that a ‘mass mischief’ of people arbitrarily clicking on CPC ads, costing advertisers without conversions, could cause trouble for advertisers and Google.

    In fact, *if* the mischief is random, affecting all advertisers in a category equally, it ultimately would have no effect whatsoever. Why? Well, all advertisers would see their conversion rates go down by the same amount, and adjust their bids down proportionately. Their effective cost-per-conversion would converge on the same amount they’re willing to pay now. They’d wind up with the same ad spend; Google would wind up with the same revenue — only Google’s incremental costs of tracking/redirecting the fake clicks would go up — probably by a negligible amount.

    Only *differential* fraud/mischief, which targets certain sites/advertisers differently, causes serious problems… but even that can be remedied by moving towards a cost-per-conversion (“pay for only the clicks you want/with proven value”) approach. AdWords/AdSense plus Analytics have already put the major pieces necessary for this in place.



    I smell an earnings disappontment.

    Thanks for the reminder of Mhyrvold. Where is he now?

  28. “One extremely important point about Google and Microsoft — they are dependant in large part on Mass Public Acceptance. No one can possible force TENS of MILLIONS of individuals from AROUND THE WORLD to consistanly use a product regularly,when there are options!!!” wrote by SE-Web … i think the same and i think in future it is not good for the world, if two concerns have the full power of our wisdom and communication 🙁

  29. Google have the Power and Money to do all what they want. i hope that in future 3 or 5 other majors are important too, that the balance is better. what we are doing if google offline 😮 🙂

  30. i think thats to late to stop the Process of Google 🙁 the same like microsoft and apple in the 90er.

    i hope that other lands have good ideas too and start a comptent alternate



  32. It has been almost a year and half since this entry was posted .I’ve one question for Mr.Battelle. Do you still stand by your post? Do you think Google’s arrogance will be the end of the big boys in the near future?

    I think not. I’m still fascinated by Google’s arrogance and I feel like it’ll stick around for some time to come.

  33. I think jhon have it all wrong. I don’t think Battelle was talking about 2007. The post talks about trends that leads companies like Google fall by comparing it to one other case- Microsoft.

    I think it’ll happen in the years ahead. Think of what Wikipedias Jimmy Wales is saying about search. There will be tough new comers and if Google’s arrogance lingers then it’ll be their down fall.

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