Authors: Ken Auletta
Tags: #Industries, #Computer Industry, #Business & Economics
Googled (3 page)
Since Google’s birth in 1998, as Schmidt acknowledges, Google has set out systematically to attack the magic. “If Google makes the market more efficient, that’s a good thing,” he said. Unlike Karmazin, Google engineers don’t make gut decisions. They have no way to quantify relationships or judgment. They value efficiency more than experience. They require facts, beta testing, mathematical logic. Google fervently believes it is shaping a new and better media world by making the process of buying advertising more rational and transparent. In its view, the company serves consumers by offering advertising as information. It invites advertisers to bid for the best price, and invites media companies to slim their sales forces and automate part of their advertising and to reach into what author Chris Anderson dubbed “the long tail,” in this case to those potential clients who rarely advertised but would if it was targeted and cheap to do so. Google also invites users to freely search newspapers, books, and magazines in what it sees as both free promotion and an opportunity for publications to sell advertising off this traffic. It invites television networks and movie studios to use YouTube, which Google acquired in 2006, as both a promotional trampoline and as a new online distribution system for their products. It invites advertisers to use DoubleClick, the digital advertising service company they acquired in 2007, for their online ads.
Still, Page told me, he does not see Google as a content company. Google’s computers can “aggregate content; we can process it, rank it, we can do lots of things that are valuable. We can build systems that let lots of people create content themselves. That’s really where our leverage is.” That leverage, inevitably, makes it easier for audiences to migrate away from old media. This will cause some distress, but satisfying everyone, including traditional media companies, is not Google’s goal, he said; serving users is. “You don’t want to do the wrong things in a way that is causing real damage to the world or to people. But you also need to make progress, and that’s not always going to make everybody happy.” Armed with this conviction, Page and Google’s engineers have made many media companies very unhappy indeed.
It wouldn’t happen all at once. In the early days of the new century, few old media companies had yet lapsed into panic mode. Newspapers saw their circulation and ad revenues slipping. From a peak daily newspaper circulation of sixty-three million in 1984, circulation slid an average of 1 percent each year until 2004, when the drop became more precipitous. Publishers did speak of moving aggressively to create digital newsrooms, and in the nineties the Tribune Company and Knight Ridder, among others, made digital investments. But the chains that owned most newspapers were predominantly interested in getting bigger in order to gain more leverage. There was little urgency to move to the Web; online newspapers were usually stepchildren of print editions, not allowed to break stories or employ their own separate staff, not allowed to look or feel much different from a print newspaper.
Network television viewing had similarly been eroding. On a typical night in 1976, 92 percent of all viewers were watching CBS, NBC, or ABC; today, those networks (along with Fox) attract about 46 percent of viewers. The networks responded to the decline by cutting costs, buying local TV stations and cable properties, producing and syndicating more of their own shows, and—like the movie studios—putting their faith in hits like NBC’s
Seinfeld,
to save them.
Seinfeld,
to save them.
The media buzzwords were
convergence
and
synergy.
The common credo was that the advantage accrued to vertically integrated corporate giants—to Viacom, AOL Time Warner, News Corporation, Disney, Gannett, Tribune—those able to control every step in the process from an idea to its manufacture to its distribution. The synergies would come not from partnering with other companies but from owning content and the means to distribute it. With that in mind, media companies pushed to blur the borders between traditional industries: broadcast networks acquired cable networks; telephone companies acquired cable distribution companies; cable system owners invested in content companies and telephone services; Hollywood studios bought broadcast networks along with music and game and book companies; newspapers bought local cable and radio.
convergence
and
synergy.
The common credo was that the advantage accrued to vertically integrated corporate giants—to Viacom, AOL Time Warner, News Corporation, Disney, Gannett, Tribune—those able to control every step in the process from an idea to its manufacture to its distribution. The synergies would come not from partnering with other companies but from owning content and the means to distribute it. With that in mind, media companies pushed to blur the borders between traditional industries: broadcast networks acquired cable networks; telephone companies acquired cable distribution companies; cable system owners invested in content companies and telephone services; Hollywood studios bought broadcast networks along with music and game and book companies; newspapers bought local cable and radio.
Advertising agencies were also convinced size equaled leverage, so they acquired one another, consolidated their media-buying services, and purchased public relations and direct mail and marketing firms, aware that marketing and public relations spending was double the money spent on traditional advertising. Four giant worldwide firms now insisted on being called marketing companies.
Meanwhile, music companies, rather than marketing singles as they once did, continued to push the sale of entire albums; as Napster and its clones delighted young fans by offering free digital downloads of their music, they refused to make a deal, choosing instead to prosecute not just Napster but its users—the music companies’ own customers.
For their part, movie executives continued to spend profligately and were distracted by piracy in China. Like music executives, they often blamed their flattening sales on the failure to come up with a hit like
Titanic
or on outside mischief. They believed content was King. Cable and telephone companies swallowed their smaller peers and vied to expand their broadband wires, convinced that he who controlled distribution was King. Book publishers merged while sales sputtered and bookstores closed, dwarfed by chains like Barnes & Noble. Publishers resisted electronic books, as a decade earlier they had resisted CD-ROMs.
Titanic
or on outside mischief. They believed content was King. Cable and telephone companies swallowed their smaller peers and vied to expand their broadband wires, convinced that he who controlled distribution was King. Book publishers merged while sales sputtered and bookstores closed, dwarfed by chains like Barnes & Noble. Publishers resisted electronic books, as a decade earlier they had resisted CD-ROMs.
Old media companies were trapped in the “the innovator’s dilemma,” what Clayton M. Christensen described in his book of that name, as well-managed companies that, confronted by new technologies or new business models, floundered by fiercely defending their existing business models and not changing fast enough. Christensen described how Xerox became defensive about its large, high-volume copying centers and missed the market for desktop photocopy machines, and how IBM was late to move from its lucrative large mainframe computer business and delayed entering the minicomputer business, and how Sears, Roebuck and Co. pioneered chain stores and catalogue sales but was eclipsed by discount retailing.
Old media faced excruciating choices. “Your choices suck,” Karmazin said. “Either you keep your head in the sand and say, ‘No, no, I’m only going to make my content available on my network.’ Or you listen to your employees, who say ‘Why don’t we go on the Internet?’ And then you go on the Internet and see yourself more fragmented and you see yourself not able to charge as much for your advertising because your audience is down.” The money generated by the Internet, and its promotional value, does not compensate for this loss. “There are no easy answers.”
Defensiveness mixed with fear fueled resistance to change. In a 1994 speech to the National Press Club in Washington, Viacom chairman Sumner Redstone proclaimed, “I will believe in the 500-channel world only when I see it....” The Web, he said, was just another “distribution technology,” more “a road to fantasyland” than a game changer. He envisioned that traditional media—movies, television, books, all content—would remain “King,” concluding: “To me it seems apparent that the Information Superhighway, at least to the extent that it is defined in extravagant and esoteric applications, is a long way coming if it comes at all.”
In 1995, Craig Newmark launched
craigslist.org
, a Web site where people could post apartments for rent, job openings, services for hire, products for sale, dating invitations. In retrospect, it seems clear that this posed a threat to newspaper classified sections, which produced about a third of their ad revenue. But newspapers usually saw craigslist as a quaint Web bulletin board. Vinod Khosla, a founder of Sun Microsystems and later a thriving Silicon Valley venture capitalist, once told
Vanity Fair
of a meeting he convened in 1996 with nine of the ten major American newspaper companies, including the New York Times, Washington Post, and Gannett. To save their classified business from the Internet, Khosla urged them to join New Century Network to sell advertising on the Web. His advice was rejected. “They couldn’t convince themselves that a Google, a Yahoo, or an eBay ... could ever replace classified advertising.” Newspaper classified advertising plummeted from nearly eighteen billion dollars in 2005 to about nine billion dollars in 2008.
craigslist.org
, a Web site where people could post apartments for rent, job openings, services for hire, products for sale, dating invitations. In retrospect, it seems clear that this posed a threat to newspaper classified sections, which produced about a third of their ad revenue. But newspapers usually saw craigslist as a quaint Web bulletin board. Vinod Khosla, a founder of Sun Microsystems and later a thriving Silicon Valley venture capitalist, once told
Vanity Fair
of a meeting he convened in 1996 with nine of the ten major American newspaper companies, including the New York Times, Washington Post, and Gannett. To save their classified business from the Internet, Khosla urged them to join New Century Network to sell advertising on the Web. His advice was rejected. “They couldn’t convince themselves that a Google, a Yahoo, or an eBay ... could ever replace classified advertising.” Newspaper classified advertising plummeted from nearly eighteen billion dollars in 2005 to about nine billion dollars in 2008.
Like Google’s founders, Newmark was an engineer who devised a really cool free service. Drowning newspapers was not Newmark’s intent; creating a more efficient system for consumers was, as it was Google’s. Newmark likens the digital revolution to “a tsunami, which when you’re in the ocean is only a foot high but when it hits shore it’s bigger.” Vastly bigger.
TRADITIONAL MEDIA COMPANIES did not see themselves as potentially superfluous middlemen. They fervently believed relationships mattered—with advertisers, with Hollywood talent, with writers. They believed in professional storytellers, not amateurs producing “user-generated” content. They tended to believe most digital devices were too complicated, too unfriendly to consumers. They clung to a conviction that people prefered to lean back rather than lean forward to be entertained, to relax on a couch rather than sit upright at a desk. They believed few of their customers would read a newspaper, magazine, or book online or on a handheld device. It was too hard on the eyes, screens were too small, desktop computers were not portable. They believed consumers would gravitate toward their bundled services, pleased to receive a single bill for a variety of offerings. They knew Google had bested many of the search firm pioneers—Excite, Alta Vista, Inktomi, Infoseek, GoTo, Lycos. But to most old media executives, Google was an exotic search service with puny text ads and a cute corporate motto.
They were wrong about how a new generation interacted with their electronic devices. And they were wrong about Google. Technology moved fast, and was no friend to entrenched media companies. Only a dozen years before Karmazin’s 2003 visit, there was no World Wide Web, no DVDs, no satellite TV, no mobile phones or PDAs, no Tivos or DVRs, no digital cameras, no iPods, no PlayStation or Wii games, no blogs. By May 2009, Nielsen reported that 230 million Americans had Internet access, 93 percent had high-speed access (broadband) and digital cable service, and 228 million used a mobile phone. Advertising dollars for newspapers, broadcast television, and radio were receding. In 2008, more Americans got their national and international news from the Internet than from any other medium save television, according to a national survey by the Pew Research Center. More choices meant a shrinking mass audience. The number one network television program in the 1988—1989 season was
The Cosby Show,
which was watched by 41 percent of all households owning television sets; twenty years later, the top show was
American Idol,
and it reached just one-fifth of those watching television.
The Cosby Show,
which was watched by 41 percent of all households owning television sets; twenty years later, the top show was
American Idol,
and it reached just one-fifth of those watching television.
Information and entertainment were rapidly democratizing, as technology empowered consumers not just to unearth any fact from a Google search but to copy and share it, to access a variety of opinions, to watch television on their own schedule, to program their own music, publish their own blogs, shop online, carry portable devices untethered to a wire, bypass the post office or the Yellow Pages, communicate instantly with an associate or a loved one. By April 2009, an estimated 1.6 billion people worldwide connected to the Internet, less than one-quarter of whom were located in North America.
While digital companies burgeoned, between 2000 and 2007 traditional media companies lost 167,600 jobs, or one out of every 6. Newspapers, which traditionally claimed nearly a quarter of the just under two hundred billion dollars spent on advertising in the United States, by 2007 were watching their share of ads plunge below 20 percent, and this number was projected to soon fall to 15 percent or lower. These shifts do not lead to the conclusion embraced by many in Silicon Valley that the digital age is the most liberating and meaningful period of technological change the world has yet experienced. Even if one were to discount fire, the wheel, Guten berg’s printing press, or the combustion engine, what about Mr. Edison? Without electricity, there would be no Internet, no computers, no wireless devices, no subways, not to mention no lightbulbs, no air-conditioning, no telephone, radio, or television. But what
does
set this era apart from others is velocity. It took telephones seventy-one years to penetrate 50 percent of American homes, electricity fifty-two years, and TV three decades. The Internet reached more than 50 percent of Americans in a mere decade; DVD penetration was faster, taking just seven years. Facebook built up a community of two hundred million users in just five years. Because the digital realm is made up of bits, it does not run out of supplies or have space constraints.
does
set this era apart from others is velocity. It took telephones seventy-one years to penetrate 50 percent of American homes, electricity fifty-two years, and TV three decades. The Internet reached more than 50 percent of Americans in a mere decade; DVD penetration was faster, taking just seven years. Facebook built up a community of two hundred million users in just five years. Because the digital realm is made up of bits, it does not run out of supplies or have space constraints.
Events were moving so rapidly that even the smartest people were guessing, and often guessing wrong. In the nineties, Rupert Murdoch, among others, was convinced his News Corporation could grow by acquiring more local TV stations; Bill Gates of Microsoft asserted that the Internet would kill television networks, which it didn’t; Time Warner mistakenly bet that television, not the Internet, would be the preferred interactive medium; telephone companies rushed to acquire cable companies, only later to sell them; investors clamored to bet on companies that later faded, such as Excite, Netscape, Wang Laboratories, Commodore, Lycos. Israeli entrepreneur Yossi Vardi, whose company was behind the invention of instant messaging, compiled a chart of thirty-four technology stocks that were ranked as premier growth stocks in 1980. By 1999, only one, Intel, was a consistent growth company, while twenty-three had drowned and the others were treading water.
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