Authors: Ken Auletta
Tags: #Industries, #Computer Industry, #Business & Economics
Googled (41 page)
Alternatively, if the public is truly less concerned with privacy questions and more interested in trading data for, say, a subsidized service, or is more interested in the trivial, as the late scholar Neil Postman believed, then privacy will be the least of our issues. A former student of Marshall McLuhan‘s, Postman taught at NYU for more than four decades and authored a variety of important books, the best-known of which was
Amusing Ourselves to Death.
In that book he argued that the real threat was not the one described in 1984 but one contained in an earlier book, Aldous Huxley’s
Brave New World.
Amusing Ourselves to Death.
In that book he argued that the real threat was not the one described in 1984 but one contained in an earlier book, Aldous Huxley’s
Brave New World.
Contrary to common belief even among the educated, Huxley and Orwell did not prophesy the same thing. Orwell warns that we will be overcome by an externally imposed oppression. But in Huxley’s vision, no Big Brother is required to deprive people of their autonomy, maturity and history. As he saw it, people will come to love their oppression, to adore the technologies that undo their capacities to think.... Orwell feared those who would deprive us of information. Huxley feared those who would give us so much that we would be reduced to passivity and egoism.
This much is certain: neither concerns over privacy nor the issues raised by Postman have slowed the ascendance of smart phones. The attraction is undeniable. They are portable and perform varied functions, including playing movies, music, and games. They enable employees to work from more than one location. They can function just as a desktop or laptop does. They can serve as a key to unlock a car or as an ID at an airport or bank, or become a universal remote for a TV Third World countries that cannot afford a fiber infrastructure can build a low-cost wireless infrastructure that connects classrooms to libraries, individuals or health care facilities to medical expertise.
The question, of course, is how to monetize not just the hardware but also the services and applications. That’s where advertising comes in. Smart phones provide advertisers with precision targeting, reaching individuals they know are ready to purchase a car and are close to an auto dealer. Irwin Gotlieb, whose demeanor is normally subdued and steady, could barely contain his excitement as he sat in his office in the Garment District and described the Brave New World he envisioned. “It’s a totally different kind of advertising,” he said. “You’re in Tokyo. It’s noon. The population density is scary. You have forty-five minutes for lunch, and you go rushing out of your building and already there’s limited restaurant space. So you flip your phone open and up come six restaurants that have seating availability in the next ten minutes. You click on the restaurant you want to go to, telling them you need three seats, and the table is held for you. Is that advertising? Not the way you and I think of a thirty-second spot. But you better believe that restaurant is paying for it. Or it’s going to be built into the bill.”
He took a sip from his second cup of tea. “Let’s take another example,” he continued. “I’m standing on Fifth Avenue and I point my phone at a building and on my screen up comes the directory for that building, all the businesses in the building. Some of them are retailers. If I click on a retailer, I may get promotional offers. That’s an ad? There are revenue opportunities there. It’s a service.” He paused again, this time to talk about the power of the tiny handheld device: “The average phone today has more computing capacity, and more storage capacity, than the average set-top box does. They are powerful computers.”
The consumer has the power to make choices, but Irwin Gotlieb envisions that he will help steer the consumer to those choices and cash in on them. And if Gotlieb were to deliver the services, Google and Verizon would be excited by the prospect of serving as his facilitator. And maybe one day taking over the delivery of those services themselves.
THERE WAS, HOWEVER, a more pressing concern for the media: the colossal economic recession that struck in the second half of 2008. With advertising and other revenues plummeting, traditional media businesses accelerated their cost cutting. With less revenue and sinking market values, debt obligations became ticking bombs. For the Tribune Company and other newspapers, that bomb exploded. Faced with end-of-year debt obligations, Sumner Redstone was compelled to frantically sell Viacom and CBS shares and to propose the sale of National Amusements, his movie theater chain. He has since vowed not to cede control of his media empire, and renegotiated one of his debt obligations, but by the summer of 2009 it was still not certain he would eventually succeed. The recession pinned down most traditional media companies, hampering their ability to write the next chapter. Their core businesses were declining. It was tough for them to sell assets. They lacked resources to acquire new media ventures, and debt obligations loomed.
The gloom extended to Silicon Valley; at the November 2008 Web 2.0 Summit in San Francisco, there was clearly a dark cloud overhead. Welcoming the thousand attendees, the popular Tim O‘Reilly, whose O’Reilly Media cosponsors this annual event, appealed to the evangelical heart that beats in the Valley. Borrowing a campaign slogan from Barack Obama, he began his presentation by chanting, “Yes we can! Yes we can!” He paused, then continued, “It’s true in the campaign! And it’s true in Silicon Valley!” But even this enthusiasm couldn’t appreciably lighten the mood. O‘Reilly conceded that “these are tough times.” A number of other speakers agreed, including John Doerr. In his radio announcer’s voice, Doerr bellowed that venture capital funding would fall from thirty-seven billion dollars in 2007 to ten billion or even as little as five billion in 2009. “Google is not going to buy these Internet start-ups now,” he said, and no one else would either. He advised the executives in the hall to make cuts, to make sure they have eighteen months of cash on hand (and the rest in Treasury bills), to renegotiate contracts, and to be honest with employees but “keep up their hope.”
There were some at this conference, like Mary Meeker, whose optimism about the Web was unwavering. Although Meeker gave an unremittingly bleak analysis of the American economy at large, she offered a euphoric analysis of the tech world’s “opportunities,” expressing her faith that YouTube would be able to make the abundant ad sales that had so far eluded them.
To Doerr and others in the Valley, Meeker’s optimism seemed at odds with the facts on the ground. Layoffs spread even here, fueling talk of another dot-com bust. Intel and Cisco would report that their sales were heading south. Nokia predicted that global mobile phone sales would fall 10 precent in 2009, reversing a long trend. With PC sales slumping, Microsoft would cut five thousand jobs, 5 percent of its work force. Twitter, which attracts users but not yet profits, pared employees and installed a new CEO. Sequoia Capital, the venture capital firm that backed Google and Yahoo, convened a fall meeting of the Valley companies it was supporting and began its presentation with a slide that read, “RIP good times.” Unless the start-ups had a pool of venture capital and other monies, as Facebook, Linkedin, and Twitter did, investors had become less enamored of the Google mantra: The rise of Google had contributed to another article of faith in the Valley: Information wants to be free, and advertising would pay for it. The recession would, slowly, teach that the new media had fallen into an old trap of relying on a single source of revenue, advertising.
Where once optimism had ruled, rancor and incivility began to rear their ugly heads. Michael Arrington, the editor of
TechCrunch.com
, an influential arbiter of technology, began to feel firsthand the desperation of tech employees or investors who felt their companies had been victimized by bad press. He wrote a blog in January 2009 about an encounter he had had in Munich. As he was leaving a conference, a stranger “walked up to me and quite deliberately spat in my face.” He did not know why. All he knew was that the environment had become rancid: “I can’t say my job is much fun anymore. Start-ups that don’t get the coverage they want, and competing journalists and bloggers tend to accuse us of the most ridiculous things.... On any given day, when I care to look, dozens of highly negative comments are made about me, TechCrunch, or one of our employees in our comments, on Twitter, or on blogs or other sites. Some of these are appropriately critical comments on things we can be doing better. But the majority of comments are among the more horrible things I can imagine a human being to say.”
TechCrunch.com
, an influential arbiter of technology, began to feel firsthand the desperation of tech employees or investors who felt their companies had been victimized by bad press. He wrote a blog in January 2009 about an encounter he had had in Munich. As he was leaving a conference, a stranger “walked up to me and quite deliberately spat in my face.” He did not know why. All he knew was that the environment had become rancid: “I can’t say my job is much fun anymore. Start-ups that don’t get the coverage they want, and competing journalists and bloggers tend to accuse us of the most ridiculous things.... On any given day, when I care to look, dozens of highly negative comments are made about me, TechCrunch, or one of our employees in our comments, on Twitter, or on blogs or other sites. Some of these are appropriately critical comments on things we can be doing better. But the majority of comments are among the more horrible things I can imagine a human being to say.”
Worse, he told of how “an off-balance individual threatened to kill me and my family” Because the individual had a felony record and carried a gun, Arrington hired a personal security team at a daily cost of two thousand dollars. He hid out at his parents’ house. “I write about technology start-ups and news,” Arrington wrote. “In any sane world that shouldn’t make me someone who has to deal with death threats and being spat on. It shouldn’t require me to absorb more verbal abuse than a human being can realistically deal with.” To “get a better perspective on what I’m spending my life doing,” Arrington said he would take a month off.
GOOGLE WAS NOT IMMUNE to the downturn. Signs of the downturn were apparent on Google search. During the fall,
travel
was no longer among the most popular search words or phrases, but
home safes
was; by early 2009, searches for
bankruptcy
had jumped 52 percent. The “most significant thing that happened at Google” in the past six months, Bill Campbell said in November 2008, “was the realization that there was a flattening of the business.” This realization, he said, was driven by Schmidt, who began reviewing “expenses relative to revenue every Monday.” Another senior executive at Google credited not Schmidt but the new senior vice president and chief financial officer, Patrick Pichette, “for forcing, for the first time, the company to focus on priorities” and to “allocate capital based on whether there are returns.” The founders’ push to expand into a multitude of businesses was, for the first time, subjected to a budget analysis and scaled back, this executive said. “While Google’s success is hard to dispute, I don’t think they are a particularly well-managed company,” Mary Meeker said. “Part of the problem was that Larry and Sergey didn’t need to care about the numbers because growth was so steady and the company’s competitive position was so strong they didn’t feel they had to. The downturn in the economy gave the new CFO help in imposing some cost discipline.”
travel
was no longer among the most popular search words or phrases, but
home safes
was; by early 2009, searches for
bankruptcy
had jumped 52 percent. The “most significant thing that happened at Google” in the past six months, Bill Campbell said in November 2008, “was the realization that there was a flattening of the business.” This realization, he said, was driven by Schmidt, who began reviewing “expenses relative to revenue every Monday.” Another senior executive at Google credited not Schmidt but the new senior vice president and chief financial officer, Patrick Pichette, “for forcing, for the first time, the company to focus on priorities” and to “allocate capital based on whether there are returns.” The founders’ push to expand into a multitude of businesses was, for the first time, subjected to a budget analysis and scaled back, this executive said. “While Google’s success is hard to dispute, I don’t think they are a particularly well-managed company,” Mary Meeker said. “Part of the problem was that Larry and Sergey didn’t need to care about the numbers because growth was so steady and the company’s competitive position was so strong they didn’t feel they had to. The downturn in the economy gave the new CFO help in imposing some cost discipline.”
Pichette had come over from Canada’s foremost telephone company, Bell Canada, where he was credited with slashing two billion dollars from its operating costs. A thin man of modest height, he comes to work lugging a backpack and wearing jeans, a button-down shirt with sleeves rolled up, and a ready smile. Told that he has come to Google at a bad time, he quickly disagrees. “You can argue that I came at a good time,” he said. “When everything runs well and works perfectly, at least according to financial results, you don’t take the time to ask tougher questions because you don’t have to. When you’re growing so fast that you’re running out of desks, if you talked to people about waste and inefficiencies they wouldn’t have listened to you. It would have been the wrong question to ask at that time.”
In a March 2009 Morgan Stanley conference interview with Mary Meeker, Eric Schmidt said, “Patrick is particularly good at business reviews, so we’ve been going through systematically business after business. In our hypergrowth period, we did not have the necessary systems in place...” Pichette was well rewarded; he received a bonus for 2008 of $1.2 million, though he had only worked six months; it was the highest bonus granted by Google. (Schmidt and the founders, as is their custom, take no bonus.) For the first time, Google was contracting. It slowed its hiring, adding only 99 employees in the fourth quarter of 2008, fewer than it added in a week at the start of the year, bringing its employment total at the end of 2008 to 20,222. It laid off some of its 10,000 outside contract workers, sliced 300 jobs at DoubleClick, reduced by one-quarter its 400 job recruiters, and scaled back some of its engineering teams. Taking a closer look at management, Google decided that management was not Dr. Larry Brilliant’s forte, and gave him a new title as chief philanthropic evangelist, replacing him with Megan Smith, who would retain her position as vice president for new business development. It delayed the opening of its Oklahoma data center by eighteen months, and closed its office outside Phoenix, which had two dozen full-time employees. After Pichette discovered that in some cafeterias—most buildings have one—a third of the food was thrown out at the end of each day, cafeteria hours were reduced and menus pared. Google also curbed some free services and, according to a longtime executive, engaged in a “hot debate” over whether to continue to offer water in plastic bottles or switch to less expensive filtered tap water. (By 2009, Google was serving filtered water out of plastic cups, which were soon to be replaced by reusable and renewable cups.)
Google also eliminated a few sites, including Lively, its virtual world, and began to welcome ads on such formerly ad-free sites as Google Finance and Google News. Although Tim Armstrong boasted in September that Google Print Ads had “70 percent of newspapers in the U.S. as clients,” the program had been encountering resistance from newspapers reluctant to cede control of big clients or sales staffs; as a result, it wound up selling mostly remnant ads, and often for below-market rates. Just months after Armstrong’s announcement, the program was terminated. In its day-care program, Google jacked up both the level of services and the cost—from $1,425 per month to $2,500, reported Joe Nocera of the New York
Times.
This elite offering—and its elitist price—seemed at variance with Google’s egalitarian ideals, and many employees were irate.
Times.
This elite offering—and its elitist price—seemed at variance with Google’s egalitarian ideals, and many employees were irate.
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