Authors: Ken Auletta
Tags: #Industries, #Computer Industry, #Business & Economics
Googled (44 page)
Over the years, it has not been unusual to hear Silicon Valley companies sound like social service agencies. In 1995, the newly founded Yahoo declared, “We believe the Internet can positively transform lives, societies and economies.” Craig Newmark, the founder of craigslist, extols “nerd values,” by which he means that he is intent on keeping his listings free for most of his users and refuses to enrich himself by selling his company or taking a large salary. Social idealism has been a core value in the culture of the Internet, from the insistence of Tim Berners-Lee, who believed that the Web should be open and that he would not patent it or enrich himself; to the open-source movement; to Wikipedia, which follows a democratic faith in “the wisdom of crowds” and has adopted a nonprofit model.
Before one dismisses these approaches as the gauzy thinking of left-wing populists, consider how often traditional companies now promote their own “corporate social responsibility”—in part to ecumenically emulate Andrew Carnegie, in part to bathe in the favorable publicity, in part to profit from some of these endeavors, and in part as a reaction against almost daily ethical business lapses. Companies like the Gap and Hallmark donate a portion of their profits to fight AIDS; Starbucks gave comprehensive health care to its employees, including part-timers. General Electric devised what it called an ecomagination strategy to address climate change and reap profits from it. WPP started issuing a Corporate Responsibility Report in 2002, and has promised to reduce its carbon footprint by 20 percent. One of America’s most powerful marketers, Jim Stengel, in late 2008 left his job as global marketing chief for Procter & Gamble to fund a private consulting venture to advise companies how to build trust in brands. His task, he said, is to create “emotional equity,” by which he means that consumers will believe the company cares not just about their dollars but about them. This is what P&G did with Pampers, consulting parents and designing diapers that felt more like cloth and kept babies warmer. And the Harvard Business School, in 2009, introduced a voluntary oath, which 20 percent of the graduating class signed, pledging to “serve the greater good” and avoid advancing “narrow ambitions.”
True, do-goodism is often a marketing ploy. True, the idealism one encounters at Google can be tempered by its business realism, as when Google placated the government of China, or denied that it wanted to snare a chunk of the income of media buyers like Irwin Gotlieb. It is also true that waves can inflict real damage. Google creates jobs, and it also destroys them. This poses life-and-death questions for traditional companies.
I asked Tom Glocer, CEO of Thomson Reuters, “Does Google help or hurt Reuters?” For a moment it seemed that Glocer was not going to answer. “My pause,” he said finally, “is the pause of a time frame. To date, they’ve been neutral to positive.” In the short run, Google has served as a spur, compelling traditional companies to “raise the level of our game,” just as Wall Street brokers had to improve their services and information to compete against online services like E-Trade or information sources like Yahoo Finance or CNBC. In the long run, he continued, “What everyone’s waiting to see is whether ‘Do no evil’ is true to the credo, their real inner core, or is it just a convenient sort of ’Don’t worry, Don’t worry‘—until they’ve built up such an amazing personal database about all of our habits and they then go to the
New York Times
and say, ’By the way, if you want the search engine to include your content, you’re going to have to start paying us.‘ ... They’ve created with software a narrow strait through which most people need to pass to do an activity that is at the root of much of what we do on the Web.... The fear is that an increasing number of businesses depend on Google to get their eyeballs. At a certain point, Google can flip their business from being a utility” to a gatekeeper that charges for access.
New York Times
and say, ’By the way, if you want the search engine to include your content, you’re going to have to start paying us.‘ ... They’ve created with software a narrow strait through which most people need to pass to do an activity that is at the root of much of what we do on the Web.... The fear is that an increasing number of businesses depend on Google to get their eyeballs. At a certain point, Google can flip their business from being a utility” to a gatekeeper that charges for access.
This power imposes constant pressure on other companies. “You can’t wait for the wave to get there. You’ve got to start paddling,” said Peter Thiel, who was cofounder and CEO of PayPal, and is now president of Clarium Capital Management, a global hedge fund and Silicon Valley venture capital firm. “If you were running a railroad company in the 1940s and people started to fly airplanes, what would you do?” I asked Thiel what he would do if placed in charge of a traditional media company. He said there were two choices. Either you push consolidation and cost cutting much further than media companies have done. Or you “do something radically transformative.” On paper, the radical solution is more appealing. One question is how to adopt a radical solution, such as for newspaper companies publishing only a free Web edition, without destroying what you’re trying to save. One impediment is that in the digital age the transformation often depends on engineers, and media and engineering, as we’ve seen, are from different planets. “This is not a problem specific to media,” Thiel said. “When we started PayPal in 1998-99, we asked, ‘Why can’t the banks do this?’ They did try to copy us, but you needed engineers and the large financial institutions were not able to build it. The caliber of our engineers was significantly higher. Nothing against these companies, but if you’re a talented engineer, why would you go to work at CitiGroup? Why would you go to work at a place where your contribution is not seen as central to the success of the organization? If you’re a politician, you want to be in D.C. If you’re a finance person, you want to be in New York. If you’re an aspiring actor, you want to be in Los Angeles. If you’re an engineer, you want to be in Silicon Valley”
Most traditional media companies, including those that have a reasonably good relationship with Google, are worried that they will be Googled. But there is a larger context for their insecurity They are anxious about technological innovations that can quickly disrupt their businesses; about maneuvering in a world where corporate partners are also competitors; about how rapidly their businesses can change; about not being embarrassed by the omnipresent bloggosphere. Not long after he relinquished his CEO job at Disney, Michael Eisner flew JetBlue from Burbank to New York. “When I landed, I opened my BlackBerry and there was my picture on JetBlue. On JetBlue! In a blog saying, ‘Has something happened to Michael Eisner that he can’t afford a private airline or a big-time airline?’” He laughed about the incident, but used it to illustrate how cell phone cameras and bloggers transform private actions into public acts. The stage has widened.
The Internet and its Google surrogate impose pressure on companies to simultaneously play both offense and defense. Jeff Zucker, CEO of NBC Universal, explained that to be a CEO in the digital age “feels incredibly exciting, and incredibly scary.” He is aware of how quickly businesses can collapse, as did Wang and Gateway and Compaq computer, and of the ups and downs of companies like Motorola or Sun or Yahoo. He is wary of too quickly embracing a fad, as CBS seems to have done when it invested in Joost, a free Web site offering licensed full-length TV programming. After winning coveted innovation awards—and the commensurate buzz—when it was introduced in 2007, today Joost stumbles and in mid-2009 exited the consumer video market. Zucker is aware of the danger of throwing overboard the wrong business, as the company that once owned the NBC network, RCA, did when it decided at the start of the seventies to abandon consumer electronics. Convinced that no new breakthroughs were possible in consumer electronic products, RCA stood still while Apple and Microsoft and Sony surged. “What we all worry about,” said Zucker, “is destroying value as we innovate. And not letting that paralyze you is really the pressure that I personally feel. The scariness is not that I’m going to miss an opportunity, but that the business model will be destroyed as we’re innovating.” The “Innovator’s Dilemma.”
Every media company is speculating on where the digital wave is heading and how to ride it. This much is clear about Google: the company has a big appetite. After I watched the 1,500-strong Google sales force gather at the Hilton in downtown San Francisco, I met Eric Schmidt in a hotel conference room. Pressed to describe Google’s growth strategy, he was jaw droppingly candid. “All large media companies are both distribution and content companies,” he said, and “we really are competing with the distribution” side of these companies. Google wants to be the agent that sells the ads on all distribution platforms, whether it is print, television, radio, or the Internet. To advertisers, he said, “We say, use us.” In addition, he said, “As our technology gets better, we will be able to replace some of their [large companies‘] internal captive sales forces. They are not doing that much work; they are not automated. So the eventual goal is, again, to replace some of these sales functions by automation.”
So Google will disintermediate the functions of these traditional media companies? Schmidt disputed the word, but not the effect: “Disinterme diation is not the correct word to use. It’s better sales technology.”
He thought mobile phones would probably be “a smaller target for us” because to get on those platforms Google would have to pay large fees and cede control to telephone companies. Perhaps the biggest future opportunity for Google, he said, was YouTube. “If that works,” he said of YouTube’s effort to sell advertising and, he admitted, to become a content company, “then that’s the creation of the equivalent of the CBS network in the 1950s. It’s the creation of both content and a monetization mechanism.”
Sergey Brin told me that it is Google’s willingness “to experiment,” to “take risks” and “innovate”—to do the bold things Schmidt described—that will continue to set Google apart. However, companies with large appetites can get fat. Marc Andreessen believes Google aims “to do everything,” but is dubious that they can succeed. Andreessen also believes that in the digital age, technology alters the competitive battlefield, just as it did in World War II. Germany in 1940, as New York University professor Clay Shirky points out in his provocative book Here
Cornes
Everybody, was not the invincible power “etched in communal memory” Germany teetered near bankruptcy; its army was smaller and its tanks were inferior to France’s. So why did the German blitzkrieg succeed? Because its tanks were equipped with a technology the French tanks lacked: radios. These radios allowed Panzer commanders to share intelligence and make quick decisions, leaving French commanders standing still and guessing while German tanks moved in concert. Even if the French had radios, Shirky writes, the Germans held another advantage: “The French regarded tanks as a mobile platform for accompanying foot soldiers. The Germans, on the other hand, understood that the tank allowed for a new kind of fighting, a rapid style of attack....” The technology advantaged Germany, but so did a superior strategy that allowed Germany to prevail.
Cornes
Everybody, was not the invincible power “etched in communal memory” Germany teetered near bankruptcy; its army was smaller and its tanks were inferior to France’s. So why did the German blitzkrieg succeed? Because its tanks were equipped with a technology the French tanks lacked: radios. These radios allowed Panzer commanders to share intelligence and make quick decisions, leaving French commanders standing still and guessing while German tanks moved in concert. Even if the French had radios, Shirky writes, the Germans held another advantage: “The French regarded tanks as a mobile platform for accompanying foot soldiers. The Germans, on the other hand, understood that the tank allowed for a new kind of fighting, a rapid style of attack....” The technology advantaged Germany, but so did a superior strategy that allowed Germany to prevail.
CHAPTER SIXTEEN
Where Is the Wave Taking Old Media?
O
ne morning in 2007, Joe Schoendorf was breakfasting at II Fornaio, the Palo Alto restaurant that serves as a Valley canteen. A burly, avuncular man with a prominent mustache, Schoendorf is a principal at the venture capital firm of Accel Partners, a primary backer of Facebook. In his more than forty years in Silicon Valley, Schoendorf has seen companies come and go, but he’s still humbled by the eye-blink speed of change. “If we were having breakfast in 1989, there was no Internet,” he said. “IBM was number one in the computer business. DEC and Ken Olsen were on the cover of
BusinessWeek
and the cover line was, ‘Can They Overtake IBM?’ If I said to you that DEC would go out of business, you’d think I was crazy.” Today, young associates tell him, “Old media is dead. Television and radio will become dinosaurs. Google is impregnable.” Schoendorf’s experience teaches him to be more cautious. He has witnessed the quick rise and fall of Lycos, Netscape, Excite. He has seen AOL go from Internet darling to a company few would buy. He respects Google’s prowess, but is wary of sweeping prognostications.
ne morning in 2007, Joe Schoendorf was breakfasting at II Fornaio, the Palo Alto restaurant that serves as a Valley canteen. A burly, avuncular man with a prominent mustache, Schoendorf is a principal at the venture capital firm of Accel Partners, a primary backer of Facebook. In his more than forty years in Silicon Valley, Schoendorf has seen companies come and go, but he’s still humbled by the eye-blink speed of change. “If we were having breakfast in 1989, there was no Internet,” he said. “IBM was number one in the computer business. DEC and Ken Olsen were on the cover of
BusinessWeek
and the cover line was, ‘Can They Overtake IBM?’ If I said to you that DEC would go out of business, you’d think I was crazy.” Today, young associates tell him, “Old media is dead. Television and radio will become dinosaurs. Google is impregnable.” Schoendorf’s experience teaches him to be more cautious. He has witnessed the quick rise and fall of Lycos, Netscape, Excite. He has seen AOL go from Internet darling to a company few would buy. He respects Google’s prowess, but is wary of sweeping prognostications.
Robert Iger, the CEO of Disney, is equally humbled. When he was at ABC, he said, “I put
America’s Home Videos
on the schedule. It was user-generated content. How come I didn’t envision YouTube?” In fairness to Iger, one could also ask: How come the New York Times or CBS didn’t invent CNN? How come
Sports Illustrated
didn’t start ESPN? How come AOL, which launched Instant Messenger, didn’t develop Facebook? How come IBM ceded software to Microsoft? No one knows with any certainty where the wave is headed. “Sometimes you have to guess,” said Bill Campbell, who recalled his experience at Intuit. “What you do—as happened at Intuit in 1998—is you say, ‘Let’s get five things and see what works.’ If two work, you have a home run. If three work, you double the stock.”
America’s Home Videos
on the schedule. It was user-generated content. How come I didn’t envision YouTube?” In fairness to Iger, one could also ask: How come the New York Times or CBS didn’t invent CNN? How come
Sports Illustrated
didn’t start ESPN? How come AOL, which launched Instant Messenger, didn’t develop Facebook? How come IBM ceded software to Microsoft? No one knows with any certainty where the wave is headed. “Sometimes you have to guess,” said Bill Campbell, who recalled his experience at Intuit. “What you do—as happened at Intuit in 1998—is you say, ‘Let’s get five things and see what works.’ If two work, you have a home run. If three work, you double the stock.”
Was Barry Diller right when he said, “The world is moving towards direct selling—no middleman, no store”? Or is this the wishful thinking of an executive whose online enterprise would benefit if his prediction proved true? Or could one say that Google is itself a middleman because it brings together users and information, Web sites and advertisers? Was Irwin Gotlieb correct that consumers “will happily go along” with trading private information to advertisers in exchange for some free services or reduced charges? Will advertising succeed on social networks and YouTube? Will consumers opt to spend less on software by ceding storage (and control) of their data to Google’s cloud? Will younger generations raised in digital homes read books, and at what length? Is the Internet safe or is it vulnerable to hackers and viruses? Will the deep recession that commenced in 2008 prompt the Obama administration to become more of a digital cop, imposing new regulations, investing in broadband, strengthening or diluting antitrust oversight? And will this choke innovation, or enhance it?
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