/ 22 January 2011

Google shuffle: Why Eric Schmidt had to be pushed

Eric Schmidt’s departure after nearly 10 years as chief executive of Google, to be replaced by the intense Larry Page (after whom Google’s PageRank algorithm, the system for determining where web pages should rank in search results, is named), has been quite a while coming.

“Day-to-day adult supervision no longer needed!” Schmidt tweeted as the announcement was made on Thursday evening. But the truth is that Google needs much more adult supervision as it enters its second decade as an organisation. Like so many before it, the company is hitting the barriers to growth: how to stay as nimble as when it was younger given that it is now much, much larger.

The move has clearly been planned for some time; in a blog post, Schmidt admitted the move had been planned “over the [Christmas] holidays”. Of course the trio — Schmidt, Page and his co-founder Sergey Brin — had figured out that if Schmidt had simply announced it on January 2, all hell would have broken loose: the stock would have tanked, and everyone would have picked the financial results announced on Thursday night apart like vultures on a carcass.

Instead, everyone noted the top-line numbers (which are good — revenue $8,44-billion, up 26% on a year ago, and net income of $2,54-billion, up 28,7%), agreed they were good, and started obsessing over how it would happen and listening to Schmidt’s jolly words complimenting his younger colleagues.

It resembled the easy ride that Apple, which timed its announcement of Steve Jobs’s open-ended medical leave for a time when markets would be closed, and brought forward its financial results to the day after. Not a single analyst asked Apple what Jobs’s absence might mean.

This time, analysts simply accepted that Schmidt’s explanation that the move followed “a long series of conversations” and moved on.

Though it’s not obvious, Google’s problem has been in focus and execution of strategy. Despite having something like a 90% search share in most markets, its fabled search algorithms are being exploited by spammers; despite the huge growth in sales of smartphones using its Android operating software, it hasn’t been able to persuade cellphone networks or handset makers to give customers the best deals by automatically upgrading their software; and more dangerously it faces an antitrust investigation in Europe over whether it cross-promotes its own services in its search results.

The first two are problematic, but the third could be murderous to company culture, as Microsoft discovered after it was found guilty in the US (and later in Europe) of antitrust violations.

While Wall Street analysts purred at the numbers, the (amateur) analysts were a lot tougher on Twitter. The reason why Schmidt had to go? (Because you can bet he didn’t really want to go. It’s a cool gig being the chief exec.) Google’s organisation was starting to get too big to make things happen, sources suggested.

“Google’s core search is troubled, and [Wall Street] seals prattle about how lovely it is that BrinPage have matured into execs,” said Paul Kedrosky, an investor and (amateur) analyst acidly. “In case anyone pays attention to such things, [JP Morgan] saying all [Google’s] numbers tonight ahead of expectations, except margins, which missed,” he added. “Not to be all self-serving, but I read Google’s mgmt shakeup as a confession that the co is a decision-making mess losing its way in search,” he said, adding: “Ask employees. Any engineer with initiative has been going mad at processes and vacillation.”

Why would that mean Schmidt should go? Because the arrangement in which he was chief executive and Page and Brin, the co-founders, had an equal role eventually has led to drift.

Google needs someone who will speak, singularly, for the company. At the other two of “big three” technology companies around at the moment — Microsoft, Apple, Google — the co-founders (Paul Allen, Steve Wozniak) faded into the background as the ones better suited to leading the company took over.

Little failures
Ignoring search and Android — its two giant (but flawed) successes — one can see myriads of little failures. Google hasn’t gotten into social networking or social search that Facebook has conquered; instead, in trying to create a Twitter clone, it had its embarrassing debacle of Google Buzz, which led to a class action settlement when users sued over being enrolled automatically. Then there has been Google Wave, a product so revolutionary that nobody could quite enunciate what it was for, including Google. There has been the accidental collection of personal data via Wi-Fi while generating its Street View product, leading to a privacy investigation that has rumbled on and on.

None of those failures could be laid directly at Schmidt’s door, but each one is a failure of corporate culture — and that is down to Schmidt.

Google needs to become a tight ship where products are not pushed out of the door without really careful examination of their value both to the company and to customers. I spoke last week to someone who has worked for all of Microsoft, Apple and Google (though presently working for none of them), who noted that unlike the other two companies, in Google the attitude is that “it’s software on the web. If you get it wrong, then you just roll it back to how it was before.”

Such a laissez-faire attitude won’t work once you get bigger, as the Buzz example shows.

Urgent tasks
Page now has a couple of urgent tasks. Search needs attention (and has received it since criticisms grew louder over Christmas). Android needs a strong negotiator on Google’s side who will insist that handset makers and cellphone networks do not hold up software updates to customers — many of whom are frustrated at not getting the latest versions of Android on phones which can run it.

Compare the iPhone, where statistics show about 90% of users are on the latest version of its operating system, and Android, where about 58% are on the widely used 2,2 version (and developers complain that “fragmentation”, where different versions proliferate, is putting them off developing for it.)

By contrast, Microsoft has indicated that it will push through software updates for its new Windows Phone 7 handset.

Page now has a tough task of slowing and reversing a tendency for Google’s teams to act too independently, and create coherent products that fit with the rest of its strategy. On Thursday night it emerged that Google is going to develop its own clone of Groupon, the wildly successful discount voucher company that Google tried to buy last year; called Google Offers, its launch date is unclear but the company is trying to recruit local companies that will take part.

It could be a huge success. But it will need all of Google’s considerable heft to make it work well. Groupon’s success is down to its focus on its task. Google has grown so big it is missing some of that. Page and Brin can make it happen. But it’s not going to be easy. – guardian.co.uk