The Final Days of Google
Back
in the 1990s Bill Gates said the company that would eventually beat
Microsoft probably had yet to be founded, by which he meant that
Microsoft was in such a strong position that only something truly
disruptive -- a whole new business -- would have a chance to unseat
Redmond. Some people think the company Bill was describing back then
might be Google. I don't know if that's the case or not, but it leads
me to ask this question: If Google, itself, is to be eventually beaten
by some other company, does THAT company yet exist? I don't think so.
But unlike the scenario envisioned by Gates, I have a pretty good idea
where we'll find the founders of that Google-beating start-up. I think
they are working right now at Google.
Google is an amazing entrepreneurial petri dish. Yet at the same
time, it is doomed to disappoint nearly every entrepreneurial type who
works there. This is key: Google is sowing the seeds of its own
eventual destruction. It can't help doing so.
For those who don't know these details or have forgotten them,
here's the simple background: Google has made a huge effort to hire the
best technical people it can find. Thousands of PhDs are now working in
various Google labs, and many of these people were hired from other
successful businesses. Google has also acquired a number of smaller
companies, many of them for either their technology or their technical
talent, and these companies bring yet more entrepreneurial DNA into the
mix. The company has created a potent combination of
straight-from-university geniuses, straight-from-start-up geniuses, and
straight-from-Microsoft/IBM/Yahoo/wherever geniuses. These bright folks
work individually and in teams and 20 percent of their time is supposed
to be devoted to pursuing new technical ideas of their own. Google
founders Sergey Brin and Larry Page are sure (and for good reason) that
their crew will generate in this 20 percent time thousands of ideas and
technologies that the company can commercialize for decades to come.
It is a brilliant strategy and one that would appear to be almost
foolproof. Alas, that's not so, for Google's strategy for business
immortality is fatally flawed and will ultimately kill the company.
The flaw is simple and is composed of three parts. First there are
those thousands of ideas and technologies that are being developed by
Google employees in the 20 percent of their week devoted specifically
for that purpose. That number of new ideas is far too high to be
practical and too high even to be considered safe.
Say the Google Geniuses come up with 4,000 business ideas or
technologies per year, which is probably around the current number.
Let's guess that one percent of these ideas are truly great -- boffo
ideas that one could easily build a company around. That's 40
world-beating ideas. And after the 40 absolutely top ideas, let's say
there are another 360 ideas that are pretty darned good -- certainly
good enough to pitch to the venture capitalists on Sand Hill Road. The
remaining 3,600 ideas are, of course, crap, and can be forgotten by
everyone except their inventors, whom I'll get back to in a minute.
Assuming Google executives have the insight to know which of their
4,000 proffered ideas are world-class, they then have to decide which
40 to pursue. Such an assumption is giving even Google too much credit,
believe me. No matter how smart they are, issues of loyalty, prejudice,
and the odd hangover will result in some less-good ideas making it
through but mainly great ideas being eliminated. But this doesn't
really matter because the larger question is: How many good ideas can
Google pursue vigorously per year? The number isn't 40. It isn't even
20. The number of ideas that a company the size of Google can throw all
its weight behind per year is about 10, of which five will probably not
be the right ones.
Google is no different from any other big tech company in this
respect. Go to ANY Google competitor and ask top management how many
$100 million new ideas can they afford to pursue this year, not so much
in terms of money but in terms of mindshare and human resources. The
number will always be in single digits. Allowing 10 projects for Google
is giving the company the benefit of the doubt.
Google quite properly will pursue 10 projects per year and five of
those will fail both because they are expected to and also because they
were never worth pursuing in the first place. This leaves 390 orphaned
projects of which 35 are absolutely stunning but unrecognized and 355
are pretty darned good. What happens to THOSE ideas?
They fester.
Google has designed a working environment that provides almost
everything their technical people need except a guaranteed sense of
satisfaction. By design each worker is no more than 100 feet from a
bathroom or food and drink (at Google the food is always free). This
creates an environment where people tend not to go home, which
Microsoft discovered and leveraged decades ago. But nobody works every
minute they are AT work, which means the Google Geeks are constantly
talking with each other, team building, bonding, and goofing off. And
for 20 percent of that goofing-off time I'll guarantee you that many of
these people are discussing their pet projects, 99.75 percent of which
have been REJECTED by the company.
While it is possible that a few Google Geeks may talk about how
lucky they were to have been saved from their own bad idea, most of
them will take exactly the opposite approach, seeing the company as
misguided.
Now a word about stock options and vesting. Google employees get
stock options that vest over a period of four years. In any high-tech
company there is an employee change of attitude that comes with being
fully vested. At Microsoft in the 1980s some people wore buttons that
said "FYIFV," which stood for "F**k You I'm Fully Vested." At companies
that have gone public, as Google has, there is often also an outflow of
employees around that four-year anniversary. We'll see that at Google,
too, no matter how cushy it is to work there.
Google has even made it easier for its employees to leave the
company by instituting a program in partnership with Morgan Stanley
where Google employees can sell their vested, but unexercised stock
options. There are instances where the intrinsic value of a stock
option (the strike price compared to the current share price) places
those shares "under water," meaning they would appear to have a
negative value. At other companies employees who want to leave simply
walk away from these options, leaving them unexercised. But the program
at Google allows employees to sell their unexercised options for the
difference between their intrinsic (sometimes negative) value and their
"time value" -- the presumed value at the time the options expire,
typically five years after vesting. Time nearly always has value when
it comes to Google shares (the question being asked is, "Will the
Google share price be higher than it is today at any point between now
and when the options expire in X years?"). Of course the price will be
higher, so the options have positive value, often $100 or more per
share, even when the stock is down a bit.
With hundreds -- and soon thousands -- of Google employees vested
and solvent, we'll shortly see a dribble, then a river, then a flood of
former Google employees with time, money, and experience, and some of
them will have the drive to realize the dreams of those thousands of
ideas that were rejected by their former company.
Of course good ideas alone are not enough. There are always plenty
of good ideas. The real money is in taking existing ideas and twisting
the idea just far enough to make it work in a fantastic new way. Think
Google vs. AltaVista; Apple vs. all previously existing laptops and mp3
players; YouTube vs. all previously existing video sites, etc. In
addition to ideas, you need creativity, resources, connections, and
luck -- none of which appear to be in short supply among Google worker
bees.
Much of the next influx of ideas to Sand Hill Road will come not
just from former Google employees, but also from groups of former
Google employees who are planning their future companies over free
sushi and Diet Coke late at night in Google cafeterias. And based on
the quality of the thinkers and the likelihood that Google will have
missed at least half of the best ideas, the founders of the next Google
are eating yellowtail tonight.
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