Refreshing Google

The search giant looks to its start-up roots as it taps co-founder Larry Page for the top job

By Bill Saporito Monday, Feb. 07, 2011
    • Matthew Staver/Bloomberg/Getty Images

    Managers of silicon valley's tech start-ups are famously flexible and entrepreneurial, able to change products, tactics, people and markets as they would their socks. If they wore socks. Then at some point their firms grow up to be large and profitable, and they struggle to maintain their advantages as ever newer technologies allow competitors to blossom.

    It's not unusual. Google's soon-to-be-former CEO Eric Schmidt ran into it at Sun Microsystems in the 1990s. Tech companies can grow so complicated that even updating the soup menu at the cafeteria takes a committee. You end up with porridge that passes for policy or product development. It has happened to IBM, to HP, to Microsoft and even — gasp — to Apple.

    Google is wary of the dreaded Big Tech sclerosis. That's one of the forces propelling the chair swapping that is happening at the top. A Google co-founder, 38-year-old Larry Page, will return to the chief executive's job he surrendered in 2001, while Schmidt, 55, who has run the company since then, will become executive chairman. "Adult supervision no longer needed," Schmidt tweeted about the change. He will instead do what executive chairpersons do, which is show up whenever asked and try to be helpful.

    The curious thing about Schmidt's instantly famous tweet is that adult supervision may be exactly what Google needs — just a different kind from what he's been asked to provide in the past decade. Ten years ago, the company faced down Yahoo!, an early search leader with a similar business model but less attractive technology. Now the competition includes white-hot firms like Facebook as well as a host of other new social-networking businesses. Google needs a boss who can multitask while protecting the core business. "Larry is ready," Schmidt said at the company's fourth-quarter analysts' meeting. "His ideas are very interesting and clever. It's time for him to have a shot at running this."

    Google's numbers would seem to give Page a healthy cushion to experiment. The company just racked up a 27% increase in fourth-quarter profit, to $2.5 billion. Sales increased 26% to $8.4 billion — a 30% net profit margin at a firm that still provides free meals, massages and yoga classes for its employees. Google still rules search, with a 66% market share, despite a fierce counterattack from Microsoft's Bing. That particular business is a money fountain that splashes more than $10 billion in operating profits annually. It provides cover for Google to try a lot of other things and make a lot of mistakes — and the firm has, in everything from mobile technology to operating systems.

    Google is a great admirer of its neighbor Apple, where tyrant in chief Steve Jobs, now on medical leave, returned in 1997 to a company in crisis and created an obsessively creative, consumer-product-driven culture. But Google can't afford to dedicate itself relentlessly and exclusively to its core business of search. That's risky, given growing competition and slowing sales in that area. Instead, it is looking a bit more like Microsoft, which churns away at new products without producing many hits. "The problem for me as an investor is that Google looks a little too like last year's model," says Keith Woolcock, founder of 5thColumnIdeas, a technology research firm. "It's the chicken in the sandwich — Apple and Facebook are on the opposing sides. Google is in the middle. Really, it looks to me as though it has become the Microsoft of its generation: big, bad and quickly becoming irrelevant."

    Google irrelevant? The argument is that in a more app-driven world, your need for a Web interlocutor to get what you desire diminishes. The Web becomes more like cable television. Your smart phone or tablet or PC functions more like a remote: you click on the station or app you want and bypass Google. Search will always be important, but less so.

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