What I'm Reading

January 4, 2010

Filed under: Uncategorized — ajdoesdc @ 9:20 pm

The Google Decade EndsBy chris.thompsonCreated 12/31/2009 – 12:24am

If the search king hasn’t ripped up your business yet, just wait.

As we near the end of the second decade of the Internet as a mass medium, no one can deny that the last 10 years have been all about Google [2] (GOOG). When the aughts began, Google was a clever search algorithm with a little venture capital but no CEO, no substantial brand recognition, and no clear way to make money. Now, it’s a verb, a tech empire, and a public company with a market capitalization just shy of $200 billion (and sitting on $20 billion in cold, hard cash).

But perhaps the best way to assess Google’s impact on our lives is to tally the firms that had never imagined the company would ever matter to them but now see it as lethal. Year after year, Larry Page and Sergey Brin thought up new industries to penetrate and disrupt, sending old companies into utter disarray. Google went from a simple search and page-ranking algorithm to a mortal threat to the media, the entertainment industry, telecommunications, traditional advertising models—even coal mining. Today, in corporate boardrooms across the country, executives are looking at their companies’ long-term prospects and asking themselves: When will Google try to kill us?

Company by company, industry by industry, the growth of Google can be measured by the rivals who are dead, dying, or struggling to live. Here’s a sampling of the butcher’s bill.

In 2000, the conventional wisdom around search looked utterly different than it does today. Companies like Yahoo [3] (YHOO), Lycos, Altavista, GoTo, and Excite all thought that the key to making money was to keep people staring at their Web sites for as long as possible. That way, you could flash garish banner ads at them, or pop-ups that distracted people as they searched for something that typically had nothing to do with the ads’ content. In some cases, search engines offered companies a deal: Pay us a wad of cash, and your firm will rise in the search result rankings, regardless of how relevant it is to the search itself.

Larry and Sergey rejected every one of these principles, hewing to the notion that search should be, you know, useful. They worked overtime to rank search results as accurately as possible and made sure you found what you wanted and got off of Google’s pages as quickly as you could. No banner ads would clutter their home page, and no pop-ups would slow the loading time. No one would be able to bribe their way to the top of the list.

At the time, this seemed the very height of silliness. How else were you going to make money? But once Google thought up selling small, contextually relevant text ads next to the results, its money problems were over. In 2001, the company turned its first profit and went on from there. One by one, its rivals in those early days started to die off, being gobbled up by other firms and turned into specialty services. Only Yahoo and Ask.com remain—along with newcomer Bing—and Yahoo is desperately trying to find a way back to its glory years.

Meanwhile, another line of businesses faced a mortal threat from Google: advertising agencies. Google adopted a concept from GoTo known as “cost-per-click,” in which advertisers paid only when someone clicked on their text link. In addition, Google’s vast amount of search data gave advertisers an unprecedented amount of information about their targets. Google could match advertisers to their target audiences more accurately than anyone had ever been able to do. Before Google, advertising was an art, in which Madison Avenue offered oblique advice on how to reach customers. After Google, it was a science—and all those witch doctors were suddenly a lot less relevant.

And Google was far from done. With these scalps hanging from its belt, the company had established its core business. Now, almost to pass the time, Larry and Sergey began to wonder what other industries they could disrupt.

Shortly after 9/11, a badly shaken Google engineer named Krishna Bharat decided that he had to do something to make the world a better place. And what the world needed now more than ever, he decided, was fast and easy access to international news, especially given the conflict that was about to play out in the Middle East. Using his “20 percent time” to play around, he invented Google News. Although newspapers hadn’t exactly been growing prior to this moment, the launch of Google News was a bullet aimed straight at the old media and typified Google’s seemingly naive attitude toward industries it was mauling.

Thanks in large part to Google News, Craigslist, and Google’s core advertising business, traditional media went into a tailspin. Newspaper advertising revenue would drop by 9.4 percent in 2007, and 17.7 percent the following year. The Tribune Company, the Philadelphia Inquirer, and the Philadelphia Daily News all filed for bankruptcy. The Knight-Ridder chain would be broken up. The Boston Globe nearly closed down. The two major newspapers closest to the GooglePlex were hit hard as well; the San Jose Mercury News was forced to lay off 200 reporters and editors, and the San Francisco Chronicle began posting annual $60 million losses.

Google isn’t the only reason for this catastrophe, but media moguls have all but declared war on it nonetheless. Rupert Murdoch’s News Corp. [4] (NWS), Dean Singleton’s national suburban newspaper chain, and the Dallas Morning News have all announced plans to charge subscriptions for their content—and ban the Google News spybots from scanning and indexing their pages.

Meanwhile, Google was blithely menacing another outpost of traditional media: the book publishing business. In 2004 the company launched Google Book Search, a massive effort to digitally scan, archive, and present to the public millions of books from the country’s largest libraries. From Google’s perspective, this was a classic case of doing well by doing good; the company would expose millions to excerpts of books they could never access otherwise, and Google would dramatically expand its universe of searchable information. But to authors and publishing houses, who watched as book sales grew flatter and flatter with every year, the plan was practically an invitation to piracy. How easy would it be, they asked, for garden-variety hackers to download millions of copyrighted books and offer them for free?

The Authors Guild and the Association of American Publishers sued Google for copyright infringement in 2005. The resulting proposed settlement may have satisfied the plaintiffs, but it unsettled untold numbers of copyright holders, who realized that the settlement would give Google the right to publish copyrighted material without informing the authors. And since the settlement empowered Google to sell digital copies of books online, it also unnerved another major player in book sales: Amazon (AMZN).

And in 2006, Google threw the entertainment industry into a tizzy when it bought YouTube for $1.65 billion. Soon, users were uploading clips from The Daily Show and music videos onto the site, and Google—which planned to sell ads next to YouTube content—didn’t seem to care that other companies owned the work. Or, rather, its leaders claimed that it was up to the owners of that work to notify Google when someone in the world uploaded a five-minute clip of copyrighted material—even though policing someone else’s Web site would take enormous amounts of time and resources. This attitude left Hollywood, the television networks, and the music industry livid, and Viacom [5](VIA.B) led the charge when, in 2007, it sued Google for $1 billion in copyright infringement damages.

Earlier this year, Google added another group to its enemies list: the telecoms. In March, Google launched Google Voice, a new service that promises—or threatens—to change the telephone forever. With Google Voice, users can consolidate their home phone, cell phone, and work phone numbers into a single number that they can keep even when moving to a new city. More importantly, it made phone calls, even long-distance calls, virtually free. Everyone from AT&T [6] (T) to eBay [7](EBAY), which produces Skype, suddenly realized that they, too, were in the path of the Google juggernaut.

In the meantime, Google has almost accidentally challenged the viability of countless other industries. Its release of Google Maps wiped out the business plan of AOL’s MapQuest. In 2007, Google announced a scheme to invest millions in renewable energy, with the express intent of reducing Americans’ reliance on the coal industry. Larry and Sergey have personally invested a small fortune in manufacturing electric cars, which can’t make Big Oil very happy. This year, Google announced that users of Android-based smartphones would be able to use GPS navigation services for free—upending the whole point of the TomTom, which you actually have to buy.

There’s just one case of a company picking a fight with Google, rather than the other way around. As Google showed the world how much money you can make on search, the tech world’s great behemoth, Microsoft, jumped into the business and took direct aim at the industry’s leader. But just as quickly, Google struck back, developing products that directly compete with Microsoft’s core business. Following its cloud-based computing model, the company rolled out Google Apps, a line of word-processing and spreadsheet services that goes head to head with the Microsoft Office software. Gmail competes directly with Hotmail. Google’s Chrome browser is designed to eat into Internet Explorer. And with the recent launch of the Chrome operating system, Google is offering an alternative to the Windows operating system. Google is now locked in a global war with one of the largest technology companies on Earth.

If there’s one company that Google has historically been perfectly amicable with, it’s Apple [8] (AAPL). The two firms share a similar creativity-is-God ethos, and until recently Google CEO Eric Schmidt sat on Apple’s board of directors. But that friendship came to an end when Google decided to get into the business of selling ads on mobile smartphones. The company launched Android, its mobile Internet operating system, and gave it away to anyone, from Samsung to Motorola, who wanted to build a device that would go head to head with Apple’s iPhone. (Almost as a postscript, Google has launched the Chrome browser for Mac, which will directly compete with Apple’s Safari.) And after numerous smartphone manufacturers spent millions developing these phones, Google recently announced that it had built its own smartphone and may release it for sale in January. Companies that once depended on Google to help them compete with Apple now worry that the search giant may compete with them—and keep all the niftiest Android apps, which are key to any mobile device’s value, for itself.

Of course, Google has stumbled a few times during the decade, particularly in the area of social media. Google Video, the company’s initial answer to the rise of YouTube, fizzled out. Knol, its attempt to build an alternative to Wikipedia, languishes somewhere in a dark corner of the Internet. And Orkut, Google’s effort to challenge MySpace, has itself been eclipsed by Facebook.

And of all these challenges, none has yet proved lethal to the companies or industries in Google’s crosshairs. In fact, of the 150 products Google offers, only two—AdWords and AdSense—make significant amounts of money. In fact, Google’s threats have forced many industries to race to adapt to a new Internet reality that was coming anyway. Record labels and some movie studios have cut deals to offer content on YouTube and share revenue, for example. And NBC, News Corp., and Disney [9] were spurred to develop Hulu, the video-hosting site that may well signal a new revenue model for the entertainment industry.

But consider all the mortal foes Google has racked up in the last decade. Microsoft. Amazon. Viacom. News Corp. AT&T. Every publishing house and newspaper in America. That’s quite a list for two men who once merely aspired to put the Gettysburg Address on your screen in a microsecond or two. What other businesses will they disrupt in the coming years? Will they set up a hedge fund, as Sergey Brin once suggested? Will they start predicting the weather? Just last week, the Federal Trade Commission reportedly began an investigation into whether Google was scanning local restaurant and business reviews posted on sites like TripAdvisor and OpenTable, organizing them on Google Maps, and selling ads next to content it didn’t generate.

In industry after industry, by offering services for nothing, Google has metastasized the modern economic dilemma: Everything is free, but no one has a job. This was probably inevitable, and maybe we should thank Google for forcing us to face reality now, and in such a dramatic fashion. But as we look back on the last 10 years, one thing is clear: Google should change its slogan from “Don’t be evil” to “Be everywhere.”

chris.thompson [10]

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