Retailers' Hobson's choice: crushed by Amazon or exploited by Google

It’s no secret that during the e-commerce era, the local (and even chain) retailer has lost its hold over local customers — particularly in the face of an ever-expanding variety of online merchandise, first from Amazon and later from the clicks-and-mortar chain retailers such as Target and Wal-Mart.

Meanwhile, the tyranny of the local newspaper has been replaced by the tyranny of the search engines (i.e. Google) in controlling the ability of retailers to get their message to potential customers.

Now the Wall Street Journal reports that retailers are facing a Hobson’s choice of being exploited by Google to avoid being crushed by Amazon. (Merriam-Webster defines a Hobson‘s choice as “the necessity of accepting one of two or more equally objectionable alternatives”).

The report says that to capture more product search — advertising and purchases — Google is testing a “buy” button for its search results to reduce the number of searches that begin on Amazon:

In the third quarter, 39% of U.S. online shoppers began researching their purchases on Amazon and only 11% started on search engines like Google, according to Forrester Research . That’s a reversal from 2009, when 24% started on search engines and 18% on Amazon.
…
“Amazon is increasingly running away with online retail in North America, which poses a huge problem for Google,” said Jeremy Levine, an e-commerce investor at Bessemer Venture Partners. “Google has to get in front of this and create a reasonable alternative.”

That Google chose to fight back is not surprising, nor is it surprising that it did so without consulting retailers. Given its data-driven culture, it’s also not surprising that it ran a live experiment. However, the nature of the experiment alarmed some retailers:

Retailers’ concerns about Google’s initiative were heightened in November when digital-marketing agency RKG spotted an unannounced Google test. Google users searching for “anthropologie,” the women’s clothing retailer owned by Urban Outfitters Inc., were also shown a link to a Google Shopping page with dozens of the retailer’s product ads. Anthropologie didn’t give its permission, according to a person familiar with the matter.

Or as search engine guru Larry Kim explained:

Is Google Shopping Becoming A Competitor To Retailers?

Based on this test, it would appear that's a real possibility.

Essentially, this would cut out the middleman and drive searchers to make their purchasing decisions within Google Shopping. It adds competition to what began as a branded search – rather than being presented with David Yurman rings for sale by David Yurman, the searcher sees David Yurman rings for sale at Nordstrom, Bloomingdale's and other retail sites.

If Google adopts this test as a permanent feature, it has the potential to drive up CPC's for branded search terms, as people searching for a particular type of product from a specific brand will now be presented with competitor options, as well.

Further, users can do comparison shopping right within Google Shopping, without having to go the retailers’ websites, whether they were searching for a specific retailer/brand or not. It’s another example of Google stealing traffic from your website, like they do with Knowledge Graph and vertical results like weather and flight comparisons.

This could be a welcome change for searchers; this is why Google runs all these tests. But advertisers may be annoyed to learn that searches on their brand name are being used to drive traffic to Google Shopping. … As for advertisers, I’m pretty sure they won't appreciate Google creating competition for them where it didn't exist before.

In this regard, Google is seeking revenue growth by taking traffic from those who created the content it indexed. It doesn’t have to integrate to generate the content or be able to fulfill orders, but instead can control the eyeballs (selling more ads and having more stickiness) while commoditizing retailers.

So in a fight for Total World Domination (or at least North American retail domination), Google will take away visibility and revenue from its most profitable customers.

Why does Google do this? Because it can. It’s not quite a monopoly, but it’s almost without viable competition: in the US, it has a 3:1 market share lead over its nearest competitor on PCs, and a 5:1 lead in mobile. In Europe, it has a nearly 10:1 lead, which is prompting calls for competition authorities to end its vertical integration.

The web brings a scale to retailing that never existing in the turn of the century (or Calvin Coolidge) Main Street USA era. Local retailers (and their commercial landlords) will continue to pay the price.

Google Show Greed Trumps Values Every Day

Google once promised that is mission was “to organize the world’s information”. Nominally that remains its mission today.

On the 10th anniversary of its IPO, in this morning's WSJ, Rolfe Winkler shows how that all changed:

Just before Google Inc. went public 10 years ago, co-founder Larry Page said he wanted to get the search engine's users "out of Google and to the right place as fast as possible."

Today, Mr. Page's Google often is doing the opposite: Providing as much information as possible to keep users in Google's virtual universe.

At first, leveraging its dominant share in search, Google was content to have people linger longer (ala Yahoo or later Facebook) to sell them to more advertisers. Now they want to monetize that customer hold directly by doing transactions and taking a piece of the action. The dead tree (and online edition) shows the before and after — Google the indexer of the Internet vs. Google the horizontally diversified Internet portal:

In other words, Google once created an ecosystem (including APIs and a two-sided advertising market) and wanted to make its ecosystem partners successful. Now, in its relentless pursuit of growth, it is crowding aside its onetime partners and trying to take more money from its customers.

This is exactly what DEC, Apple, Microsoft, Oracle and countless other tech companies have done over the decades. Joining an ecosystem is a viable startup business until the ecosystem sponsor wants to take that business away. The book Keystone Advantage refers to this as an ecosystem “dominator.” Among tech companies, only IBM seems to be a reliable partner for win-win alliances, in part because its integration services business model allows it to make money with almost any sort of component.

Of course, this was inevitable. Companies like Google want to grow, because it supports the stock price and puts more money into the hands of shareholders, employees and executives. Since Larry Page and Sergey Brin are now worth $32 billion apiece, I’m guessing it’s less about the money and more about the control, the ego, the success of making the world’s most dominant influential company of all time.

As we teach in strategy, there’s only two ways to grow: reach more customers or make more money out of your existing customers. If Google is serving almost everyone on the Internet, it either has to connect more people to the Internet (who will be less profitable than their existing customers) or sell more stuff to those already locked into Google. Obviously (with its $50 billion in cash horde and 60+% gross margins) it’s doing all of these things.

Unfortunately, a dominant vertically integrated (and horizontally diversified) monoculture is bad for the economy, bad for consumers and bad for society. It takes transactions that should be happening in the market and internalizes them into an internal hierarchy. Europe has been trying to nibble at the edges of Google’s efforts at Total World Domination for years, but had little impact. The U.S. seems disinterested, because the GOP believes in free markets and the Democrats receive millions in campaign donations from Google's wealth.

Normally we can count on the curse of success to eventually kick in: big companies either become complacent, bureaucratic or otherwise lose their way (cf. GM, Microsoft). The Google founders seem determined to make sure this doesn’t happen during their lifetime, which could be 30 years (with a normal retirement) or 50 (if they last like Warren Buffett). Since I’m older than both men, I may not live to see the end game — which is a depressing thought.

Why some fear Google -- and others should, too

Excerpts from a 4,000 word letter by the CEO of a leading German publisher to the company that once promised “don’t be evil”:

An open letter to Eric Schmidt
Why we fear Google
17.04.2014, von MATHIAS DÖPFNER
Frankfurter Allgemeine
Dear Eric Schmidt,

In your text “Die Chancen des Wachstums” (English Version: “A Chance for Growth”) in the Frankfurter Allgemeine Zeitung, you reply to an article which this newspaper had published a few days earlier under the title “Angst for Google” (“Fear of Google”). You repeatedly mention the Axel Springer publishing house. In the spirit of transparency I would like to reply with an open letter to highlight a couple of things from our point of view.
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Google doesn’t need us. But we need Google…
Google’s employees are always extremely friendly to us and to other publishing houses, but we are not communicating with each other on equal terms. How could we? Google doesn’t need us. But we need Google. And we are also worlds apart economically. At fourteen billion dollars, Google’s annual profit is about twenty times that of Axel Springer. The one generates more profit per quarter than the revenues of the other in a whole year. Our business relationship is that of the Goliath of Google to the David of Axel Springer. When Google changed an algorithm, one of our subsidiaries lost 70 percent of its traffic within a few days. The fact that this subsidiary is a competitor of Google’s is certainly a coincidence.

Not only economic, but also political

We are afraid of Google. I must state this very clearly and frankly, because few of my colleagues dare do so publicly. And as the biggest among the small, perhaps it is also up to us to be the first to speak out in this debate. You wrote it yourself in your book: “We believe that modern technology platforms, such as Google, Facebook, Amazon and Apple, are even more powerful than most people realize (...), and what gives them power is their ability to grow – specifically, their speed to scale. Almost nothing, short of a biological virus, can scale as quickly, efficiently or aggressively as these technology platforms and this makes the people who build, control, and use them powerful too.”

The discussion about Google’s power is therefore not a conspiracy theory propagated by old-school diehards. You yourself speak of the new power of the creators, owners, and users. In the long term I’m not so sure about the users. Power is soon followed by powerlessness. And this is precisely the reason why we now need to have this discussion in the interests of the long-term integrity of the digital economy’s ecosystem. This applies to competition, not only economic, but also political. It concerns our values, our understanding of the nature of humanity, our worldwide social order and, from our own perspective, the future of Europe.

The greatest opportunity in the last few decades

As the situation stands, your company will play a leading role in the various areas of our professional and private lives – in the house, in the car, in healthcare, in robotronics. This is a huge opportunity and a no less serious threat. I am afraid that it is simply not enough to state, as you do, that you want to make the world a “better place.”
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You say in your article that those who criticize Google are “ultimately criticizing the Internet as such and the opportunity for everyone to be able to access information from wherever they happen to be.” The opposite is true. Those who criticize Google are not criticizing the Internet. Those who are interested in having an intact Internet – these are the ones who need to criticize Google.
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Google is to the Internet what the Deutsche Post was to mail delivery or Deutsche Telekom to telephone calls. In those days there were national state monopolies. Today there is a global network monopoly. This is why it is of paramount importance that there be transparent and fair criteria for Google’s search results.

However, these fair criteria are not in place. Google lists its own products, from e-commerce to pages from its own Google+ network, higher than those of its competitors, even if these are sometimes of less value for consumers and should not be displayed in accordance with the Google algorithm. It is not even clearly pointed out to the user that these search results are the result of self-advertising. Even when a Google service has fewer visitors than that of a competitor, it appears higher up the page until it eventually also receives more visitors. This is called the abuse of a market-dominating position. And everyone expected the European antitrust authorities to prohibit this practice. It does not look like it will.
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Is it really smart to wait?
Historically, monopolies have never survived in the long term. Either they have failed as a result of their complacency, which breeds its own success, or they have been weakened by competition – both unlikely scenarios in Google’s case. Or they have been restricted by political initiatives. IBM and Microsoft are the most recent examples.

Another way would be voluntary self-restraint on the part of the winner. Is it really smart to wait until the first serious politician demands the breakup of Google? Or even worse – until the people refuse to follow? While they still can? We most definitely no longer can.

Sincerely Yours
Mathias Döpfner

Via John Paczkowski at re/code

Do no evil or see no evil?

In a unanimous decision Thursday, the Federal Trade Commission ended its two year investigation of alleged Google antitrust violation, with a settlement agreement that (as several headlines put it) let Google off “unscathed.”

The FTC took almost no action on allegations that Google tied its dominance in search to support its other businesses, accepted some unenforceable promises by Google to behave in the future, and (in a separate action) set limits as to what Motorola (now owned by Google) can do to pressure rivals to license its patents.

The reactions were predictable. A "consumer" group that criticizes Google told the AP that “The FTC rolled over for Google” (perhaps the AP censors made them clean up their language). Microsoft lamented that Google’s “voluntary commitments” were “less demanding than the pledge the U.S. Department of Justice received from Apple and Microsoft nearly a year ago.”

Outgoing Republican FTC commissioner J. Thomas Rosch dissented from this approach in similar terms:

Instead of following standard Commission procedure and entering into a binding consent agreement to resolve the majority’s concerns, Google has instead made non-binding commitments with respect to its search practices. … [O]ur “settlement” with Google creates very bad precedent and may lead to the impression that well-heeled firms such as Google will receive special treatment at the Commission.
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Our “settlement” with Google is not in the form of a binding consent order and, as a result, the Commission cannot enforce it by initiating contempt proceedings. The inability to enforce Google’s commitments through contempt proceedings is particularly problematic given that the Commission has charged Google with violating a prior FTC consent agreement.

Enforcement of Google’s obligations requires a Commission order, not a unilateral commitment by Google to stop its practices. If Google were really willing to abandon its scraping or its API policy, it would have tendered a consent decree to that effect instead of a unilateral commitment that is not enforceable.

Meanwhile, on the other side, Google’s head lawyer bragged: “The conclusion is clear: Google’s services are good for users and good for competition.” Former FTC chairman and part-time Google consultant James C. Miller (III) wrote in Friday’s Wall Street Journal:

The legal case against Google was always weak. Despite the rhetoric of Google's antagonists, they failed to convince the FTC that the company's policies harmed consumers. Since consumers can change search engines with the simple click of a mouse, it's a stretch to say that Google has monopoly power.

It’s surprising to hear a Ph.D. economist claim there are no barriers to entry; this is just a rock of hooey (nod to censors). Perhaps he’s just not up on current research: Network effects are a strong barrier, and in a two-sided market of advertisers and eyeballs, those that get ahead tend to stay ahead.

The decision comes as somewhat of a surprise, since the Obama administration has a 3-2 majority on the FTC and was expected to take a harder line on antitrust. Cynics might say that it’s because Google was Obama’s largest and most loyal re-election donor ($31 : $1) among Silicon Valley’s 10 biggest companies. Coincidentally, Obama’s latest FTC appointee — George Mason professor Joshua Wright — will be recusing himself on Google matters for two years because he’s taken money from Google.

However, for Google critics there is the minor matter of proof. In the US antitrust system, wanting to crush your enemies so you can extort monopoly profits from your customers is not actionable — you more or less have to do it first because it has to be proved in a court of law. The US (at least until recently) has had a greater emphasis on unfettered markets than Europe, where protecting

Instead, most of what Google conceded were items that it had already lost or was likely to lose (the ruling on licensing Motorola’s standards-essential patents is a complex one I hope to take up later).

NYU law professor James Grimmelmann blogged that the FTC didn’t say it found no evidence, but that Google is doing what is legal. His analysis of some key quotes:

• Google was pure of heart: “The totality of the evidence indicates that, in the main, Google adopted the design changes that the Commission investigated to improve the quality of its search results, and that any negative impact on actual or potential competitors was incidental to that purpose.”
• Google helped users when it helped itself: “Notably, the documents, testimony and quantitative evidence the Commission examined are largely consistent with the conclusion that Google likely benefited consumers by prominently displaying its vertical content on its search results page.”
• The data agree with Google: “Analyses of ‘click through’ data showing how consumers reacted to the proprietary content displayed by Google also suggest that users benefited from these changes to Google’s search results.”
• Everyone else did it, too: “We also note that other competing general search engines adopted many similar design changes, suggesting that these changes are a quality improvement with no necessary connection to the anticompetitive exclusion of rivals.”

And, Prof. Grimmelmann concluded, this exoneration will make it that much harder to initiate or win a U.S. legal challenge to Google monopolistic activities in the future.

Anyone who knows Google knows that it is no more “pure of heart” than Microsoft was in the 1990s or IBM in the 1970s. Microsoft called this “freedom to innovate,” a variant of the “what’s good for General Motors is good for the country” argument.

Like Microsoft, Google pushes for self-regulation of the “trust us” variety. Unlike Microsoft, Google’s mantra of “do no evil” seems to have convinced many that it’s fundamentally trustworthy, despite their pattern of hubris (if not arrogance) and demonstrable efforts to attain Total World Domination.

The timing was particularly unfortunate. This morning's front page WSJ article documents how Google is using tying to support its once-moribund social media experiment, Google+. As Amir Efrati wrote

Google Inc. is challenging Facebook Inc. by using a controversial tactic: requiring people to use the Google+ social network.

The result is that people who create an account to use Gmail, YouTube and other Google services—including the Zagat restaurant-review website—are also being set up with public Google+ pages that can be viewed by anyone online. Google+ is a Facebook rival and one of the company's most important recent initiatives as it tries to snag more online advertising dollars.

The impetus comes from the top. Google Chief Executive Larry Page has sought more aggressive measures to get people to use Google+, two people familiar with the matter say. Google created Google+ in large part to prevent Facebook from dominating the social-networking business.

(In my experience, Google’s approach is similar to Facebook and Twitter, but for the latter it’s more obvious when you are sharing related information than with Google. Also, these firms lack the control of other Internet services such as Google’s search, mail, photos, video, news, maps, telephony, music downloads, book downloads, blogging or cloud services).

For now, the only remaining hope for the anti-Google forces is to win support from governments outside the US (as Sun fought Microsoft in Europe and Japan). As Microsoft and Intel learned, the EU can pretty much do what it wants to American tech companies.

It’s also possible that a publicity seeking attorney general in the Empire state or another state will sue Google in hopes of gaining name recognition for a gubernatorial run. Who knows, perhaps New York’s lame duck billionaire mayor and America’s 21st century Napoleon will throw his corporate empire, bully pulpit and money in support of the effort.

Farewell to the Gaffer-in-Chief

As everyone knows by now, Eric Schmidt announced Thursday that he is stepping up out of CEO to become executive chairman. He will be replaced as CEO by co-founder (and former CEO) Larry Page.

What I found remarkable was the reaction of a friend of mine, who in response to my email about the announcement, wrote:

Eric was supposed to be the public face of GOOG, but he turned out to be ill-suited for that role---and less so as time went on. This past year? One blooper after another.

I hadn’t been paying much attention to Schmidt, so I was very surprised to see how gaffe-prone he has been.

Sure enough, in the last six months or so there were lists of Schmidt verbal boo-boos. His planned retirement brought gaffe compilations by Gizmodo and All Things Digital. Earlier lists include BuzzFeed, State of Search and Business Insider.

Many of these gaffes revolve around the issue of privacy, including these:

• “Streetview, we drive exactly once. So you can just move, right?”
• “Show us 14 photos of yourself and we can identify who you are. You think you don’t have 14 photos of yourself on the internet? You’ve got Facebook photos!”
• “Just remember when you post something, the computers remember forever”
• “I don't believe society understands what happens when everything is available, knowable and recorded by everyone all the time.”
• “We Know Where You Are. We Know Where You've Been. We Can More Or Less Know What You're Thinking About.”
• “The Google policy on a lot of things is to get right up to the creepy line and not cross it.”

In fact, “creepy” seems to be the most commonly used term for the philosophy that Schmidt has been articulating. This concern is over and above the reality of Google’s business, including its plans to (using those Facebook pictures) do facial recognition.

However, Schmidt is a noted hypocrite when it comes to the value of privacy. The official response of Google’s relentless invasion of privacy is “trust us — we do no evil”. But when a reporter used Google to research Schmidt’s personal life, the retaliation was swift and unequivocal.

So in the end, I think as a hired CEO, Schmidt was unsuited by temperament to be the public face of a market-dominant company, and all the attendant scrutiny. This is not something he experienced the head of a dying proprietary software company or being CTO of the leading company in a highly fragmented Unix market.

All the little companies that grew big had to come to grips with not being little any more: Microsoft, Intel, Apple, Google and now Facebook. Antitrust law (as well as public sentiment and populist politicians) draws a clear distinction between aggressive small companies and bullying by dominant companies, and Google’s relentless march towards Total World Domination has understandably earned it the scrutiny that IBM or Microsoft once enjoyed with people like ambitious EU bureaucrats.

Still, I think Google’s new CEO can make this argument more convincingly and sincerely. At any tech company, founder-CEO seems to have a legitimacy — and a vision — that the hired gun does not. When a Hewlett or Packard or Jobs says “we mean well” it is more plausible than from one of the few people to become a billionaire through employee stock options. (For some reason, Bill Gates was a far less convincing witness as to his firm’s benign intentions.)

So will the change in leadership solve Google’s PR problems? I don’t think so: their goal is still to crush Yahoo, Facebook, Microsoft and Apple, while commoditizing Nokia, Apple, Verizon, AT&T and dozens of other companies. You can’t march to Total World Domination without climbing over a few bodies, and right now Google’s growth depends on expanding its domination in existing segments and expanding that dominance to new segments.

Google: the sometimes honest broker

The Wednesday papers have an interesting juxtaposition of two stories: bad Google and good Google.

The bad Google is that the EU (is finally) going after Google with an anti-trust complaint. After openly seeking Total World Domination for years, bad Google will enjoy the same sort of proctological exam that Microsoft once did. For those that watched the US and EU futilely attempt to stop Redmond’s bid for Total World Domination, two issues seem like déjà vu all over again.

First is the issue of tying. As the AP notes, yes we expect YouTube to show up first in Google searches, but its maps? Its finance? In a 2007 YouTube video, then-Google search executive Marissa Mayer noted that Google favored its own finance site when searches previously listed Yahoo first. Meanwhile, The Register details the complaints of the British firm Foundem and how it fell to the back of Google’s rankings after a 2006 algorithm shift.

The other is that Google’s ranking process is notably opaque — and the company intends to keep its algorithms a trade secret — which means that whether or not it’s fair, no one can say for sure. (Shades of Microsoft’s secret APIs that were revealed long after 1-2-3 and WordPerfect were wiped out while Novelware had entered its terminal glidepath.)

That’s bad Google, and the accusations (and rationalizations) seem no different than any other quasi-monopolist. Despite its activist nature, the current administration is certain to go easier on the US firm than the EU will — just as happened under the last two presidents.

The good Google is — according to the WSJ — going after Amazon and other lesser proprietary publishers (NB: Apple, B&N) to provide a truly open document file format. If that’s not enough, the new Google Editions will help brick & mortar retailers compete with both Amazon & B&N by setting up their own shops. (Presumably, this is much as Amazon zShops helped home-based resellers bypass eBay).

E-books are not going anywhere until there is the inevitable single universal format, available from all resellers and supported by all hardware. I suppose we could temporarily support two formats (cf. VHS and Beta, 8-track and cassette, or RCA vs. CBS in vinyl), but in this case it will be the market-leading proprietary AZW being challenged by the open format where (as is customary) everyone gangs up on Amazon.

Google can and will be open on books precisely because it is a monopolist elsewhere in the food chain. Its monopoly rents from search allow it to be indifferent as to book content and reader business models, because it knows it will make money searching for this content no matter who sells it. (Just as Intel was indifferent as to how the Internet grew as long as people used Intel-equipped PCs as clients.)

For years Google (out of copyright) books have been available both in PDF and (for selected texts) the EPUB open format. In it latest effort, Google seems to be winning the cooperation of (once suspicious) publishers and authors to sell content in an open format.

A key question is when Google’s strategy will attract the enemy-of-my-enemy allies against Amazon. Right now Apple dominates full-featured tablets with the iPad (the way Amazon dominates single-purpose e-readers with the Kindle), suggesting that it will be in no hurry to join Google’s parade — particularly since they are rivals in so many other areas.

On the other hand, the iPad business model makes money selling hardware with negligible ebook sales — and so Apple has little to lose by switching formats. Meanwhile, B&N is more interested in selling books in its store rather than nook hardware — so will it try to become the leader of open book content or continue to imitate Amazon’s proprietary book strategy?

Google commoditizes another layer

The news says that Google is offering “free Wi-Fi” at 47 airports through January 15. Google issued a press release Tuesday, posted it to their blog and created a new website FreeHolidayWiFi.com. (They’re also sponsoring Wi-Fi on Virgin America flights).

My wife was traveling through two airports Tuesday and got to try out the free Wi-Fi. She also saw the airport advertising displays giving Google credit for this “free gift.”

However, there’s a problem with this story. At least two of the 47 airports (SAN, SJC) are ones that I regularly frequent that already have free Wi-Fi. They both had it last month and last year. So what does it mean to give us free something we already had? Does that mean Google’s (or the airport) is going to take it away? Or does it mean the airport already had the costs real low and thus it was relatively cheap for Google to buy sponsorship?

At a broader level, Google favors anything that commoditizes Internet access. An early example was when it began giving away free Wi-Fi in its adopted home town of Mountain View — and helping to end the mirage of paid municipal Wi-Fi networks.

Google wants Internet access that’s fast, ubiquitous and cheap, because in simple economic terms Internet access is strongly complementary to wasting a lot of time feeding keywords into the Google money machine. And of course cheap Internet access also grows the market for all of Google’s Internet services — which will be helpful should it ever find another profitable revenue stream beyond search.

Update, 8:30am: In response to a comment (below) about whether Google’s sponsorship is bad, let me better articulate my late night concerns.

I'm frustrated by a lack of transparency — not the first time with Google.

1. What does it mean to "sponsor" Wi-Fi that is already free? How much is Google paying? Perhaps a newspaper reporter at the San Jose Mercury, San Diego Union or Las Vegas Sun will ask some pointed questions.
2. Why is it advertising in the airports that it’s doing us a favor without noting that it was previously free?
3. What happens when the sponsorship ends? I.e., does Google sponsoring it mean that our formerly free service is no longer free?

Sure, the AP story Tuesday about Google’s free airport Wi-Fi (and smaller efforts by Microsoft and Yahoo) said

The 47 airports include some, such as Mineta San Jose International Airport and McCarran International in Las Vegas, that already provide free Wi-Fi. Sponsorships help the airport keep the service free.

but “help” doesn’t explain whether this is defraying part of the cost, paying the entire cost, or helping airports make a profit — nor does it say what will happen when Google stops “helping.” Airports are almost entirely public entities, so more transparency here is certainly a legal requirement.

This is obviously a trial balloon. If Google pulls out and the service at these airports goes from free to free to paid, there will be a huge backlash — against the airports and against Google.

If I had to guess, I’d say Google is laying the groundwork for running ad-supported free Wi-Fi at all US airports, with these as pilot projects. Such free Wi-Fi would improve Google’s image and political standing with an influential segment of the public (frequent travelers), at a time when it faces increasingly pointed questions (e.g. in antitrust, Google Books) in its march to Total World Domination.

Key Google frenemy less friendly

Eric Schmidt resigned today from the Apple board of directors. The official Apple announcement does fit the definition of “terse”:

Dr. Eric Schmidt Resigns from Apple’s Board of Directors

CUPERTINO, California—August 3, 2009—Apple® today announced that Dr. Eric Schmidt, chief executive officer of Google, is resigning from Apple’s Board of Directors, a position he has held since August 2006.

“Eric has been an excellent Board member for Apple, investing his valuable time, talent, passion and wisdom to help make Apple successful,” said Steve Jobs, Apple’s CEO. “Unfortunately, as Google enters more of Apple’s core businesses, with Android and now Chrome OS, Eric’s effectiveness as an Apple Board member will be significantly diminished, since he will have to recuse himself from even larger portions of our meetings due to potential conflicts of interest. Therefore, we have mutually decided that now is the right time for Eric to resign his position on Apple’s Board.”

Apple ignited the personal computer revolution in the 1970s blah blah blah

I like the lead by Mike Harvey of the Times of London for putting it into perspective:

In May Eric Schmidt was laughing off the idea that he might have to resign from the board of Apple.

The Google chief executive has been a director for three years, brought in by Steve Jobs because of his experience at promoting innovation. In 2006, the companies were barely operating in the same field. Google was huge in search and online advertising while Apple was a classy maker of computer hardware and proprietary software.

But then Apple launched the iPhone and Mr Schmidt had to begin to excuse himself from board meetings that discussed it …

This resulted in May in the US government's decision to open an inquiry into the two companies’ “interlocking directorates” under the Clayton Antritrust Act. Mr Schmidt responded by saying that because the companies were not “primary competitors”, there would be no problem with the Federal Trade Commission's investigation.

But how quickly things change again. Google has announced that it will launch its own operating system, called ChromeOS, to power laptop computers. That really does plant the company firmly in Apple's backyard. It means that consumers will be faced with a direct choice not only on mobile phones running Google Android operating system and Apple iPhone OS X system but also on computers between ChromeOS and Apple's Mac OS X.

Mr Schmidt said at the time that he would need to clarify his position as a director with Apple - as Apple's statement from Mr Jobs makes clear today, it would have meant Mr Schmidt excusing himself from large portions of Apple board meetings.

Harvey claims that the Google Voice iPhone kerfuffle was the last straw. However, since Apple will eventually have to give in as it did on iTunes DRM — and almost certainly knows this — that seems unlikely to me.

Perhaps this means that no firm of any size can really be a close friend of Google. When you are an integrated IT company that makes just about everything except hardware. And when you’re seeking Total World Domination — even through soft power — you’re bound to make some enemies.

Yet another Google book (video)

In the best traditions of pack business journalism, there is a flurry of books about the Monster of Mountain View and its inexorable march to Total World Domination. There are four books out already, and at least 2 (perhaps 4) more books are coming out in the next 18 months, peddled to a business book audience today more interested in financial instability than tech growth companies.

The first wave of books came in 2005, with The Search and The Google Story. Leading the next wave was my coworker Randy Stross, with last fall’s Planet Google. Published last week is the latest book, What Would Google Do? in hardback, large print, Kindle and audiobook editions.

The latest book is by Jeff Jarvis, a blogger, Guardian columnist, and full-time journalism professor — also the founder of Entertainment Weekly and former TV critic for TV Guide and People. So if Stross is coming at Google as a veteran analyst of the tech industry (with books on NeXT, Microsoft and venture capital), Jarvis comes from the perspective of a veteran media critic.

This morning, the WSJ, PaidContent and Jarvis himself talked about a new version of the Jarvis book: a 23-minute video lecture. The video, available from Amazon (but not iTunes), is being sold for $10 (although Jarvis has a free sample). As the articles note, it’s an interesting experiment for publishers trying to gain marginal reviews.

However, I don’t get the pricing. Hour-long TV episode are being sold for $5 on iTunes ($6 on Amazon), while Amazon downloads of a two-hour theatrical release (with a $20 million production budget) runs $15.

I also don’t get the market: we tell all our business model students that they need to definite not only how they create value but also for whom they are supposed to create value. About the only audience I can see is professors who want a guest lecturer on Google, and I’m not clear if the $10 includes performance rights to show to a classroom. (Ignoring whether showing in a classroom fits under fair use of scholarship).

Also, instead of paying $10 to watch Prof. Jarvis give a 23 minutetalk from his book, you can watch Prof. Stross do a one-hour talk and Q&A from his book for free. In the case of Prof. Stross, it was not part of some master strategy to maximize publishing revenues, but a last minute decision by a couple of us here at SJSU (with his consent) to tape what we thought would be a talk that would enjoy a wide following.

Nokia's new maps

In among the various announcements this week at Nokia World (including the N97 and completion of the Symbian purchase), was the third installment of the Nokia Maps saga.

Yes, location-based services will be crucial to the success of mobile devices and services. And the Nokia approach seems to acknowledge that its customers use both handsets and PCs, and that it needs to seamlessly support both. However, Nokia is going head to head with Google and Microsoft (not to mention Yahoo and AOL’s Mapquest).

I guess this explains why Nokia spent $8 billion to acquire Navteq 14 months ago. Nokia seems to see it the lynchpin of winning adoption for Nokia Ovi, its mobile phone portal. And if you want to make an all-in-one portal, maps (like search and email) seem to be an essential element nowadays.

Overall, Nokia’s corporate strategy seems to emphasize the value of internalizing and integrating rather than partnering and using open innovation. So the challenge from investors will be to demonstrate that owning mobile hardware, software and services (while competing with operator-owned services) creates more value than buying the pieces on the open market (or letting its customers choose the best technology for their needs).

While I understand that from a financial standpoint that Nokia hopes services will provide growth as equipment sales flatten out, I’m not sure why Nokia thinks they will be particularly good at these other things. Successful firms focus on where there competencies are, and partner with those that provide complementary goods and services. Nokia could build (or acquire) new competencies, but the general pattern is that such diversification destroys value.

In particular, I’m not thinking of a lot of precedents for a hardware company that’s been a success in the services business. IBM provided VAN (Value Added Network) services in the 1980s and NEC partnered to run Niftyserve in Japan in the 1980s and 1990s. But that was when these services were hard to do — when these became commodity businesses, they had no particular advantage.

Google is diversifying the other way, from services into providing software for handsets (competing with Nokia’s handsets). Is Nokia obsessed with competing with Google (and Microsoft) for Total World Domination? It didn’t work out too well for Scott McNealy or the crew of the HMS Sun, as its 20th century Captain Ahab squandered the 1990s in his futile quest to destroy Moby Microsoft.

Google knows everything

One of the major fears about Google’s march towards total world domination is that it increasingly knows everything. As SJSU professor (and Google chronicler) Randy Stross wrote on page 10 of his recent book,

In 2006, an unknown person at Google prepared a PowerPoint presentation that included an offhand remark in the slide’s comments that Google at that point had collected only 5 percent of the information it seeks. Another slide’s comments emphatically added: “We plan to … get all the world’s information, not just some.”

(Although the slides were quickly removed, Stross’s footnotes helpfully note where the slides were archived by blogger Paul Kedrosky.)

Or, as Stross put it a month ago, “ this is a company that will know more about us than any entity — public or private — in the world.”

Normally we think about this information gathering in a personal sense, i.e., that of consumer privacy. So when I edit this (or another blog), I have to log on with my Gmail ID, and Google keeps me logged in — matching my searches to my personal ID — long after I’ve finished editing. (In fact, after a while I’m logged in for search but must re-login for blogging).

There’s another way that Google’s all-knowing is scary: its unlimited ability to gather market research in a way that no firm ever has — research where the data is all free, and also is entirely proprietary to Google. Data is not only addictive for business researchers, but academic ones, which is why economist Hal Varian left Berkeley for Google to become their chief economist and data miner.

On Friday, my friend David Wood of Symbian blogged about a presentation by Google manager Sumit Agarwal last week at a mobile phone conference in San Diego. A Google search suggests that Wood has the only coverage of Agarwal’s talk on the web, by either a journalist or a blogger.

The upshot? From its search and maps and other applications, Google knows what mobile users want — even better than the carriers. This is consistent with Google’s empirical, data-driven approach recounted in Stross’s book, the Varian interview, and many public speeches by Google managers and researchers.

For mobile phones, consumer wants and desires are not yet clear — handsets and mobile web browsers are just becoming good enough to provide (unlike in the WAP days) a good quality web experience. Thus, information about where mobile phone products and services are going is very scarce and valuable.

Google has all the data, and has concluded (according Agarwal via Wood) that mobile users seem to want pretty much the same information (at least in search) as static users.

However, through reverse IP lookup, Google knows how the wants of consumers differ by carriers, allowing it to observe the relative effects of the competing carriers strategies in a way that the carriers never could. One example was that when one operator instituted free data weekends, Google saw a huge spike in mobile search engine usage (that gradually increased weekday usage).

Wood summarizes other aspects of the information that Google shared on mobile phone users, and its implications for the industry. This is obviously only the tip of the iceberg, since Google has information that only it has — and will largely keep private for competitive reasons. Perhaps Google is willing to institute a commercial market research division to sell some of this information to the rest of us peons.

For someone who worries about Total World Domination, it seems like there are two bright spots. First, Yahoo got to mobile before Google and it still should have enough information to draw similar conclusions. Because that information is valuable, it could develop the same information — even if it only has 30% as many mobile users. What it would need is a smart, research-driven partner (not worrying about layoffs) of which only one company comes to mind.

The second encouraging tidbit was that Agarwal did his demo on an iPhone and a BlackBerry in addition to an HTC G1, even though he’s the product manager for Google’s mobile division. Even though the gPhone is shipping, Google remains client platform agnostic. (Wood obviously would have liked to have seen a Nokia N95 running Symbian OS 9.1, the preferred smartphone for much of Europe.

If Google will continue to emphasize the use of its services by all web-capable clients, that means that it is less interested in “tying” across its value chain than previous IT monopolists like Microsoft and IBM.

Google's rites of passage

Last month, author Randy Stross presented a talk at San José State based on his new book, Planet Google. Randy is not only an experienced author, but also a fellow (and considerably more senior) faculty member in the Department of Organization & Management where I work.

The video and audio of his presentation has now been posted to College of Business pages within SJSU’s content area at iTunes U. Due to size limits, the talk is posted in two parts: the prepared presentation and the Q&A. The quality of the video is remarkably good (and with the rest of iTunes U, the price is right).

Randy’s talk was about Google growing up — or at least, Google learning that the world expected it to grow up rather than act like a small insignificant startup anymore. This has obvious parallels to Microsoft a decade earlier, just as Nick Carr observed in other aspects of Google’s strategy and market influence.

In fact, Randy opened his talk by saying this “is not just a business story, but a business and society story — a company that I would argue that is far more powerful than Microsoft was at its apogee in the 1990s.” He presented three ministories — rites of passage — as Google learned to go beyond search to become the diversified Internet conglomerate that it is today. In each case, Google had to deal with unexpected controversy.

The first was Google books. Google wants to organize the world’s information, and books are usually of better quality and not available in digital form. Some of this is out of copyright stuff in university libraries, in which a human being turns pages in front of a digital camera. He also commented on Google’s plans — particularly for current books — ran headlong into the expectations and IP rights of established book publishers. The result was a lawsuit (which, as it turns out, was settled earlier this week).

The second example was Google Maps. The mapping solution had too much data to run entirely as a web app, so Google needed a client-side application. It bought startup Keyhole (also in Mountain View), which had trouble monetizing the digital mapping technology it created almost 20 years ago. Maps also forced Google to confront US regulations on spy satellite data and to eventually launch its own satellites (while conforming to those regulations). Tied into Maps was the controversial decision to provide street view images, and the unexpected uproar over what many saw as an invasion of the “privacy by obscurity” that they previous enjoyed in public spaces.

The third story was about Google Apps, its SaaS challenge to Microsoft Office that includes e-mail and documents. Randy went to a 2006 pitch that Google and Microsoft made to the entire 23-campus Cal State University system, where Microsoft sought to emphasize all the risks and uncertainties of Google’s (free to universities) application package. Google had to realize that if it wanted people to upload their data to Google’s servers, it had to provide a higher level of reliability, data integrity and privacy than it had ever promised before.

Together, the three stories suggest to me a Google that has the arrogance to assume it always has the right answer. It wants the rest of the world to give it free reign (again, like the Beast of Redmond). After all, they’ve promised “to do no evil”: what other reassurance do we need?

After studying Google for several years, Randy believes he can trust Google when it’s openly talking about the privacy (or other) tradeoffs it faces when trying to make its billions while living up to its mantra. What gets him worried is when they don’t publicly acknowledge the ethical or moral issues that it faces. As he concluded:

But if they revert to corporatespeak with rote reassurance, this is a company that will know more about us than any entity — public or private — in the world. I don’t want rote reassurances.

Overall, it was a clear and stimulating talk that provided fresh insight into the secretive Monster of Mountain View — one that I might have hoped from someone who devoted two years of his life to providing a definitive account. I recommend the talk to those who have not bought the book or are debating whether to do so. (My copy of the book arrived from Amazon and I hope to read it in the coming week).

I encouraged our media staff to record and post the talk, and I wish we did it more often. Being here in Silicon Valley, we often have speakers like this whose talks would be of great interest to the outside world, such as the ongoing speaker series of the Silicon Valley Center for Entrepreneurship.

However, SJSU (like some other CSU campuses is adopting a very strict interpretation of Federal accessibility guidelines that requires a written transcript to be posted for any oral presentation. Such a bureaucratic imperative from the state (and ultimately the Feds, i.e. the ADA) increases the cost of posting, delays its availability (as it did here) and limits what we post to a small number of talks where we can identify funding to cover the transcription cost. In the name of being fair to a few, we severely limit the information we provide to all.

Don't mess with Eric

Tuesday my fellow SJSU management professor Randy Stross gave his talk on his new book, Planet Google. I plan to summarize the talk later in the week, but one snippet stood out.

Another faculty colleague, Iris Quan, asked Randy if researching Google posed any difficulties (given their legendary secrecy). Randy started by saying his previous books helped, but his New York Times column hurt.

Randy recalled the July 2005 story by a CNET reporter that really got Google’s CEO mad. The famous story by staff writer Elinor Mills began

Google CEO Eric Schmidt doesn't reveal much about himself on his home page.

But spending 30 minutes on the Google search engine lets one discover that Schmidt, 50, was worth an estimated $1.5 billion last year. Earlier this year, he pulled in almost $90 million from sales of Google stock and made at least another $50 million selling shares in the past two months as the stock leaped to more than $300 a share.

He and his wife Wendy live in the affluent town of Atherton, Calif., where, at a $10,000-a-plate political fund-raiser five years ago, presidential candidate Al Gore and his wife Tipper danced as Elton John belted out "Bennie and the Jets."

Schmidt has also roamed the desert at the Burning Man art festival in Nevada, and is an avid amateur pilot.

That such detailed personal information is so readily available on public Web sites makes most people uncomfortable. But it's nothing compared with the information Google collects and doesn't make public.

The result? Schmidt dictated that Google blacklist CNET from news coverage, i.e. that no Google employee talk to a CNET employee for a year.

As Stross told the SJSU audience Tuesday:

When this came out, Eric Schmidt was not amused. He felt this was a gross breach of his privacy. (audience laughter) I wrote a column about this, and my editors put the headline “Google Anything, So Long as It's Not Google.” (more laughter).

Randy mentioned that when he finally interviewed Schmidt for the book, Schmidt “mentioned this in the first 30 seconds.”

Still, Randy got cooperation from Google and got the book published. Obviously he learned a lot: I hope to share more of the talk later this week (and it will hopefully be posted online), but the best way to learn is to buy the book (also available on CD and Audible download).

Inside the Googleplex

Attempts by mere mortals to understand Google’s march towards Total World Domination has been hindered by its legendary secrecy. At trade events, Google reps make sure not to tell the audience anything that isn’t already announced, and all employees (my friends tell me) are under strict orders not to divulge real numbers.

Naturally this secretive juggernaut attracts journalists and other authors like moths to a flame. One book is out this month, two are due in 2010, and I’ve been corresponding with the author for a fourth.

First out of the chute is my coworker Randy Stross, whose new book Planet Google went on sale today. In addition to the audiobook versions of PG, Randy is also the author of six other books, including his biography of Thomas Edison published only 18 months ago.

Planet Google has already won favorable reviews by Fortune and the Wall Street Journal. Subtitled “One Company’s Audacious Plan to Organize Everything We Know,” Publisher’s Weekly describes it this way:

In this spellbinding behind-the-scenes look at Google, New York Times columnist Stross (The Microsoft Way) provides an intimate portrait of the company’s massively ambitious aim to “organize the world’s information.” Drawing on extensive interviews with top management and the author’s astonishingly open access to the famed Googleplex, Stross leads readers through Google’s evolution from its humble beginnings as the decidedly nonbusiness-oriented brainchild of Stanford Ph.D. students Sergey Brin and Larry Page, through the company’s early growing pains and multiple acquisitions, on to its current position as global digital behemoth.

For Bay Area readers, Randy is doing a 1-hour talk on his book next week (Sept 30) here at SJSU. The one hour talk will begin at noon Tuesday, and will be held on the second floor of the MLK Library. Parking is available at street parking meters or at the 4th street municipal garage.

Update Sept 29: For readers that miss that talk, he’ll be presenting his book at the Google Author Series (inside the Googleplex) on Oct. 7 but the talk is only for Googlers (Google employees). He will present again in Menlo Park on Oct. 15.

Omnigoogle supplants Microsoft

As part of the celebrations this week for Google’s 10th birthday, a number of commentors have been doing retrospectives on the firm.

One of the more interesting retrospectives is by Nick Carr, the former executive editor of Harvard Business Review. Carr is best known for arguing that “IT doesn’t matter”, i.e. IT is a commodity that rarely provides opportunity for competitive advantage.

In his blog posting at the beginning of the week, Carr makes a number of important observations. One is that Google’s ad-based model encourages their plan for perpetual betas. In other words, if they were selling software they couldn’t sell a beta, but if they’re selling eyeballs to advertisers then there’s no disincentive against betas.

More fundamentally, Carr (correctly) draws the parallels between Google and Microsoft. Both make money off of cost reduction and expanding the supply of complements:

As more and more products and services are delivered digitally over computer networks — entertainment, news, software programs, financial transactions — Google’s range of complements expands into ever more industry sectors. That's why cute little Google has morphed into The Omnigoogle.

Because the sales of complementary products rise in tandem, a company has a strong strategic interest in reducing the cost and expanding the availability of the complements to its core product. It’s not too much of an exaggeration to say that a company would like all complements to be given away. If hot dogs became freebies, mustard sales would skyrocket. It’s this natural drive to reduce the cost of complements that, more than anything else, explains Google’s strategy. Nearly everything the company does, including building big data centers, buying optical fiber, promoting free Wi-Fi access, fighting copyright restrictions, supporting open source software, launching browsers and satellites, and giving away all sorts of Web services and data, is aimed at reducing the cost and expanding the scope of Internet use. Google wants information to be free because as the cost of information falls it makes more money.

Google’s business model is just Microsoft’s, only updated and done better:

Just as Google controls the central money-making engine of the Internet economy (the search engine), Microsoft controlled the central money-making engine of the personal computer economy (the PC operating system). In the PC world, Microsoft had nearly as many complements as Google now has in the Internet world, and Microsoft, too, expanded into a vast number of software and other PC-related businesses - not necessarily to make money directly but to expand PC usage. Microsoft didn't take a cut of every dollar spent in the PC economy, but it took a cut of a lot of them. In the same way, Google takes a cut of many of the dollars that flow through the Net economy. The goal, then, is to keep expanding the economy.

God or Satan? When you control the economic chokepoint of a digital economy and have complements everywhere you look, it can be difficult to distinguish between when you're doing good (giving the people what they want) and when you're doing bad (squelching competition). Both Google and Microsoft have a history of explaining their expansion into new business areas by saying that they're just serving the interests of "the users." And there's usually a good deal of truth to that explanation - though it's rarely the whole truth.

Google, the integrated software company

Everyone has been going gaga over Google’s new browser, Chrome. I actually had to work today (teaching classes), so since I’m coming late, let me point to other coverage. The announcement was made in the Google blog, which referenced the Google comic book (officially released on Google books but more readably presented by Blogoscoped).

Om Malik (as is often the case) has an incisive summary of the new software’s features, while Walt Mossberg and the Merc each have a first test drive.

There’s lots of speculation about Chrome being aimed at Firefox rather than Internet Explorer. As of August, market share is 72.2% IE, 19.7% Firefox, 6.4% Safari, and 0.7% Opera and Netscape. (Of the Safari, 0.3% is iPhone, up 58% from July to August). Kara Swisher (of the WSJ-owned site AllThingsD) is skeptical about Google’s chances of winning a browser war:

Google’s in no danger of foundering, given its search business still dominates and quite profitably, of course.

But, for all the halo of that, Google has also never had any other similar true home run with any of the other products it has released so far.

Of course, Chrome is obviously the Android browser, since (as with Android) it’s Google’s browser based on WebKit. Apple already has a browser based on WebKit — it’s called Safari, available for Windows.

While Chrome has more features than Safari, the main difference appears to the new Javascript virtual machine (called V8) from its virtual machine development group in Denmark (replacing SquirrelFish, the most recent WebKit Javascript interpreter). The main difference (according to the comic book) is the multithreaded VM.

Still, why does Google have to go off and make its own browser, given that Apple is already making one? Why not work together? (After all, Google’s CEO is on Apple’s board). Google’s hubris (some would say arrogance) en route to Total World Domination seems to require its go-it-alone strategy, just as with Android it’s calling all the shots and not cooperating with other embedded Linux efforts.

The answer is that this is not about browser wars: this is what strategy professors call “multipoint competition,” in this case over competing hopes for Total World Domination. Microsoft dominated the software industry in the 1990s, and Google is determined to claim that mantle within 5 years.

This means that any software that Microsoft offers Google will eventually offer as well. If it can overcome its hubris, perhaps Google will partner or ally to deliver with other members of the anti-Microsoft camp. I suspect it will always choose weaker partners (like Yahoo or Sun) to keep control rather than strong ones (such as Apple or IBM), at least until that time later this century when it abandons hopes for Total World Domination.

By competing with Microsoft, Google is en route to be a fully integrated software producer, one that happens to deliver more (but not all) of its software as a network service rather than a client-based application. This is a fully integrated stack — from its Android variant of Linux through Chrome to Google-hosted services — rather than the vertical integration of inputs and outputs that characterized 20th century innovation leaders.

Google’s mantra (repeated at the official Chrome intro) is that the browser is not a browser, but a computing platform. This is an update (15 years later) of Sun’s old mantra “the network is the computer.” Unlike with Sun, Google will own both sides of the network used by hundreds of millions (if not billions) of consumers: the client browser, applets that run on the client, and the server stack that delivers those applets and services over the Internet.

Update: It is now clear that Chrome and Android have separate forks of the WebKit open source project, even if someday they may be merged back together.

Is Google toast on the handset?

Yesterday USA Today published a story entitled “Are Google, Yahoo the next dinosaurs?”

Here are a few excerpts

Microsoft (MSFT) has been pushing its Windows Mobile operating system for years. Today, it's available from 50 handset makers and more than 160 mobile operators worldwide.

Even so, it's been tough slogging, says Phil Holden, director of online services for Microsoft.

"What we've learned is that loyalty on the PC doesn't necessarily transfer to the mobile phone," he says. The wireless world, he adds, "has a lot of different dynamics."

One thing everybody agrees on: The mobile Web is an advertising gold mine just waiting to happen.

The fledgling mobile search industry generated about $700 million in ad revenue in 2007, JupiterResearch estimates. By 2012, revenue is expected to hit $2.2 billion and keep rising. Jupiter analyst Julie Ask says mobile search could eventually eclipse the traditional Web, which currently generates about $20 billion in ad revenue.

If you read to the end, the gist of the story is “Is Google toast on the handset? Or will they use handsets to extend their Total World Domination? It remains to be seen.” You didn’t need to read 1,900 words to know that.

Still, it has a lot of good details on potentially disruptive technologies for the handset.

Hiring your way to Total World Domination

In the early 1990s, Microsoft had its pick of college graduates; five years earlier, it was Apple, and of course in the 60s it was IBM. Fortune magazine has surveyed MBA students as to where they’d like to work, and the number one choice was Google (24%).

For a company based on innovation, technology development and creativity, you’re only as good as your people (and your management). Google has been hiring the best engineers for years, and (has been amply demonstrated recently) has much better management than Yahoo (and also got some help from its older Stanford cousin). Continuing to attract the best people in the world is certainly one key to remaining on the path to Total World Domination.

However, all good things must come to an end. Microsoft got less attractive when dot-coms looked more exciting and lucrative and then later when its stock collapsed (and then stagnated), making stock options useless as a recruiting and retention mechanism.

In the last year, Google’s stock began to follow Microsoft’s pattern (off 22% from its 52 week high), reducing its potential as a motivation tool. This could be followed by other problems common to once high-flyers. If it doesn’t have high internal growth (as opposed to growth through acquisition), there will be limited opportunities for internal career growth — although with Google’s broad span of control, the opportunities for advancing up the management chain for latecomers were always lower than at a traditional company.

On Fortune’s list, six of the top 10 were investment banks or consulting companies; the only other tech company was Apple, fourth at 14%. Among IT companies, Microsoft is #12 on the latest list, and IBM #29 — both ahead of Cisco (#43), Intel (#44), Dell (#63), HP (#64) and Nokia (#81). The surviving dot-coms do a little better, with Amazon (#23), Yahoo (#32) and eBay (#53).

Aiding your enemies in total world domination

For the past three days I’ve wanted to blog on the most incredible article from the front page of Sunday’s Murky News. Reporters Elise Ackerman and Pete Carey documented how Yahoo worked from 2000-2005 to help Google get established and get revenues.

Here is an excerpt:

In 2000, Yahoo agreed to use and promote Google, which it touted as "the best search engine on the Internet." Google co-founder Larry Page described the pact as a "major milestone."

The following year, Yahoo was even more generous, paying Google $7.2 million for its services. (Google in turn paid Yahoo $1.1 million for promotional help.) Google desperately needed the money, which helped pushed it into the black for the entire year. ...

The paranoid survive

The tech industry's giants - like Microsoft, Intel and Oracle - are famous for ruthlessly dealing with competitors. Not Yahoo.

In 2002, Yahoo paid Google $13.2 million, equivalent to more than a quarter of Yahoo's annual profit of $43 million. The sum, however, meant less to Google, which had blown past its benefactor with an annual profit of about $100 million.

There is also an interesting sidebar about how Yahoo once owned 8.2 million shares of Google, and Yahoo founder David Filo owned an (unspecified) personal stake in Google. The article implies that the former stake was sold for about $1.4 billion from 2004-2005.

The two have obvious commonalties. Yahoo was founded in 1994 and Google was founded in 1998 — both by Stanford Ph.D. students. The two are 5.5 miles apart (“about 9 mins”) via the Bayshore, but only 3 miles as the crow flies.

The story is how the two firms were originally complementary but eventually became direct competitors. Yahoo CEO Terry Semel considered buying Google in 2002 but gave up, and so instead bought (loser) Inktomi. There are interesting tidbits, including early warnings by lower level managers to Yahoo execs that it wasn’t such a good idea to help Google in its march to total world domination.

As with all of MercuryNews.com, there’s no figures and no tables. The online article leaves out an interesting history of Yahoo, and some comparisons of Google and Yahoo revenues (plotted below in Excel) and search market share. We tend to forget that Yahoo was bigger than Google until 2005 — the current train wreck has been relatively recent.

My coworker Randy Stross is finishing a book called Planet Google, and in an e-mail this morning said he’s already covered it in the manuscript. He's doing final edits now and the book is due in September.

We both think that Yahoo’s helping Google is an exact parallel to IBM handing Microsoft the PC operating system franchise back in 1980. However, to my mind, IBM’s complacency as a 90-year-old Fortune 100 company vs. tiny Microsoft is much more excusable than Yahoo (at age 6) assuming it could forever stay ahead of Google (age 2).

A few bumps on the road to Total World Domination

There were a couple of bumps today on Google’s drive towards Total World Domination.

Barely noticeable is the sound of Ask.com being crushed as Google steamrollers over it. There’s talk of refocusing, but Danny Sullivan wrote their obituary this morning:

The truth is, you're dead. You're about to join the legion of other has-been search engines.

Perhaps more material to Google’s executives and shareholders is the recommendation by analyst Jonathan Moreland that it’s time to short Google stock. At 447, Google stock is 40% off its all-time high last November.

The argument (apparently only in this morning’s WSJ) is that internal stock sales are accelerating and stock buying has dried up. Moreland has already made money shorting Google stock, based on a combination of insider sentiment, economic conditions and the end to the company’s seemingly unstoppable momentum.

"So many of these insiders have been so anxious to sell or exercise their options, and so unwilling to hold much of anything long, and that's a particular red flag to me," he said....

Mr. Moreland said he believes it would take only a small crack in the bullish sentiment among analysts and institutional investors to send the shares down further.

"The near-religious fervor behind the stock is likely to wane a bit in the near future, and I thank insiders very much for showing their extreme lack of confidence," he said.

In the 1990s, Microsoft could do no wrong (at least with employees) as its stock options got every more valuable. In this decade, the ineffectiveness of option incentives has meant high attrition among veterans and (presumably) forcing it to pay market prices in straight salary for employees.

Barring some miraculous recovery in Google stock, a flat trend for share prices will crimp both its recruiting and acquisitions strategy.