Google’s (not so) Stupid Strategy

If Google is so smart, why can’t they follow basic principles laid out in any MBA textbook?

Put simply, Google’s strategy tends to be stupid in much the same way I previously wrote about Apple’s stupid strategy.  They don’t follow any of the normal rules that are taught in business schools or that grace the PowerPoint decks of management consultants.

Sure, Google makes a fantastic product, but I doubt many would say that they have a superior plan.  In fact, throughout the history of the company they haven’t really seemed to make strategy, at least in the customary sense, a priority.  Either they’re doing it wrong or there is something amiss with conventional ideas about strategic planning.

In The Beginning

Google started with an algorithm, not a business plan.  In fact, it could be argued that they didn’t even have the best algorithm.  Many technologists believe that the HITS algorithm, designed by Jon Kleinberg of Cornell around the same time as Larry Page and Sergey Brin developed PageRank, was superior.

Nevertheless, as they happened to be in the heart of Silicon Valley, they had no problem getting some venture funding and starting a business.  However, even then they had no clue how they were going to make money, just lots of ideas about how to make the best search engine and a dream of “organizing the world’s information.”

It wasn’t until years later, when their investors were just about at wit’s end that they came up with the concept of selling context advertising by auction (an idea which, they in fact “borrowed” from Overture before it was bought by Yahoo!).  Larry Page himself said that finding the right revenue model was “probably more of an accident than a plan.”

Of course, today they are a money machine, but still seem strategically adrift.  They make lots of great products, like Google Earth and Android, yet don’t appear to have a clear idea how to monetize them on any impressive scale.  Most companies would be scrambling around to find the next cash cow.  Not Google.

A Personal Experience

In 2006, I visited the Googleplex with a group of magazine publishers.  We were led on a tour of the impressive volleyball courts, fitness clubs and other amenities before being ushered into an auditorium where they presented us with the idea of using their algorithms to sell magazine ads.

We were bewildered, to say the least, and it wasn’t out of fear.  In fact, we were astounded how little they understood magazine advertising, which isn’t very transactional.  Magazine spenders aren’t looking for “hits” as much as they are trying to project an image and that image is defended with vigor.

Therefore, much of servicing magazine clients revolves around special projects and placements.  What page? Next to what kind of article? In what format?  These are the points of negotiation that make up the basis of a publisher-advertiser relationship.

Until there is an mathematical formula that can discern the subtle differences between Vogue and Cosmopolitan, their plan was a non-starter.  It seems that eventually Google got the message and the program was scrapped.

In the end, it was a very dumb idea that probably cost them less to try than McKinsey would have charged them to research.

Pyramids vs. Products

Sit through a typical management consulting presentation and, chances are, they will eventually show a pyramid like this one:

The details vary, but the principle is always the same.  At the base of the pyramid you’ll find what you need just to stay in business, like “programs” or “tactics.” Your “ticket to the show,” if you will.

However, at the apex of the pyramid there is a much more noteworthy goal such as, “strategy” “operational excellence” or “innovation” (depending on what they’re selling).

I didn’t see any pyramids at Google, nor have I heard of any.  Nonetheless, what is undeniable is that they make great products.  I got some first hand knowledge of just how good when we switched our search partner in Ukraine from Yandex to Google.  Sure enough, even in the Cyrilic alphabet, Google markedly outperformed the local product.

The Difference Between a Porsche and an Algorithm

“Stupid” is an exacerbating word, and I use it intentionally.  However, in truth, the matter at hand is less about whether Google or anybody else is stupid, than about how our world is changing.

I think that the crux of the issue can be found in Richard Feyman’s 1959 talk There’s Plenty of Room at the Bottom, which inaugurated nanotechnology and is probably the most impressive document I’ve ever read.  In it, he observes that as we makes things smaller, friction, and therefore energy, ceases to be an issue.

To see what I mean, think of a Porshe.  It’s a fantastic car mostly because of how it uses energy.  It goes really fast and its parts are made so precisely that it is able to render that energy extremely manageable.  The same can be said for most high margin products in the “old economy.”

However, the “new economy” is different.  Google’s algorithms don’t use any more energy than anybody else’s (the same argument can be made for iPhones).  The difference is one of design, not manufacture and therefore the key defining attribute is one of inspiration, not efficiency.

Better, more powerful products no longer depend on their energy use, or even their cost.  In fact, the relationship is often inverse.

The Passion Economy

When you take into account the fundamental economic difference between atoms and bits, the volleyball courts, fitness clubs, on site massages and, yes, even the dopey idea of selling magazine advertising that I encountered at the Googleplex starts to make sense.  As I’ve argued before, we’re increasingly living in a Passion Economy.

A successful business today depends much less on organizations moving material around and much more on the clarity and elegance of the ideas they generate.  That takes passion and a lot of it.  Companies like Google prosper through inspiring their employees and their customers.  That’s not a pyramid, but a singularity; and it’s a singularity of focus.

From the beginning, they were focused on making a product that would change the world and they were convinced that, if they could do it, profits would follow.

They were right.

– Greg