I’ve spent many hours trying to puzzle out Google’s product plans. What’s the logic behind Google Drive, how does Motorola fit in a software company, and on and on (link). But with the acquisition of Nest, I think I’m going to stop looking for a single product strategy. I believe Google’s mission statement to “organize the world’s information” is no longer a meaningful guide to its actions. To me, the company looks less and less like a unified product company and more and more like a post-modern conglomerate.
The idea behind the “Internet of Things” is that network connectivity is moving into almost everything. If that’s Google’s investment thesis, it could rationalize an investment in almost any industry. Appliances? Absolutely. Shipping and logistics? You bet. Phosphate mining? OK, maybe not that. But any category of products that have electronics in them is fair game, as are any services that rely on data management. That’s going to be most of the economy.
You’re left with no grand product plan, other than the strategy of any conglomerate: Move into hot categories where we can apply our skills and expertise.
If that’s the case, we’ll need to evaluate Google’s strengths and weaknesses differently. We should worry less about the overall grand plan, and more about the management structure of its businesses, the skills of its general managers, and the efficiency of the support staff behind them. In other words, will Google be more like GE or like HP?
Here’s the key question: Does Google know how to manage itself this way? Does it have the right culture, processes, and team strength to run a conglomerate? Does it understand its weaknesses, and have a plan to fix them? For example, maybe the acquisition of Nest is less about its products and more about getting a team that knows how to apply high technology to a low-tech device category (link).
No industry is safe. The answers are crucial to many people. Investors obviously need it to understand whether Google stock is a good buy. VCs need to understand what categories of companies Google might buy. Competitors need to anticipate what Google might do next. And more broadly, the leaders in most industries should ask whether Google is now a competitor to them.
I’ve spent many hours trying to puzzle out Google’s product plans. What’s the logic behind Google Drive, how does Motorola fit in a software company, and on and on (link). But with the acquisition of Nest, I think I’m going to stop looking for a single product strategy. I believe Google’s mission statement to “organize the world’s information” is no longer a meaningful guide to its actions. To me, the company looks less and less like a unified product company and more and more like a post-modern conglomerate.
Posted by Michael Mace at 11:02 AM Permalink. 14 comments. Click here to read post with comments.
I want to believe.
The forecasts for wearable computing are remarkable. The headline in Wired declared, “Wearable Tech Will Be as Big as the Smartphone,” but the article went even further:
“We’re...seeing an explosion of these devices on the market.... A new device revolution is at hand...wearable devices are poised to push smartphones aside.” (link)
So wearables aren’t just a new market, they’re the replacement for the smartphone.
The article acknowledges that may seem like an outlandish prediction, but argues:
“It may seem laughable to suggest that people will soon neglect their iPhones in favor of amped-up watches, eyeglasses, rings, and bracelets. But then again, 10 years ago it seemed laughable to think that people would use their smartphones to email, surf the web, play games, watch videos, keep calendars, and take notes.”
Just for the record, ten years ago the PalmOne website told people they could use their Treo smartphones to do e-mail, surf the web, play games, watch live TV, keep calendars, and yes, take notes. It didn’t work as well then as it does now, of course, but people weren’t just thinking about doing those tasks on smartphones ten years ago, they were doing them.
It makes you wonder if Wired’s editors are all under age 25 or stricken with a tragic case of group amnesia. But I digress.
I’m a gadget guy. I love devices, and I especially love the emergence of a new computing platform, because it creates so much opportunity for developers and so much innovation for customers. So the idea of getting in on another new platform is incredibly enticing to me. If you work in technology, it should be exciting to you too.
But precisely because a wearable revolution would be so enticing, we should be super-careful that we don’t get swept away by optimistic groupthink. For every computing revolution I’ve lived through, I’ve seen several others that arrived decades late or fizzled out entirely.
So while my heart wants to drink the wearable Kool-Aid right now, my head says to step back, think about it, and ask if the foundations really exist yet for a new computing revolution.
So far, my head is winning. I do believe wearable computing has a bright future, and in some vertical markets it’s already taking off. But is it the successor to the smartphone? Not now, and maybe not ever. Here’s why.
Two fatal flaws
I think there are two big problems with wearable computing today. First, the term is a catch-all, not a category. Second, even if you get the definition right, I think we haven’t yet found the killer app.
What is wearable computing, really? The term is kind of self-referential: wearable computing is computing gear that you wear. It attaches to your body or clothing, like a pair of glasses or a watch or a brooch. But those are extremely different form factors. I’m a Google Glass user and I’ve followed smart watches ever since Fossil worked on its late, lamented Palm OS watch in the early 2000s. Watches and glasses are completely different beasts, with different usage patterns and very different strengths. Grouping watches and glasses together in a single category makes as much sense as grouping together missiles and cargo planes and calling them flyable devices. The label is factually correct but meaningless in terms of predicting how the market will develop.
So rather than talking about a wearable revolution, we should be asking if there’s a smart watch revolution or a smart glasses revolution coming. When you look at the world that way, it gets a bit less exciting, because you see the weaknesses in each category of product.
Will wearables eat the smartphone? The tech industry is always full of predictions that some new type of device is about to swallow another one. It’s called convergence, and I’ve been hearing about it ever since the late 1980s, when Apple strategist Ken Lim started talking about it.
But there are always many more convergence predictions than actual convergence events. In an example of successful convergence, home stereo systems used to consist of separate modules: disc player, amp, tuner, etc. They eventually converged to a single unit for many buyers.
On the other hand, for decades many computer manufacturers predicted the imminent merger of the printer and personal computer. Converged computer/printers were promoted heavily in Japan, and several prominent efforts were made to bring them to Europe and the US. They all failed. Today PCs and printers are still separate devices.
Why do tech products sometimes converge and sometimes not? The general pattern is that devices converge only when the merged product is a fully-functional substitute for the devices being replaced. So smartphones rapidly killed the PDA because they could do everything a PDA could. Printers and PCs never converged because making a combined PC and printer required some pretty heavy compromises on the quality of the printer. Instead, printers merged with scanners and fax machines, which did not require major compromises. The only place where converged PC-printers got serious traction was Japan, where desk space is sometimes at such a premium that people were willing to accept a lower-quality printer in exchange for a smaller footprint.
So, for smart glasses or smart watches to replace smartphones, they have to be able to take over all of the functions of smartphones, without a major loss in functionality. Can they do that? Absolutely not. The screen is too small on a watch to browse, and smart glasses lack the touch controls that would let you control a browser or sophisticated app.
Even more importantly, neither device has the battery power needed to function as your full-time phone. In fact, today most of them rely on the smartphone to give you wide-area connectivity when you’re on the go. In other words, they are smartphone accessories, not replacements.
I can imagine a future wearable product that could do a lot more. You could browse the web or run a complex app if the glasses or watch had a full gesture-driven interface (something like Leap Motion, not the awkward stem-swiping interface of Glass). And eventually batteries will become powerful enough that a small one fitting in a watch or glasses could power a cellular radio for a full day. But that will require at least several years of development, plus a significant breakthrough in battery chemistry that can’t be forecasted. We’ve been waiting for it in smartphones for more than a decade; don’t hold your breath. By the time it happens, we’ll have bendable screens, and we’ll be able to create smartphones that collapse down to the size of a roll of LifeSavers candy.
So the real competition to a smartphone-replacing watch or pair of glasses is probably a smartphone so small that you can wear it on a cord around your neck or wrist. Everything eventually gets small enough that it’s wearable, and yeah I guess you can call that a wearable computing revolution. But it won’t happen this year, it won’t happen next, and we may all be quite a bit older and grayer before it becomes practical.
Where’s the killer app? If glasses and watches can’t replace a smartphone in the foreseeable future, the other way they’ll get broad adoption is if they do something else that a smartphone can’t do at all, or cannot do as well. This is the way most major computing platforms get started: They enable something new and compelling, people buy them for that purpose, and the devices then branch out into other usages. Mainframes started as military calculators. PCs started as word processing and spreadsheet machines, BlackBerry started as an e-mail pager, and the iPhone started as a phone that could also browse well and play music.
What’s the compelling, broadly appealing usage that could drive adoption of a smart watch or glasses? So far I don’t think there is one.
I’ve been playing with Glass for weeks now, and have put a lot of apps on it. It’s a bold experiment, I applaud Google for trying it, and there are some things I really like about it. I had tried camera glasses before, but without a screen you couldn’t tell where the camera was pointed. People often move their eyes rather than their heads, so a camera focused straight ahead often doesn’t show what the user is looking at. Because there’s a screen in Glass (and a surprisingly bright, readable screen at that), you can see exactly what you’re photographing. The sound playback also works surprisingly well (sound recording sucks in a noisy environment).
But for me, the negatives outweigh the positives. Battery life is very short, and the user interface based on swiping the stem of the glasses is alarmingly nonintuitive and limited (it’s like trying to have a conversation where you can only say “yes” or “no”). The spoken commands work a bit better, but I’m not comfortable speaking to my glasses in public, and I doubt most other people will be either.
But the biggest problem is that none of the apps I’ve seen so far makes me want to wear Glass on a regular basis. The apps are vaguely interesting, and the geek in me enjoys playing with them. But I’m not getting the sort of big revelatory feeling I had when I first used PageMaker on the Mac, or when I first browsed the web on an iPhone.
We have seen some traction for wearable devices in vertical markets, especially sports and health. Smart watches and other wearable fobs are a great way to track your exercise, and sports goggles are a cool way to make videos of your ski runs. It’s very telling that these devices have sold well on their own, without any need for hype or even a heavy marketing budget. That’s what happens when you find the right app -- it takes off on its own.
Unfortunately, fitness is too narrow a vertical to carry a platform to the takeoff point. You may get nice sales for the company that made a device, but the installed base of devices won’t get big enough to attract a large group of third party developers who then create the apps that take the device horizontal.
The main horizontal usage for wearables that’s being advocated today is notifications. You can configure Glass to show incoming messages, and most of the smart watches can display things like caller ID for your smartphone. The idea is to let you consume (and send) small amounts of text and images without taking out your smartphone. To save a few seconds per notification, you have to pay for a separate device, learn to use it, and remember to recharge it every night. Will the benefit exceed the cost and hassle for tens of millions of people?
It’s been tried before. Does anybody remember Spot, the smart watch platform Microsoft promoted in the mid-2000s? You could configure the watches to give you notifications, headlines, and messages, and they didn’t even require a smartphone because they received notifications from sideband FM broadcasts. Despite a hefty Microsoft investment and several licensees building devices, Spot went splat in the market.
That does not mean notification wearables are destined to fail forever. Many tech product categories fail repeatedly before they succeed. But Spot did prove, very decisively, that just adding notifications to a wearable device won’t drive demand. There’s some additional step of clever software, improved user interface, or integration with other products that’s needed to make the app a killer.
If it can become a killer at all.
So the reality is that today’s forecasts of a wearable explosion are based on faith, not analysis. If you believe a wearable killer app is coming, then it’s easy to convince yourself that many millions of these things will be sold. I want to believe that too. But I think I need to see the app first.
Posted by Michael Mace at 9:26 PM Permalink. 15 comments. Click here to read post with comments.
The rumors floating out of Microsoft these days are remarkable:
—Microsoft’s Nokia business is working on an Android phone, and Microsoft might let them sell it (link).
—Contrary to its entire business history, Microsoft may give away Windows phone and Windows RT for free (link)
—The Start menu will be restored in at least some versions of Windows 8.1, and it will be possible to run Metro apps in floating windows inside the traditional Windows interface (link)
Those are just rumors, of course, but they’re coming from multiple reporters who have strong ties to Microsoft, which means they’re probably genuine plans or at least serious trial balloons. Taken together, the reports give a picture of a company that’s laudably willing to revisit its assumptions, but that also seems to have lost track of what it’s trying to accomplish. Specifically:
—Making Windows Phone free is a nice idea and would have been a clever response to Android six years ago. Back then, the idea of a free mobile OS was appealing to handset companies, which are at heart surpassingly cheap. Faced with rampant iPhone sales and no good alternative, the phone companies were very willing at that time to give a try to the low-cost Google-backed approach.
But today, Android has huge market momentum, so a phone vendor switching off it would be abandoning most of the available customers, something they are extremely reluctant to do. Besides, getting a free OS is not currently the main concern for most handset companies – the big worry is finding a way not to be crushed by the dominant Android vendor, Samsung. Windows Phone has its own dominant vendor, Nokia, so it has all the negative aspects of Android without the customer base.
Nice idea, Microsoft, but you’re closing the barn door not only after the horses left, but after the barn burned down.
—I think a more interesting licensing strategy for Microsoft would be forking Android: Take an open source version of it and add your own services on top. That’s apparently the idea behind Nokia’s OS plan, in which Nokia would supposedly replace its low-end phone OS, Series 40, with a modified version of Android. Those phones could then tap into the Android app base, making them more attractive to low-end customers. (Heck, they might even be more attractive to high-end customers as well.)
But if that’s the right strategy for the Nokia business unit, it’s also the right strategy for Microsoft’s OS licensing. If you’re giving away Windows Phone for free, the only way you’ll make money from it is through bundled services. You could just as easily bundle those services on a forked version of Android, save the expense of creating and maintaining all the low-level OS plumbing, and get access to the Android customer and app base. That sounds like a much more appealing licensed OS than Windows Phone, even though you still have the problem of Nokia competing with your other licensees.
But that’s not the roadmap we’re hearing from the Microsoft OS team. Instead, they’re talking about creating a single Windows code base that runs across all types of devices, something that’s technically appealing if you’re a Microsoft engineer but thoroughly uninteresting to customers.
So the various parts of Microsoft appear to be working at cross-purposes. The Nokia unit has a nicer mobile OS plan but no intent to license it, and the OS group has a licensed mobile OS with almost no customers. Something’s got to give.
—Meanwhile, the rumored changes to Windows 8 are, to me, a mix of sensible ideas and bizarre improvisation. The word is that Microsoft’s going to offer three versions of Windows (link):
A phone/tablet version that runs Metro-style apps. Although I’m sure Microsoft will save money by unifying development, customers don’t care about that. They care about features. Unless there’s some dramatic change in functionality that we haven’t been told about, I think this new product will have as much appeal to licensees and customers as the current version of Windows Phone. So you can think of this as the version of Windows that no one wants.
A “consumer PC” version, which may or may not be able to run existing Windows 32 applications. If it can’t, I think it will sell as well as Windows RT did.
An “enterprise PC” version, which would run today’s Windows 32 applications in addition to “modern” (Metro-style) touch apps. The Start menu would apparently be restored in Win32 compatibility mode, and you’d be able to run Metro-style touch apps in windows inside the Win32 interface.
The only configurations likely to sell in volume are the ones that let customers run their familiar Win32 apps. I think reviving the Start menu in these configurations is smart; it makes it easier for current Windows users to move up to the new OS. That’s such a no-brainer that Microsoft should have done it in the first version of Windows 8. The question is not why they’re doing it but what took them so long.
On the other hand, running Metro apps in a traditional Windows frame is...I don’t even know what word to use. Bizarre? Crazy? I’d even say frightening, because it implies that Microsoft has lost track of why it did Windows 8 in the first place. The idea behind Windows 8 was to build a full-function PC that could also switch to work as a no-compromises tablet. I don’t think a lot of customers actually want that, but at least it’s a clear direction.
Mixing the two metaphors on the same screen completely undercuts Microsoft’s basic idea. Instead of switching between tablet and PC mode, you’re mixing two totally different usage paradigms on the same screen. How does the user know when to touch and when to click? It’s like driving a car that has both a steering wheel and a joystick. Instead of giving users a tablet and a PC that you can jump between, Microsoft is at risk of giving users an awkward combination of the worst of both worlds.
It feels like the people who were responsible for the original Windows 8 vision and strategy have left the scene, replaced by folks who are tactically tweaking the products they inherited, with no sense of where they’re going long term.
The focus on rationalizing code bases feels symptomatic of this. It’s a sensible thing to do and will cut Microsoft’s costs, but it does nothing to increase demand. In the tech industry we overuse the phrase “rearranging deck chairs on the Titanic,” but in this case it really seems to fit.
What it means
New CEO needed. It’s important to remember that Microsoft is in the middle of its biggest business transition ever. It’s simultaneously getting ready to merge with an enormous Finnish phone company, and hiring its first CEO who wasn’t a cofounder. That sort of situation typically encourages bizarre behavior. For example, groups will try to lobby for their favorite projects by leaking information about them, trying to build up public support that will influence the new CEO.
Think about it, why would Nokia possibly want to leak the news that it’s replacing the OS in its low-end phones? That’s very likely to stall sales of the current phones, driving down revenues. Nokia just made that mistake with Symbian, and now it’s repeating it? Somebody in the Nokia business apparently feels it’s more important to lobby for its OS vision than to protect current sales. It’s a triumph of business politics over short-term business sense.
Another behavior we should expect to see is business managers pushing forward aggressively with their plans, looking to prove that they’re dynamic leaders who don’t need to be replaced. It doesn’t matter if those plans contradict company strategy; the point is to look dynamic. The strategy’s going to change anyway. And what’s Ballmer going to do, fire you?
We should expect to see more odd behavior until MS picks a new CEO. Then it’ll be several months of strategic reviews, followed by ritual bloodletting and reorganization. So Microsoft is likely to continue to be confused for at least the first half of 2014, and that’s assuming they can choose a new CEO quickly, something they may not be able to do to do (link).
Windows Metro = OS/2. The big bet in Windows 8 was that Microsoft could re-ignite sales growth for Windows by tapping into the tablet market. A PC that could also work as a tablet, Microsoft reasoned, would be more attractive to customers than either product alone. I think it’s pretty clear that the Windows 8 bet is failing. Windows 8 is being pre-installed on a lot of PCs, but that’s because Microsoft is pushing it through the OEMs. Microsoft could ship a hamster wrapped in duct tape, label it Windows, and a lot of OEMs would bundle it. What hasn’t happened is Microsoft’s promised explosion in user demand for convertible Windows computers, followed by an explosion in developer activity that might drive future demand.
I think it’s increasingly likely that the tablet interface formerly known as Metro will be more or less stillborn as a development platform. It will linger for a long time as Microsoft’s software for touchscreen devices, but I don’t see it being embraced by the leading-edge developers who can drive new demand to a platform. Instead, it’s kind of the third option for developers who have already built for iOS and Android.
I think most PC users will stick with the traditional Windows interface, most Windows developers will follow them, and most people who want tablets will get iPad or Android or Kindle.
So the challenge for Microsoft’s new CEO is the same one Steve Ballmer has tried and failed to answer for years: Demand for Windows is declining because the platform hasn’t done anything new for a decade, while Microsoft doesn’t control the fast-growing segments in tablets and smartphones. Microsoft tried to use Windows 8 to take over tablets. That failed. What do you do now?
The traditional answer would be to break up the company and try to salvage parts of the business that can grow on their own. It’s the kind of big deal that consulting companies love to recommend and investment firms love to broker. Besides, it looks bold, even though it’s actually the path of least resistance. So I wouldn’t be at all surprised if the new CEO chose that path.
The alternative to a breakup is to actually fix the product problem: to offer new functionality for Windows that’s more attractive than the competition. That would mean new mobile software that’s substantially better than iOS and Android, and/or new PC features that will give people a compelling reason to recommit to personal computing. There are plenty of opportunities to create that sort of innovation (link), but Microsoft doesn’t have a great record as that kind of product leader.
So if Microsoft is to stay together, the new CEO needs to be either a product visionary or know where to find one. I wish them luck.
Posted by Michael Mace at 10:08 PM Permalink. 53 comments. Click here to read post with comments.
Ten years ago, everybody in the tech industry — and I mean everybody — was convinced that the best way to dominate a technology market was to create an operating system and license it to a bunch of other companies. “The key to success is creating a standard,” said the experts. “If you write software for only your own hardware, you’ll never achieve the economies of scale of a licensed OS, and you’ll never be able to dominate the market without a wide range of licensees selling your hardware.”
The case for licensing seemed obvious because of the success of Windows. Apple had kept MacOS to itself, while Microsoft had licensed Windows. Microsoft won. Therefore licensing was the best way to go.
But then Apple transformed the phone market with the iPhone, and created the tablet mass market from scratch with the iPad. Suddenly the proprietary approach started to look a lot better.
Ten years later, the idea of an independent operating system licensed to all comers is a fading ideal. The two leading operating system licensors in mobile have now bought major hardware companies: Google with Motorola and Microsoft with Nokia. Both companies continue to license their software, of course, but clearly they don’t feel that’s enough. They need to also create hardware.
When you look at it in terms of tech history, this is a stunning change. I’m having trouble thinking of another industry that changed its basic assumptions so thoroughly in such a short period of time. I’m still trying to sort out what this all means for the rest of us, but here are some preliminary ideas:
Are they fighting the wrong war? Since the experts were supposedly all wrong about licensed OS ten years ago, we should ask whether they might all be wrong again today. The standard assumption behind buying a hardware company is that by combining hardware and software you can produce the sort of fantastic user experiences (and fantastic margins) that Apple does. There are a couple of potential problems with that reasoning:
1. There already is an Apple. You can make a good argument that Cupertino has already used up most of the customers who are willing to pay extra for a value-added smartphone or tablet, and that the remaining customers are mostly buying on price. That creates the possibility that Microsoft (and the Motorola part of Google) will end up with the worst of both worlds: an Apple-like expense structure but with commodity margins. Google can afford that since it has the web advertising business to subsidize it. Microsoft, with restless shareholders and all of its cash cows under threat, has much less room to maneuver.
2. Does combining hardware and software really work? Other than Apple, how many integrated hardware-software companies have succeeded wildly in mobile? Let’s see, there’s Palm, BlackBerry, Danger... Apple starts to look like the exception rather than the rule. I start to think the real lesson is that no strategy will work if you execute it poorly. Perhaps Microsoft would have been better off fixing the flaws in its licensing model rather than totally changing strategy. But it’s too later for that, so we should ask why Apple succeeded where so many other companies failed.
Maybe it’s because Apple has a culture in which product managers, rather than engineers, take the lead in defining products. If that’s the case, Microsoft will need major cultural changes, and Google, well, forget about it.
Or maybe you just need to have a supernaturally brilliant CEO leading the whole thing. Which brings me to my next point...
Microsoft’s next CEO will need to be Superman. Here’s the mess Steve Ballmer will leave for his successor:
–Windows 8 has failed to produce a turnaround in Microsoft’s gradual decline.
–The Surface tablets have more or less died in the market.
–The company’s just been through a massive top-level organizational change. Those things typically take a year to trickle down through the organization, as the lower levels of management get resorted and reassigned. That process will be disrupted while everyone waits to see if the new structure will stick with the new CEO (unlikely; new CEOs almost always want to change things).
–And now Microsoft needs to mesh the Nokia and Microsoft businesses. There’s a cultural challenge: Nokia’s is a collectivist Finnish hardware company while Microsoft is a dog-eat-dog hypercompetitive software business. There are also operational challenges. As I learned when I worked at Palm, it’s incredibly difficult to manage an operating system to please both your in-house hardware team and your licensees. They always want conflicting things. Microsoft claims it can both license Windows Phone and run Nokia. I hope that’s just bluster, because I don’t think it will work in practice.
It’s an almost ridiculously complex situation. Who could make all of it work? Who has an ego big enough to even try? To me, it feels like a job for a mad cartoon genius rather than a human being. Megamind would be perfect, or maybe Gru from Despicable Me.
I’m only joking a little bit. The CEO hire at Microsoft is going to be pivotal, and it’s difficult to imagine anyone who has the qualifications to make it all work.
Microsoft needs to find a new measure of success. In its presentation on the deal, Microsoft bragged about how it’s “outselling BlackBerry in 34 markets” (link). This is not the first time I’ve seen Microsoft use BlackBerry as its measure of success, and it needs to stop. It’s like bragging that you outran a dead guy in a marathon.
The conspiracy theorists will love this. Even before the purchase of Nokia’s phone assets, some Symbian die-hards had muttered that Nokia CEO Stephen Elop was a Trojan horse: a Microsoft exec sent to Finland with the hidden agenda of destroying the company’s value, so it could be snapped up by Microsoft. That’s certainly the outcome we got, so I’m sure the conspiracy buffs are boiling today. But for the record, I don’t think Elop was a Trojan horse — Nokia’s management was doing a very good job of destroying its value long before he arrived.
What happens next? There are some interesting shoes that might drop next. Now that we have three big hardware + software players, will the other mobile hardware makers feel pressure to copy them? In particular, will Samsung decide that it needs a different operating system? Samsung already has Bada OS, which it reportedly plans to merge with the Tizen project it's driving with Intel. Maybe it’ll feel that's enough. Will the Chinese vendors feel pressure to act? If they do, there aren’t many other operating systems they could buy. Maybe BlackBerry? Would the Canadian government allow that?
That’s my quick take, but it’s a complicated situation and there’s a lot more to think about. What do you think it means? I’d love to see your comments.
[Thanks to Adalbert for the correction on Bada.]
Posted by Michael Mace at 11:50 PM Permalink. 32 comments. Click here to read post with comments.
“What does Google want?”
A favorite pastime among people who watch the tech industry is trying to figure out why Google does things. The Verge was downright plaintive about it the other day (link), and I get the question frequently from financial analysts and reporters. But the topic also comes up regularly in conversations with my Silicon Valley friends.
It’s a puzzle because Google doesn’t seem to respond to the rules and logic used by the rest of the business world. It passes up what look like obvious opportunities, invests heavily in things that look like black holes, and proudly announces product cancellations that the rest of us would view as an embarrassment. Google’s behavior drives customers and partners nuts, but is especially troubling to financial analysts who have to tell people whether or not to buy Google’s stock. Every time Google has a less than stellar quarter, the issue surges up again.
As I wrote recently when discussing Dell (link), it’s a mistake to assume there’s a logical reason for everything a company does. Sometimes managers act out of fear or ignorance or just plain stupidity, and trying to retrofit logic onto their actions is as pointless as a primitive shaman using goat entrails to explain a volcano.
But in Google’s case, I think its actions do make sense – even the deeply weird stuff like the purchase of Motorola. The issue, I believe, is that Google follows a different set of rules than most other companies. Apple uses “Think Different” as its slogan, but in many ways Google is the company that truly thinks differently. It’s not just marching to a different drummer; sometimes I think it hears an entirely different orchestra.
Google’s orchestra is unique because of three factors: corporate culture, governance, and personal politics. Let’s start with the culture.
Google culture: You are what you do
The strategic thinking of most companies is shaped by the way they do business. For example, a farmer thinks in terms of annual seasons and crops; everything revolves around that yearly cycle. Manufacturing companies, the traditional foundation of a 20th century economy, plan in terms of big projects that take a long time to implement and require a lot of preparation. If you’re building a car or a plane or even a smartphone, you have to plan its features well in advance, drive hardware and software to completion at the same time, and arrange manufacturing and distribution long before you actually build anything. The companies that build complex physical things naturally plan their products in terms of lifecycles lasting at least 12 to 24 months, and sometimes much longer.
That long planning cycle dominated big companies in the 20th century, and was driven into all our heads through generations of business books and business school classes. It’s how most of our brains were formatted.
An internet company, like Google, works at a fundamentally different pace. Web software changes continuously. You don’t plan it rigidly; you evolve it day by day in response to the behavior of customers. The faster and more flexibly you evolve, the more successful your products will be.
This evolutionary approach, and the Agile design processes that support it, is built into the fiber and psyche of web companies. They don’t think in terms of long-term detailed plans; they think in terms of stimulus and response.
This is a dramatic change in the history of business. In the past, the nimble companies were always the little ones. The larger your company, the more it valued planning and the long-term view. Google is one of the first very large tech companies ever to pride itself on rapid response rather than rigid planning.
On top of this quick-turn bias there’s the cultural training of Google’s senior management. Most big companies end up being run by professional managers who came up through business school or finance, where they get trained in the rhythms and personality of traditional big business. They learn a shared vocabulary and set of values that are very familiar and comfortable to investors. By contrast, Google is completely controlled by engineering PhDs. They speak the language of science rather than business, and they’re contemptuous of the vague directional platitudes and reassuring noises made by modern finance and marketing.
I think most reporters and analysts don’t understand how fundamentally different the engineering mindset is from traditional business thinking. It’s a very distinct paradigm, unfamiliar to most people who haven’t studied science (link).
One key element of the engineering mindset is the use of scientific method: you encourage a Darwinian marketplace of ideas, you test those ideas through controlled experiments, and you make decisions based on experimental data.
In its behavior and vocabulary, Google oozes scientific method. A couple of times recently I’ve heard Google executives say in public, “if you can’t measure it, you can’t improve it” (link). It's an old quote, dating back at least to Lord Kelvin in the 1800s. It's also a subtle twist on the traditional mantra used in web design: “that which you measure, you can improve.” The web design version says you should measure everything you can; the Google executive version implies that nothing really matters unless you can measure it.
That’s a very scientific, rational point of view, but I couldn’t help thinking that if you had said something like that to Steve Jobs, he would have taken your head off with a dull knife. The whole idea of vision at a place like Apple is that you pursue things you can’t fully quantify or measure; that great product design is an art, and the most important changes are the ones you intuit rather than prove in advance.
But engineers are trained not to act on intuition. You are allowed to have intuition, of course, but you use it to make hypotheses, which you then test. You act on the results of those tests.
There have been other big companies run by engineers, of course. HP in its glory days was a great example. But those companies were almost always wedded to traditional long-term planning cycles. What makes Google unusual is its combination of an engineer’s love of scientific method with the web’s rapid iterative development. Put those two characteristics together, and Google often behaves like a big bundle of short-term science experiments.
Why did you kill my favorite product? Take Google’s bizarre practice of publicly killing products. To most companies, killing a product is a shameful thing. It disappoints customers, and it hurts your own ego because it’s an admission that you failed. Most companies hide their product cancellations: they try to disguise them as a “reallocation” or “new focus” or some other doublespeak.
Google does the exact opposite – a couple of times a year it trumpets to the world that it’s terminating products and services that millions of people love and rely on. Google isn’t merely up front about these cancellations; it’s downright cheerful, as if turning off Google Reader or Google Desktop is an accomplishment to be proud of.
And to Google, maybe it is. If you look at the world through the eyes of the scientific method, every Google project is an experiment, and experiments must be periodically reviewed. When an experiment is completed, you either choose to follow up on it, or you terminate it and move on to something else. A scientist doesn’t get emotional about this; it’s the way the system works, and everyone knows that it’s all for the best.
By announcing its terminated experiments, I think Google isn’t admitting failure, it’s proudly demonstrating that scientific principles are in use. I think Google’s management views the cancellations as proof that it’s being focused and logical.
Google management: Who’s in charge here?
The second unusual aspect of Google is its ownership structure. Never forget: Google is not really a public company. Sure, it has stock and all the other attributes of a normal public company, but 56.7% of Google’s voting shares are held by cofounders Sergey Brin and Larry Page (link). As long as they remain friends, they can do whatever they want with the company, and they cannot be fired.
I don’t have a problem with that. Google has always been up front about it, and besides I’ve seen many large public companies manage themselves into ruin in pursuit of quarterly returns. It’s refreshing to see a big company that doesn’t enslave itself to the quarterly report. As Page put it in 2004, “by investing in Google, you are placing an unusual long term bet on the team, especially Sergey and me” (link).
How long term is that bet? I’m not sure Google’s senior management even thinks in terms of annual returns, let alone quarterly. Brin and Page are both about 40 years old as of 2013. They have a life expectancy of about 38 more years, to about 2050, and I have no reason to think that they plan to work anywhere else in their lives. So I think Google’s planning horizon goes to at least the year 2050. Page himself likes to talk about his 50-year planning horizon, so he may well be thinking out to the 2060s.
To put that in context, some scientists predict that we’ll achieve superhuman machine intelligence well before 2050 (link). I’m not endorsing that timeline, by the way; I think it may be optimistic. But my point is, Google could be planning almost anything.
Combine the first two unique things about Google and you get an interesting picture. Most companies have a long, detailed planning cycle in pursuit of quarterly goals. That often makes them very predictable. It also makes it hard for them to get anything done – when your planning cycle is longer than your goal cycle, you’ll often change goals faster than you can achieve any of them.
Google does just the opposite. It has a short, unpredictable planning cycle in pursuit of very long-term objectives. It’s likely to pursue those objectives relentlessly, but its near term actions will look random, because they’re just Darwinian experiments along the way.
In other words, there is probably a method to Google’s madness, but they’re not going to tell you what it is.
But there’s one more factor about Google that we need to consider: it’s run by human beings. Larry Page is not Spock. No matter how logical and dispassionate he tries to be, he and the rest of Google’s managers have psychological needs and reactions that they cannot transcend. That means Google has corporate politics.
Google politics: The coming-out party of Larry Page
I don’t think you can fully explain Google’s behavior over the last several years without looking at the relationship between its CEOs during that time, Eric Schmidt and Larry Page. Google’s first CEO, in its very early days, was Page. Investors convinced Page and Brin that they needed to bring in professional management to organize the company. Reluctantly they agreed, and supposedly Steve Jobs was at the top of their wish list. That raises some fascinating what-if scenarios, but Jobs was already occupied, and eventually they settled on Eric Schmidt, formerly of Sun.
A video of Page from 2000 gives an interesting insight into his thinking at the time. It was recorded a year before Schmidt joined Google. A nonprofit called the Academy of Achievement recorded video interviews with Page and Brin. The videos are a fascinating window into the early thinking of both men. In one clip, Page is asked about the challenges of being a CEO at age 27 (link). He replies:
"If you manage people for 20 years, or something like that, you pick up things. So I certainly lack experience there, and that's an issue. But I sort of make up for that, I think, in terms of understanding where things are going to go, having a vision about the future, and really understanding the industry I am in, and what the company does."
So Page acknowledged his need for tutoring in management, but at the same time he went out of his way to call himself a visionary. I haven’t met Larry Page, but there’s one thing I know for sure: anyone who calls himself a visionary at age 27 does not lack for confidence.
Schmidt arrived soon after, and for the next ten years Page served a kind of management apprenticeship under him. I don’t want to overstate Schmidt’s role; even then, Page and Brin had control of the company, and could have ousted Schmidt if they really wanted to. But even if Page agreed that working for Schmidt was necessary, it can’t have been easy.
Early in Schmidt’s tenure, he and Page appeared together to address students at Stanford. The session was recorded on video, and Stanford posted it online here (link). The whole video is worth watching, but the segment I’ve embedded below is especially interesting because it shows the sometimes awkward interaction between Schmidt and Page.
Schmidt is the more articulate of the two. He interrupts to preface things before Page can make a comment, and sometimes comes back afterward to put a different spin on something Page said. In this clip, watch Page’s face when Schmidt interrupts him to deliver the punchline at the end. You should judge it for yourself, but to me Schmidt and Page look like one of those married couples who value each other but also get on each-other’s nerves.
No matter how much Page appreciated Schmidt’s wisdom, no matter how fruitful their collaboration, it can’t have been easy for Page to be mentored like this for ten years. If I were in his shoes, I’d have compiled a long list of things I wanted to change as soon as I was in charge.
That time came in 2011, when Page returned as CEO and Schmidt was kicked upstairs to be Google’s Chairman and chief explainer (link).
Page acted quickly, reorganizing the company and accelerating the termination of projects (link). I think that helped reinforce the use of the scientific method. It also helped Page assert his authority.
Then Page bought Motorola Mobility for over $12 billion. I don’t think you can understand the Motorola deal without taking into account the management change at Google. It was Page’s first major business deal as CEO, a chance to finally spread his wings and put his distinctive stamp on the company. Any human being with Page’s experience and ego would want to do something like that. So I believe ego played a role in the Motorola deal. But I don’t think that was the only motivation.
My take on why Google bought Motorola
Remember Google’s business situation in 2011. It still had huge economic resources, but it was no longer the dynamic new kid in the industry. That crown had fallen to Facebook, which was growing like a weed and which was not Google’s friend. At the time, Google was kicking itself for failing to recognize the threat earlier, and for responding to it so ineptly. I’m sure Page was adamant that he didn’t want to repeat that mistake.
Like social networking, mobile was a critical growth area for Google. The threat in mobile was Apple, which was doing a great job of integrating hardware and software to produce superior products. Many people at the time felt Google was destined to play second fiddle to Apple in mobile forever.
Then the opportunity came along to buy Motorola. Here’s how I think that parsed to Google:
—If people are right about Apple’s power in system design, we may need to move much more aggressively into mobile hardware than we have to date. If that happens, owning Motorola gives us a head start.
—Even if we don’t end up needing Motorola’s hardware business, we’ll learn an enormous amount from managing the company. Those skills and insights will help us manage our other hardware licensees.
—We’re going to pay a bunch of money for the patents anyway, so why not buy the whole thing? We might end up writing off most of the purchase, but who cares about annual returns? It’s better to have a bad year than take the risk of being blind-sided the way we were by Facebook.
I think the Motorola deal wasn’t just about the patents or about making a profit in device sales. It was about buying insurance against a surprise from mobile device manufacturers, especially Apple. If you think of Google as a company that sets long-term objectives and then runs experiments in pursuit of them, the Motorola deal is just an unusually large experiment along the road to mobile.
Add to that chain of logic Page’s natural desire to exercise his new powers, and the Motorola deal starts to look very understandable to me.
So was the deal worth the money? It’s too early to tell, but I doubt Larry Page is even asking that question. As long as Google learns from the purchase and doesn’t get blindsided in hardware, the deal served its purpose.
What happens next?
If you’re an investor, you should expect more off-the-wall acquisitions and product cancellations from Google. They’re built into the system. But I think Google’s unusual culture and management structure give it some other fairly predictable weaknesses. Those are potential opportunities for competitors, vulnerabilities for Google to guard against, and issues for investors to consider.
Weakness #1: Wandering vision. Google’s iterative development approach is very effective for pursuing a long-term goal when the company has a clear idea of its destination. The company’s development of self-driving cars is a good example: by relentlessly testing and tweaking the design, they’ve made much more progress than I believed was possible. Like most people in Silicon Valley, I’ve had the experience of driving on the freeway alongside those Google cars, and it’s very impressive (except for the fact that they adhere rigidly to the speed limit, but that’s a subject for a different post).
Google is much less effective when its original goal in a market changes. Because of its quick-reaction nature, Google frequently launches projects that seem very important at the time, but later turn out to be not so critical after all. The market evolves, priorities change, maybe a competitor becomes less prominent. When that happens, the Google projects are in danger of cancellation, and nobody likes working on a canceled project. So the teams frequently start iterating on their goals the same way they would on their features. Usually they end up chasing the latest trendy issue in search of a revenue stream and continued existence.
That’s usually the road to hell. Once a project starts changing goals, it’s almost impossible to diagnose the cause of any problems it has with market acceptance. Did we choose the wrong goal, or did we execute poorly? It’s usually impossible to tell.
To put it in scientific terms, it’s like running an experiment in which you have several independent variables. Good luck interpreting your results.
Google Docs is a great example. It was launched to undercut Microsoft’s Office franchise. Over time as Microsoft became weaker, that was no longer a compelling reason for existence, and Docs was merged into Drive and repurposed as a competitor to the newly-trendy Dropbox. Feature evolution in the core applications moved at a crawl.
Now there are two new challenges to Drive/Docs: Apple is turning iWork into a cross-platform web app, and Flickr has upped the stakes in the free storage race to a terabyte (yes, I know Flickr is photos only, but you don’t really think Yahoo will stop there, do you?) Which threat will the Drive team respond to? I don’t know, but because of the way they’ve been wandering there’s a very good chance they’ll end up below critical mass against all of their chosen competitors.
Weakness #2: Poor external communication. Scientists aren’t generally knows as great public communicators, and there’s a reason for that. PR is the art of telling a story in a way that people are open to hearing. To the scientific mindset, that comes across like dishonesty and manipulation. A scientist wants people to believe things because they make logical sense, not because their emotions are engaged.
Adding to that challenge, Google is very bad at anticipating how people and companies will react to its initiatives. Time and again, Google has taken actions that it tried earnestly to explain logically, and been surprised and hurt when people didn’t understand. I think Google views itself as a highly principled company pursuing the good of humanity; it expects people to give it the benefit of the doubt when there’s confusion, and to understand the good intent behind its actions. Google’s management doesn’t seem to understand that a hyper-rich company whose founders have private jumbo jets is automatically an object of jealousy and suspicion. Or if they do understand it, they aren’t willing to take the steps necessary to counter it.
One prominent example of Google’s communication problem was book digitization. Google was trying to make out-of-print books more available to the public, a noble goal by almost anyone’s standards. But Google handled the process so clumsily and arrogantly that it frightened authors into allying with publishers, an outcome equivalent to getting wild cats and dogs to sit down together for tea.
A second example was the backlash from the purchase of Motorola. It’s hard to overstate what a profound shock the Motorola deal was to Google’s Android licensees. Before the deal, the handset companies and operators viewed Google as a benign giant who could be trusted to champion mobile data without preying on its licensees. After the deal, they viewed Google as a villain little different from Microsoft.
The irony of the deal is that the threat from Apple has receded somewhat, so the Motorola experiment probably wasn’t needed. The rising challenge to Google now is that an increasingly feisty Samsung has too much market power in the Android space, and there’s a rising Amazon-inspired movement to fork Android and take control of it away from Google. The Motorola acquisition made companies like Samsung much more likely to cooperate with a non-Google OS. In trying to prevent a Facebook-style breakout in mobile, Google actually weakened its position in the mobile market.
Even casual public comments can create trouble for Google. In response to a question at the Google IO conference in 2013, Larry Page said of Oracle: “We’ve had a difficult relationship with Oracle.... money is probably more important to them than having any kind of collaboration.” (link)
There are several problems with this statement. First, if you want a cooperative relationship with Oracle, calling them a bunch of greedy bastards isn’t the way to get it. Second, public companies are supposed to put making money ahead of collaboration. That’s what their shareholders expect. This is a good example of how Google’s thinking is out of step with typical corporate governance.
The third problem is that Page’s comments came across to some people as hypocrisy:
Om Malik: “I think Larry (and all other technology industry leaders) should actually practice what they preach.” (link)
Slate: “Page criticized Microsoft for treating Google as a rival, blasted Oracle for caring too much about money, and then whined about everyone being so negative. Heck, if it weren’t for those other companies standing in the way, Google would have probably already solved world hunger. Well, except for all the laws and bureaucrats and journalists who are also standing in the way.” (link)
John Gruber: “Google is a hyper-competitive company, and they repeatedly enter markets that already exist and crush competitors. Nothing wrong with that. That’s how capitalism is supposed to work, and Google’s successes are admirable. But there’s nothing stupid about seeing Google being pitted “versus” other companies. They want everything; their ambition is boundless.” (link)
Gruber’s comments show the trouble that Google gets itself into when poor communication combines with its wandering product goals. Google doesn’t see itself as a predator eating tech startups, but when its internal projects start iterating on their goals, they inevitably target successful startups because that seems like the logical thing to do. The behavior is a natural outcome of the way the company works. Larry Page says he’s all about cooperation and I think he means it, but his product teams relentlessly stalk the latest hot startup. The result is a company that talks like a charitable foundation but acts like a pack of wolves.
No wonder he gets labeled a hypocrite.
Google’s trouble communicating its own intentions, and the mismatch between its words and behavior, becomes a serious problem whenever the company has to deal with big political or PR battles. Google’s competitors are often better at courting public opinion, and that opinion often drives the outcome of political processes. If you want an example, watch Google struggle with European Union regulators.
Weakness #3: Science vs. art in product management. Google’s strength in science and quick response makes it very fast at incrementally improving the performance and reliability of its products. But that same process makes it almost impossible for Google to lead in features or product ideas that can’t be proved or verified through research. That’s why Google struggles in user experience, creating new product categories, and fitting its products to the latent needs of users: all of those are intuition-led activities in which it’s very hard to prove ahead of time what’s right or wrong. Even if there are people within Google who have extraordinary taste and vision, it’s very hard for them to drive action because their ideas can’t pass the science-style review process that Google uses for decision-making.
That puts Google at a disadvantage when competing with vision-led companies. The most obvious example of this is Google vs. Apple. When Apple is implementing its strategy properly, it comes up with new product categories faster than Google can co-opt them, and executes them with more taste and usability. As long as Apple can keep moving the bar, Google is forced to play catch-up to Apple’s leadership.
(The big question post-Steve is whether Apple can continue to move the bar. But that’s another topic for a separate article.)
The exception to normal Google decision-making is the special projects run by Sergey Brin. In those projects, Google chooses a few long-term product goals that can’t necessarily be justified logically, but that look possible and would have a big impact if they succeeded. It’s a logical way for an analytical company to try to inject some vision into its business.
What we don’t know yet about those special projects is whether Google can apply the smaller dashes of intuition that are needed throughout the development process to pioneer a new product category. The iPod wasn’t just a good idea, it was a long series of clever decisions that Apple made in the design of the device, software, store, and ecosystem. They all fit together to make a great music management system. Can Google make a similar series of great, coordinated decisions to create a compelling user need for Glass, or will its glasses just be a technophile toy? I don’t think we’ve seen the answer yet. Until we do, there’s a strong danger that Google is just doing the advanced R&D that some other company will use to make a successful wearable computing device.
Should Google try to change?
Every successful company has weaknesses. The strengths that make it powerful always create corresponding blind spots and vulnerabilities. Google’s strengths are unusually well suited to its core business of search advertising. The Internet is so big that you have to use some sort of algorithmic process to organize it, and it takes a vast series of logical experiments to gradually tune search results and the delivery of advertising around them.
The question for investors is if or when Google will run out of room to grow in the search advertising market. At that time, to maintain its growth (and stock value), it’ll need other substantial sources of profit. Can Google find other businesses in which its analytical, experimental culture will produce winners? Or can it adapt its culture to the needs of other markets?
So far, the signs aren’t promising. Google is very good at giving away technology (Android, for example), but not very effective at making large amounts of money from it. Google’s product experiments have produced many failures and a few popular services, but very little in terms of major incremental profit. In fact, some financial analysts refer to two Googles – the search engine company that makes all the profit, and the other Google that sucks away some of that profit.
It’s easy for someone like me to say that Google should change its culture to give it a better chance of success in other markets, but in the real world those culture-changing experiments often fail catastrophically. You end up destroying the source of your previous success, without successfully transitioning to a new winning culture. In that vein, I worry that even the Motorola deal is a risk for Google, as it brought into the company a huge number of employees trained in a very different, famously dysfunctional culture.
For now, the search business is so strong that I don’t think Google is likely to make major changes in the way it works. Companies rarely change until they have to. Until and unless that happens, Google is likely to continue its scientific management, and competitors are likely to continue countering it through vision, public communication, and product management.
If you’re a Google investor, I think the situation is still the same as it was at Google's IPO: You’ve made an unusual long-term bet on Page and Brin and their scientific approach to running a tech company. It’s quirky and it’s different from the way most other companies operate, but it does make its own logical sense, if you look at the world through the eyes of an engineer.
Posted by Michael Mace at 11:43 PM Permalink. 17 comments. Click here to read post with comments.