Google is making news, again, for its left-of-center management practices. The company turned in an exceptionally good quarter that beat estimates handily, and at the same time it announced it would be doing a 2:1 stock split but one that created only non-voting shares. The goal, obviously and as the company admitted, was to prevent the founders from being diluted by future sales by them and options by others, to the point where they’d lose control. This has some in the Street up in arms because of “governance”, they say. Well, Google at least is being honest, which is more than you can say for the Street.
The issue here is simple. Since the NASDAQ crash of 1999 regulators forced out some of the practices that made it easy for stock analysts to kite shares through hype, and so gains in share price had to be linked to earnings growth in most cases. This forced companies to take very short-term perspectives on new opportunities. Google has always dabbled in a lot of weird stuff from an earnings perspective, and over the years they’ve drawn the ire of some shareholders for not focusing on the stuff that makes money (and boosts the stock price). My view is that the founders don’t want to be hemmed in by quarterly pressure, and this is their way of making sure it won’t happen.
Google’s “Glass” project is an example. Here’s something that could revolutionize mobility, make “personal computing” truly personal. It has perhaps more and broader impact than anything Google has ever proposed, but it’s not going to be something they can push out in three months. Google’s Wave project could have revolutionized collaboration, and yet it was dropped. Google Voice, which might totally change voice communication forever, hasn’t itself changed in over a year. So you can point to Google’s activities today and see plenty of places where the company seems to have picked the short term over the long. Isn’t that enough reason to try to keep the Street at bay?
It would be, in my view at least, if we could be sure that all of the wonderful revolutionary things Google wanted to do would really be pursued by the founders. The story with many of the projects that have lost momentum is not that they were forced out by profit pressure, but by lack of support from those very founders. The problem with the Google plan is that the whole company stands or falls on the insight (and ego) of two men.
I think it’s clear that Google knows that to compete with Apple they need to have the kind of latitude that Steve Jobs had in promoting things truly new and revolutionary. It’s also clear that having the right to pursue revolution doesn’t make you a revolutionary. Can Page or Brin stand up to Jobs in sheer marketing genius? They’ve not done it so far, and remember that the two have had voting control all along; this is only to prevent their losing it. Thus, it’s probably to let the pair gird Google’s loins for the Final Battle with Apple. Glass is a nice lance for that engagement, but Google needs more. It needs to make good on the other things it’s started, because if Google backs away from Voice and Plus and Docs without making them into credible plays, nobody will believe in Glass. And shareholder suits work no matter who has voting control.
Google’s self-imposed test of Google’s insight is going to be critical, sooner than they may think. The mobile revolution that rival Apple began and is still driving is creating radical changes in the market. It’s a revolution that Apple began by focusing on what was essentially elitist positioning, and their margins and image have been protected by the subliminal message that the really important people had Apple products no matter whether Android was cheaper and in some ways better. Apple launched the PC, remember, and ended up a small-time player in that market. They launched the visual GUI and lost to an inferior product, Windows. Early leads lead often to early mistakes, but in the new mobile appliance space Apple has yet to make one. That likely means that Google will have to win instead of waiting for Apple to lose, and this in a market where Apple has so far set the agenda. Glass is critical because if it can’t reset that agenda, then Apple wins and in the Last Days, Google becomes Yahoo.
Wave was a leader. Voice was a leader. Docs and Apps are leaders, and yet they’ve not revolutionized. Plus is a follower strategy; how many times does Google think that successors in the social networking space can launch on the stupidity of the early leaders? Link Plus with Glass and it’s a whole new story. Same with Voice, Wave, Docs, Apps…need I go on? This is Google’s moment. Hopefully Page and Brin know that and are insuring they won’t be diverted by the Street (who resent the pair’s actions only because it undermines the Street’s own greedy pleasures). If they don’t know it, they’re going to learn it very quickly.