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Google’s (not so) Stupid Strategy

2011 February 26
by Greg Satell

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

10 Responses
  1. February 28, 2011

    “Companies like Google prosper through inspiring their employees and their customers.”

    Really? I thought they prosper through domaining, content farms and socially engineering their search engine results — obfuscating what is and is not an ad and such 🙂

    Otherwise I fully enjoy and appreciate your analysis, Greg. I’m not yet sold on the passion economy though. I believe in an Ignorance Economy. http://bit.ly/gRGqGU

    Greg Reply:

    Thanks Jeff. For my part, I don’t know about the ignorance economy:-)

    – Greg

  2. March 1, 2011

    Good post Greg, I would add two things:
    1) The source of worry for Google should be that they aren’t really making blockbuster products fast enough. Google Earth was the product of an acquisition ( http://www.google.com/press/pressrel/keyhole.html ). Although I laud Google for not suffering from “not invented here” syndrome, at some point you have to question the whats up with the low rate of internal projects turning into successful products?

    2) Your overall point of the move towards passion economy mirrors concepts promoted earlier by writers such as Alvin Toffler (Third Wave) and James Beniger (The Control Revolution). These are long term structural changes in the economy as the bulk of economic activity shifts from manufacturing to services.

    Greg Reply:

    Thanks, Chetan. Android was the product of an acquisition as well. Honestly though, I don’t see how that makes a difference. They are buying early stage technologies and developing them. My guess is that they have their hands full running their business.

    Good points, though.

    – Greg

  3. March 7, 2011

    Very interesting post, Greg. Sticking to extensive planning and strategy is good in a predictable environment. Current world is less and less so, that’s why approaches based on “just try it” may often prove better.

    Greg Reply:

    Great point Stan1 Tim Kastelle recently made a similar one on his Innovation Leadership Network blog. You can check it out here: http://timkastelle.org/blog/2011/03/being-wrong-is-the-only-way-to-learn/

    – Greg

  4. April 4, 2011

    I agree that their no-strategy strategy is not so stupid. They are not bogged down by some nebulous, hard to measure “branding” or “corporate identity” binding them to some narrow minded business model of what they cannot do because they are “The Google”, but are willing and eager to test every idea and see if it works, and try hard enough and long enough to see if it can be made profitable.

    They are great at test and measurement, and have the money to sink into real testing, without having to pull the plug too soon. Many failures are just before the not yet visible finish line – most businesses give up too soon, because the funding or funders run out.

    Even stupid ideas can work and become profitable (the example that springs to mind is mobile phone texting – I would never have believed that typing out messages on a tiny numeric keypad would catch on, and make money – I refused to even learn how to do it because I didn’t want to waste my time on a fad that would disappear off the next model mobile phone!!?)

    Although I am sure the corporate climate at Google is not all “do no evil”, they are not exactly the evil empire (yet?), and their “bad” business practices are less aimed at screwing over their customers than growing pains in a space that has never been occupied before. They get into trouble, accept their punishment, and learn – usually a lot faster than others in the “potential evil empire” category of global-mega-corps.

    Greg Reply:

    Thanks, Salvatore.

    I met with someone from Google recently and he told me something interesting. He said that they learn from every failure. What a great attitude (and apparently true, too!).

    – Greg

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