I must have been smoking something when I wrote “Average life of companies in traditional industry is not that long either and the average life of internet companies are catching up. That is what I think, but please let me know if I am smoking pot” a week ago. When I wrote it I actually had Google in my mind. I had subconsciously assumed that Google’s dominance in search is unchallengeable. A week later, I am not so sure any more. I think internet is still at its infancy that a few years out we will look back and laugh at ourselves the way we used internet. As internet no longer start with Yahoo or AOL like portals, soon it may not start with Google or search. I do think the average life expectancy of internet company is growing (at least for the survivors), but it is still a long way to go to match that of brick and mortar companies.
Here I will list the major questions I have about Google, and also share my experience at an on-line start up that hit a jack pot then walked a very rocky road. Your opinions are welcome, as always.
1. Has Google ever become dominant search provider when there was an incumbent local search provider? Google didn’t come to dominant position in Korea, China, Japan, Czech, and Russia where there was a local search provider when it entered. (FYI, Yahoo Japan decided to use Google search a few days ago.) What does this mean? Localization is the key for search? Search site is a habit that is hard to change? Or Google is just not competitive enough?
2. Is the search as we do it today at its best form? Search improved significantly with Google, but I doubt it is the best it can be. I am not only talking about better personalization and deciphering user intent better, but also about the way it is presented. For example, search would have been nightmare if there was no “tab” function in browser. (In that sense I appreciate the side window Bing provides.) Google is great for now, but there are still many ways to revolutionize/greatly improve our search experience. Maybe someone is already doing it in their garage and Wolfram Alpha is a delightful addition. Also, can someone bring the leap in user experience as how iPhone wrote it again how phone interface should work?
3. There was a time when Google got 100% of my search, but not any more. Now, I go directly to Amazon for books, Tripadvisors and Travel Zoo for hotel, YouTube for video, E-Bay for buying random stuff, Cnet for software, and Spotify/iTunes for music. I still search Google a lot, but much less than before. The one event when Google still dominate my search is when I do it for work related research (Wiki and Wolfram takes more of this search these days). I.e. Google has 100% share of my search activity when I am not searching to make a purchase, but Google’s share is declining fast for my purchase activity, and if I were an advertiser, I want to be with those sites that attract purchasers not just searchers. Look at Bing. though it is still very small, Bing is catching up and has higher share of ad $ spending than click share. (Note: Google.com is not the only page where Google makes money. It provides search function to other websites, and it has Adsense, etc. Or I guess it can even sell search service.)
4. Internet advertisement is growing fast and Google is considered to be the unchallengeable super power here. Many say that Google has best engineers, best computing power, biggest partner network, best datamining skills. I doubt if the game is over. If Google is so good, how come I have never encountered an advertisement that I wanted to click? I’m serious. I have never intentionally clicked one advertisement. It wasn’t that I tried very hard to resist the temptation of clicking a very attractive/highly-relevant advertisement. There was simply no advertisement that I wanted to click.
5. There are so many Google products, I use 5-6 of them and I’ve heard of 7-8 but I have no idea what the rest are about. I can give it positive interpretation: “Internet is so unpredictable. With their engineers investing 20% of time invested in free projects, Google has high chance hitting the next jack pot.” But, I can’t help thinking about the resources used to fund all these projects. With so many diversification, how come there haven’t been another big hit? Should I find comfort that because Google is diversified it will have the next big thing or is Google just losing focus?
6. I enjoyed Old Spice commercial on YouTube a lot. Google Maps is indispensible for Open Rice website. I don’t think P&G or Open Rice is paying Google money for their usage, but Google needs to cover the server cost, etc. Is there any chance that Google became a dumb pipe?
7. As an investor, I like companies that are focused on generating highest return to shareholders in a sustainable way. The profit Google generates is not small in any measure, but are they doing their best? Brin, Page, and Schmidt are the biggest shareholders of Google, but their interest is not aligned with investors. My father told me once that “what you like is your hobby and what you are good at is your job.” If you like your work so much that you do it in your personal time, I, as a shareholder, have no problem. But if you bring your hobby to work, I have a problem.
I do not understand the logic of their pull out from China. Who benefited from it? Not even Chinese citizens who they care so much. Why should Google develop alternative energy? Why should all these services be free? Google maps could have evolved (it still can) into many money making applications, but it just lies there for free. If if the ability to see books online is so important to users search experience as Google says then people would have been happy to pay 50 cents to view 10% of a book for the relevant section. Why is being free so important? (Well, I have an answer for this. It is partly that they wanted to give it for free, but also that people were less willing to pay and it was more difficult to charge then. But, then the problem is brand image is as a place for free services..)
And this makes me wonder if Google will be able to monetize from the growing Android. Will Google be focused on how to monetize from their development? Or is Google’s focus collecting more personal data to think about how they can make Android users life easy? They are related but different.
8. There are quite a few online services I am happy to pay, but I do not want to pay a penny to Google which does not know how to serve customer. You know what I mean if you ever tried to get customer service from Google. I bought 80G of extra storage space at $20 from Google early this year. I am not complaining about the poor product description (that I can only upload files not folders). After painstaking effort of uploading my files, I learned that my files couldn’t be downloaded for system error. They were missing. But all I could do was leaving a message in online user forum (because Google outsources customer service to self service forums) where there were already more than enough messages complaining about the same problem. It took 2 weeks for a Google engineer to leave me a reply and another 2 weeks for him to solve it. Until he leaves a reply on the user forum, all I can do is to wait. And even though I demanded refund each time I left message, he just ignores that part. Nothing can be done or contacted. The lesson was that I wouldn’t pay a dime to Google if a service or product is offered directly by Google.
9. One of the most interesting change Google brought to me is my attitude toward Microsoft. I not only don’t hate Microsoft as much as before, I now even secretly support it to be a credible competitor of Google. Part of this is pure human psychology, but part of it is because I really need good alternative. Naver is my first choice for Korean search and Baidu is for Chinese search, but when they don’t get me what I want, it is nice to have Google to fall back to. I don’t have that option when I do English search. It sucks. One evidence of big change in my attitude is smart phone. I waited for a long time to buy a good Android phone. I thought it would be available by this summer, but it seems like I will have to wait for a bit longer. Then, I saw Windows Mobile 7 phone. Windows based mobile phone is the last thing I wanted to have, but when I saw the video, I decided I will scrap Android and get Windows 7 phone. Whereas Android is still only iPhone me-too that is not as good as iPhone, Windows Mobile 7 looks better and different. Most importantly, while Microsoft brand is still ugly but not as ugly as it used to be. That matters a lot when you do consumer business.
<My first hand experience at an online game company>
All these questions and what I read in Googled remind me of what I saw at a Korean online game company, where I interned about a decade ago. I joined them just when their first game became a smash hit. The game was well made, but more importantly the company re-defined how game companies make money. It was a revolution in that world, and the company became the place to work for top game designers and engineers. The company provided “playground” for computer geeks. The founder/CEO was an engineer himself and he understood what they wanted. A lot of freedom and authority was given to engineers and there was not much deadline, fixed working hours, cost pressure or any formality. One of the top engineers proudly told me that he doesn’t work more than 2 hours a day. (He worked more than that, but he did played a lot.)
My job was to assist them in expansion to web community business, but the business didn’t seem to have much plan or future, and I couldn’t understand why they were spending so much money. Then, one day, one of the top management confided with me and said “why not? it is going to burn only a couple of billion won a month. it is not too much.” The company grew too fast and got more money than it can handle. It was a huge organizational chaos. But nobody criticized them. I didn’t either. It was the hottest company in Korea. Who am I to criticize them? In fact, such chaos was considered their strength and people tried to learn from them. For engineering company, you need to attract the best engineers and this is how you do and let them be creative and motivated.
The year I joined (2000), was the first year they turned to profit. Comparing to 1999, revenue grew 10x and OP margin was 45%. Between 2000 and 2004, revenue, operating profit, and free cash flow all grew by c.300%. It became even hotter company to work for for engineers, but many of the core people started leaving to start their own one, or to retire with stock option, or because they came to dislike the ever bigger organization. I.e. there were less driven people and more “attracted to its success and glamour people. CapEx grew to buy more servers and to move to better office, and development cost swell.
However, it failed to bring another hit product. They spent more money, hired more expensive engineers and designers, and developed more games, but no hit. Between 2005 and 2008, revenue didn’t grow, profit declined. Most of the free cash still came from the old hit game that they made that have been in decline. They were lucky that that old game was so addictive that it still provided much cash to support the bloated organization. Then, in 2009 finally it made another hit product. Revenue doubled, profit quadrupled, and free cash flow by 20x.
Was this rocky road unavoidable? Should I think that they could have another hit product because they had relaxed engineer-centric culture? Or, would the company and its shareholders have been better off if it was more disciplined? (Actually, I haven’t looked or contacted the company for 5 years and it is possible that the company’s culture and operation changed since then.) I remember reading something like “Is Google’s culture praised because of their success or is it praised because it is a great culture?” in Googled. I have the same question for this game company I worked at.