Google from a (digital) strategist's point of view

There is an interesting article in the San Francisco Chronicle today about Google's strategic mis-steps:

The recent privacy backlash over Google Buzz, the company's new social-networking service, is the latest in a series of launch fumbles that some argue reveal troubling blind spots within the Internet giant.

The huge amount of cash generated by the Mountain View company's search business has enabled it to hop from product to product, moving into mobile, software, social networking, broadband and other areas.

But in the process, it's overlooking predictable consumer concerns, like privacy worries, the need for prompt customer service, or the importance of intuitive products, industry observers say.

"Google is clearly looking like a company that is doing a lot of things, few of them well," said Rob Enderle, principal analyst with the Enderle Group. "They have this attitude that if you're getting it for free, you should be happy with what you get."

Putting my strategist's hat on, and looking at Google through the lens of the venerable old Boston Consulting Group matrix, you can see what Google is trying to do.

Cash Cow - The Search-Ad business is Google's Cash Cow, and at the moment makes all the profit Google earns - they have a very large (dominant) market share, but over time it is a slowing market (relative to the rapid growth of technology sectors and under increasing competitive pressure). They are thus doing what every company is advised to do in this position, ie to invest their surplus in faster growing industries and so keep up the pace. To this end their rate of acquisition has been phenomenal, not least because - by and large - their ability to launch their own successful products has so far been pretty lacklustre (Buzz is just the most recent to join the list)

Question Marks - most of Google's acquisitions tend to be in the Question Mark camp - small market shares but in rapidly growing markets. No doubt the strategic thinking is that the Google infrastructure will be able to rapidly ramp up the growth of these small companies. In the pst, Google has been quite good at this, and refined the offerings before finally launching - problem is that by and large it hasn't worked more recently, and many of the acquisitions have withered, finding themselves becoming...

Dogs - these are plays that lose market share and/or the sector declines. Google places some bets early so the sector fizzles out, which is fine - low cost option plays are a creditable achievement. The problem is when too many Google acquisitions look like Jaiku - it was a decent competitor to Twitter but died as Twitter exploded, forcing Google into some far more high cost/high risk plays (such as Buzz) later in the day. Chrome could be a dog - the browser market is mature, they have a low market share - if the current consumer Ad campaign doesn't massively increase market share then its likely to be another failure.

Stars - the aim of all the acquisitions is clearly to become Stars, those businesses that surpass the old business and launch Google into new areas. GMail / Google Docs and YouTube are the current successes - but none of them make any money, in fact YouTube would be spectacularly bankrupt if it wasn't for massive subsidies. And Stars have to make money eventually - very large services that lose money are a millstone around any company, and may well attract regulatory attention for being anticompetitive. So right now, these ain't real Stars, given their unprofitability they are more like black holes. So Google has to engineer something more here.

But this, as the SF Chronicle implies, is something that Google is increasingly struggling to achieve, especially in the realm of social media services:

Observers say there are two things in particular that Google isn't paying adequate attention to in its rush to deliver the next new thing: privacy and complexity.

.....


Both blind spots are byproducts of the engineering-centric culture of Google, several analysts said. Their typical hires can puzzle out eye-crossing brain teasers the company famously issues in job interviews but can't always predict how real people will react to their services.

Google "doesn't always recognize or anticipate some of the human problems, the people problems, the customer service, the concerns over privacy," Sterling said. "They tested Buzz internally and everyone liked it, so they just had no idea it would cause the fear it did."

In other words Google may well have the wrong sort of company culture - if not the wrong sort of people - for these new services. This is not uncommon, often it's the company "DNA" - the skills, economic priorities and culture among other things - that prevent successful companies in one phase of the industry moving on to the next. Google will hardly be the first large corporate not to follow the next turn of its industry.

Perhaps Android is the success waiting to happen, but its early days and - with the best will in the world - Google's DNA is not in the business of flogging mobile handsets (nor is its infrastructure) either.

So, what next if one is a Google? If the past is any guide to the future, Google will now settle down to be a a Search / Ad behemoth - a new Microsoft or IBM or AT&T, dominating its space increasingly via legal muscle and scale economics rather than great innovation. It will use its market power to drive into ancillary markets as Microsoft did with browsers. But the very culture that drives it to success in its traditional areas may well militate against its success in new sectors. Historically, companies that have succeeded in building new businesses have had to create totally new cultures, in one of a number of ways:

- Independent Business / Spinoffs - businessesses given a lot of independence to find their own way.
- Joint Ventures - infusion of DNA with others' hopefully dilutes the business culture enough
- Tough Times - companies under severe pressure can change culture sufficiently to break out into new industries. Nokia is a prime example, moving from rubber to mobile phones.
- "Re-Invention" - a business sets out to re-invent itself without prodding - very rare, 3M with its race towards employee-sourced innovation and Toyota with its approach to JIT are the only large successful ones that come immediately to mind.

Google is not in tough times, so that is a hard act to imagine. Independent business units and Joint Ventures are currently near anathema to their culture and business models, so those are probably not going to happen anytime soon (though in my view, if anything is crying out for a joint venture it's the Android project). 3M may well be a model Google could study as it has no shortage of smart people.

In fact, if 'twere me, rather than acquiring a lot of the companies they do, I would look more at taking a stake in them but leaving them at arms length to grow into their own space.