Google, enemy or friend?
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WHO’S AFRAID OF GOOGLE?
Firms in Silicon Valley and beyond fear search giant’s plans for growth
Verne Kopytoff, Chronicle Staff Writer
Friday, May 11, 2007
For a company that pledged to not be evil, Google makes a lot of enemies.
From Madison Avenue to Hollywood, some of industry’s most powerful entities are marshaling their forces to combat a company that has risen to the top of the business world in less than a decade.
Fear is the motivating factor. And with every passing quarter, there is more to be worried about if you count Google as a competitor.
Since going public in 2004, the Internet giant’s market value has grown to dwarf Disney and McDonald’s combined. Earlier this year, it became the most visited Web property in the world and was named the world’s most valuable brand. And its runaway success in search and advertising has big corporations like AT&T and Microsoft crying monopoly without a trace of irony.
In perhaps the greatest testament to Google’s power, media reports surfaced late last week that its archrival Yahoo was considering teaming up with Microsoft in an effort to compete.
“Essentially, the new Microsoft is Google,” said Jeff Clavier, a prominent Silicon Valley investor in startups.
In an interview with reporters Thursday, Larry Page, Google’s co-founder, addressed the perception, saying, “I think, as we get bigger and more successful — and things have gone very well for us — it’s natural for people to think this.” But he denied that Google is anything to fear, adding that his firm has learned from previous examples of companies behaving badly.
Since its founding nine years ago by Sergey Brin and Larry Page, Google has grown into one of world’s the most formidable companies. Few others compare in terms of profits, profile and ambitions.
But, as a result of its success, Google has attracted some powerful detractors. Silicon Valley executives fret that Google’s success will decimate startups and drive up salaries. Madison Avenue is concerned about the company selling all kinds of advertising, including offline pitches in newspapers and on radio and television. Privacy advocates fret over the vast amounts of information Google collects about its users. And Hollywood is upset about widespread piracy on Google’s video service, YouTube. Some entertainment companies are even bringing legal action.
Google says it is innocent on all counts. In fact, the company claims to be a boon to the aggrieved by helping their businesses prosper. Of course, it doesn’t hurt to have Wall Street on your side. The company’s stock remains lofty, closing Thursday at an astonishing $461 per share.
In Silicon Valley, though, some people aren’t as bullish on Google.
King of the valley
In the valley’s cutthroat culture, Google is the equivalent of king. And as in many monarchies, the subjects are both submissive and restive.
Rich Skrenta, chief executive of Topix, a local news and community forums Web site in Palo Alto, described Google as being so ahead of everyone else that there is no real No. 2. Startup executives cower at mounting a challenge, he said.
“It’s past fear — it’s the stages of grief, it’s resignation — and now everyone’s depressed,” Skrenta said.
Trying to build another Google-like search engine, he said, is futile. The only hope is to build a company outside of Google’s crosshairs, in a niche category that has no clear winner yet.
“Grow a spine, people!” Skrenta implored Silicon Valley on his blog recently, hoping to rally the troops. “Get a stick and try to knock G’s crown off.”
Even the big guys are squirming, epitomized by last week’s revelation that Yahoo and Microsoft had recently talked about merging or partnering to close the gap with mutual rival Google. Discussions about an acquisition are no longer active, according to the reports, although the door is still open for the companies to cooperate in some way.
Of course, those challengers, whatever their size, will have to hire the best and brightest to succeed. That can be costly, however, given Google’s deep pockets and penchant for bidding wars.
James Currier, a former venture capitalist and serial entrepreneur who sold the social networking site Tickle to job site Monster.com, said that a company on whose board he serves recently lost a prospective employee to Google. The worker, whom he described as a genius, turned down an offer of $120,000, plus stock options, in favor of a $375,000 salary from Google.
“Google is sucking the oxygen out of the system,” said Currier, who has a new startup in San Francisco, Ooga Labs.
But then he voiced the mixed feelings that many executives have about Google: “You can’t blame them, though. If I were them, I’d be doing the same thing.”
Indeed, Google has a complex relationship with Silicon Valley. Many, such as Currier, admire the company even as they tick off a few grievances.
Rather than operating independently, Google’s business is intertwined with thousands of others. Many Web sites depend on the ads Google farms out to them for revenue.
Without the money, many startups would be unable to exist. To a point, Google gets credit for fueling the current Internet boom.
“It’s a wonderful thing for consumers,” Currier said.
View from Madison Avenue
But Google leadership in online advertising also spooks advertisers. No executive wants to be too dependent on a single company to funnel them customers.
Google will take in 32.1 percent of all U.S. online ad revenues in 2007, according to eMarketer. In search advertising, the company’s share will be a more daunting 75.6 percent.
Increasingly, Google is trying to bolster its ad business by expanding to other kinds of marketing, such as online banners, as well as to newspapers, radio and television.
Take Google’s agreement last month to pay $3.1 billion for DoubleClick, a company that helps advertisers place their banners across the Web. The acquisition would add significantly to Google’s brawn by making it a power player in a new line of business.
Several companies, public advocacy groups and, on Tuesday, the New York State Consumer Protection Board urged the Federal Trade Commission to take a careful look at the merger for fear that it would create an Internet colossus. None other than Microsoft and AT&T, which have had their own antitrust issues, asked that regulators take a close look.
Eric Schmidt, Google’s chief executive, responded to complaints at a recent conference, saying “Give me a break” and calling Google’s share of the $1 trillion global advertising industry minuscule.
“This is an emergent business with lots of different choices,” Schmidt said. “End users have choices, advertisers have choices.”
Google’s plan to take on all kinds of advertising has Madison Avenue worried. Agencies see Google as potential competition in helping clients create and place advertising.
The only solace is that, so far, Google’s offline initiatives have had limited success. But the efforts are nascent, and the company is putting a lot of ammunition behind them.
“It’s like the telephone company owning the wires and the towers,” Daniel Stein, chief executive of EVB, an ad agency in San Francisco, said of Google’s advertising muscle. “But I don’t think Google is going to flex that power.”
A new villain in Hollywood
Copyright is another area that has generated major headaches for Google. To listen to Hollywood talk, the company has as much respect for the law as Jack the Ripper, given the profusion of pirated video clips on YouTube.
Hoping to crack down on illegally posted video, Viacom sued Google last month for $1 billion for alleged copyright infringement. Google denies any responsibility for the clips, which are posted by users, and said that it takes them down when asked.
“Old media companies are wrestling with YouTube,” said Andrew Heyward, former president of CBS News. “The exposure can be very important.
“On the other hand, this is copyrighted content that is expensive to create. Someone has to pay for news; it’s not free.”
In the meantime, NBC Universal and News Corp. gave Google a big poke in the eye last month by agreeing to create a YouTube rival. The project, to premiere by summer, will make legal, full-length clips available on Yahoo, AOL, Microsoft and MySpace.
Video isn’t the only copyright battle Google is trying to fend off. A separate attack by the publishing industry is aimed at Google’s copying of millions of library books to make the contents searchable online.
Google building Big Brother?
Fear of Google also extends to its amassing of vast amounts of information about user behavior. Privacy advocates have called the repository of search query histories and e-mail the ultimate Big Brother that law enforcement and civil litigators could use to glean juicy personal information.
Kurt Opsahl, a senior staff attorney for the Electronic Frontier Foundation, a digital rights group in San Francisco, gave the example of a Google user who has HIV but has not told anyone. Anyone who poked around in the user’s search record could be tipped off about the secret if the user searched frequently for information about AIDS.
“People can get sensitive about that kind of information being known. But if Google didn’t keep that information, people wouldn’t be able to get to it,” Opsahl said.
In response to the complaints, Google vowed recently that it would make it harder to link users to what they search for online. Under the plan, the company would shroud the information it collects about users in anonymity after keeping it for 18 to 24 months. Opsahl said the idea doesn’t go far enough.
Google is by far the most popular search engine among consumers, with 53.7 percent of the U.S. search market in March, according to Nielsen//NetRatings. Yahoo was a distant second at 21.8 percent.
That dominance puts Google in a key position to control information. Links that appear at the first results page become, in effect, a definitive source, whatever the topic.
For businesses, placement in the search engine can mean life or death because customers inevitably spend their money with those that are high on the list. Companies that fall into disfavor on Google amid the frequent changes to its search algorithm are often incensed, and some have gone so far as to sue, albeit unsuccessfully.
Nowhere is Google’s control of information more controversial than in China, where it built a search engine that censors results deemed dangerous by the Chinese government.
Human rights groups and members of Congress have attacked Google over the matter, comparing the company to a Nazi collaborator. Google responded that it censors reluctantly under the theory that providing some information to China’s residents is better than none at all.
Not quite an ‘evil empire’
Despite Google’s power, few say the company strikes as much fear in them as Microsoft did during the 1990s, when its near-monopoly on computer operating systems earned it the nickname “evil empire.” Google’s spotty track record with new products — few outside of search have much of a following — and intense competition with other Internet companies keeps it a step below.
“With Google, there is still choice,” said Chris Le Tocq, an analyst for Guernsey Research, “so I’m not sure if the ‘evil empire’ epithet can be equally applied.”
But he cautioned that the warning sign will come when Google becomes so dominant that customers cannot do without it. How well will Google deal with its customers’ problems then?
In any case, Ellen Siminoff, chief executive of Efficient Frontier, a Mountain View search engine advertising company, said that power shifts quickly in the technology industry, judging from recent history.
“There was a time when Netscape could do no wrong and a time when AOL could do no wrong, and then Yahoo could do no wrong,” she said. “Now Google can do no wrong, but that can change.”
Wary of Internet giant
Google’s long tentacles have many running scared:
Silicon Valley: Concerned that Google’s outsize ambition is squashing startups and raising salaries in the tech industry.
Madison Avenue: Fears that Google is taking over the advertising business and making established ad agencies irrelevant.
Hollywood: Takes umbrage at widespread piracy on Google’s YouTube video service, claiming it violates copyright law.
Privacy advocates: Worry that Google’s collection of personal information will create a massive database that can be mined by government.
Source: Chronicle research
Google by the numbers
In less than a decade, Google has become a corporate colossus. Here are some examples of its muscle:
Number of employees.
Revenue in 2006.
Profit in 2006.
Share of the U.S. search market.
Global unique users in March.
Source: Google, Chronicle research
E-mail Verne Kopytoff at firstname.lastname@example.org.
This article appeared on page A – 1 of the San Francisco Chronicle