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Summary:

Google CEO Eric Schmidt is stepping down to become executive chairman of the web giant, and Larry Page is taking back the chief executive position he had until Schmidt arrived in 2001. But does the Google co-founder have what Google needs right now?

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Just as Silicon Valley was starting to come to terms with the sudden departure of Apple founder and CEO Steve Jobs, another technology giant dropped a bombshell: Google CEO Eric Schmidt said he is stepping down to become executive chairman of the company. Schmidt says he will focus primarily on government relations, while Larry Page is going to take back the CEO role he held until Schmidt arrived to take the job in 2001. Although Schmidt will still be around to advise on various matters, the executive shuffle makes it clear that Larry Page is now in sole control of the web giant. But does he have what Google needs? That’s not obvious.

After the news broke Thursday afternoon, Schmidt posted a message on Twitter that linked to his blog post about the changes, also writing “day-to-day adult supervision no longer needed!” That comment was a reference to the fact that Schmidt — a former senior executive with Sun Microsystems — was seen by many as the “adult supervision” the two young billionaires needed in 2001, when they were planning the stock offering that eventually came in 2004. The memories of the tech implosion of the late 1990s were so fresh still that many clearly felt Page and Brin needed to be stopped before they blew all Google’s money, and since Schmidt looked the part of a senior executive, the company’s backers felt he would go over better with investors.

Over the past 10 years, Schmidt has repeatedly stressed — as he did in his announcement and on the earnings call — that although he was the chief executive, he and the two founders have functioned more or less as a triumvirate, advising each other and debating various courses of action. Schmidt has suggested this is because of the mutual respect each had for the other, but his role was undoubtedly also influenced by the fact that Page and Brin share ultimate voting control of the company, thanks to their majority ownership of Google’s multiple-voting shares.

Now, Page has taken the reins as CEO, and Schmidt made it clear in his blog post about the news that this was done “to simplify our management structure and speed up decision making.” After the split, each member of the triumvirate seems to be taking on the role for which he is arguably the best qualified: Schmidt, who is the most senior (and tends to wear a suit), becomes the public face of the company when it comes to government: meeting with senators who are investigating the company’s privacy infractions, for example, or appearing before congressional committees, the FTC, and so on. Page becomes the day-to-day leader, and Brin gets to spend time on the projects he enjoys (which may or may not include self-driving cars).

How Schmidt performs in the governmental role remains to be seen. He might have to tone down his penchant for inappropriate jokes about how people “can just move” if they don’t want their houses to be photographed by the Google StreetView car, or his comments about how “If you have something that you don’t want anyone to know, maybe you shouldn’t be doing it in the first place.” That’s probably not going to go over well in Washington.

The reality is, Google is facing challenges on a number of fronts. Yes, it turned in another stellar performance in the most recent quarter, with revenues climbing by 26 percent to $8.4 billion. The search-related advertising business is still doing extremely well, and that cash cow has allowed the company to do many other things, including promoting the Android operating system and running a number of popular (but money-losing) services such as Gmail and YouTube. But the tech giant has been unable to get much traction on the social-web front, and that has led to criticism that it’s losing the battle — or is at least in danger of losing the battle — for both users and advertisers to Facebook, whose share of the online-ad pie is growing at a phenomenal rate.

Critics are also getting more vocal about the rapid deterioration of Google’s search results, its core business, thanks in part to the contributions of “content farms” such as Demand Media, with many saying Google hasn’t done enough about the problem because it gains ad revenue from those publishers. Then there are the governmental hurdles Schmidt is expected to help the company leap: a potential antitrust investigation by the Department of Justice into Google’s proposed acquisition of travel-information provider ITA, along with pressure from Congress on the company’s approach to privacy, and continued difficulties with foreign governments like Italy and China.

Larry Page is taking the helm at what could be a turning point for Google. Its core business is under fire; it’s losing ground to Facebook in an important new market; and it’s still relying on search-related ads — a market getting long in the tooth — for 90 percent of its income. It has been unable to build any substantial new businesses, despite a number of attempts, including its recently rebuffed $6-billion acquisition offer for Groupon. As angel investor Chris Dixon put it, some Google watchers are probably asking: Is Page’s return like Steve Jobs coming back to Apple in 1997, or is it more like Jerry Yang’s return to Yahoo in 2007?

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  1. How refreshing to see REAL perspective and asking the right questions ( esp at conclusion) in this excellent post !

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    1. Thanks, Steve — that’s very kind of you to say. Appreciate the comment.

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    2. I’ll second that – Excellent post – Best of the many I’ve read.

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  2. How is Gmail a losing business? YouTube I see, but what sources do you have that say Gmail is loss leader?

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    1. Darnell, you’re right that I don’t have any specific evidence that Google loses money on Gmail, but I can’t imagine those tiny ads make much money at all — although I suppose if you include Gmail as a part of Google Apps they might make some revenue from that, via subscriptions. My point is that the company still makes the vast majority of its money from search ads.

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      1. Fantastic closing question.

        Here’s some Gmail estimates for you:
        http://seekingalpha.com/article/196953-youtube-much-more-important-than-gmail-for-google

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      2. Gmail is such a small piece in Google’s business that Google will never disclose its financials. However, you must know that Google has been pushing enterprise gmail for some time now. Also, some universities have opted for gmail instead of running their own email service. As for youtube, I think it is closer to breaking even of not turning a profit. You just have to take notice of the # of ads it runs these days.

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  3. Among losing businesses, I would’ve expected to see something like Google Voice. I still don’t see how they make money out of it. I haven’t seen any breakdowns on Youtube or Gmail, but I think that Gmail does help Google create more specific profiles on its consumers.
    Fantastic post. I have a question about Sergey Brin. How long will it be before he leaves Google?

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    1. Google Voice is a good example, Harish — the bandwidth costs must be huge. Thanks for the comment.

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      1. The bandwidth costs are next to nothing, and compared to YouTube bandwidth costs, are nothing.

        GoogleVoice is one of the best free services I have ever used, and I would probably even pay for it, unlike most ad-supported websites.

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  4. nice info!
    by the way, is it real? google losing money because gmail?
    because i think android is popular with gmail

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  5. facebook is something which is keeping tech giants like google and yahoo to do every possible thing in order to save their business. lets see how the war goes. The sole benefit goes to the users only in terms of better service

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  6. [...] CEO Eric Schmidt surprisingly steps down: Larry Page, in my clear opinion, is ready to lead; [...]

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  7. This is a non starter for me, as I don’t really care about what Google does at this point. They need to understand they’ve already lost the war to Apple, and it’s all over ‘cept the kicking and the screaming…..

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    1. It’s unclear what you mean by “Google has lost the war to Apple”?

      Are you talking about iOS vs Android? Google Search vs Apple? Google Social Media vs Apple?. Google’s new services like Talk, Nav etc. Vs. Apple?. Google’s Cloud and Enterprise Apps (Google App Engine, Google App Market VS Apple?)

      Apple in my mind is becoming more and more like Sony. A consumer hardware and software company, coupled with a media distribution business.

      Are you sure Google and Apple really compete in all the primary markets Google cares about?

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  8. Good article.
    Do you really think Page can be compared to Jobs ? Jobs has done a a lot while he was at Apple in the 70s and mid 80s. He proved himself again during the 90s with Pixar. And we all know how he became a legend in 2000s.
    Page is more like Jerry Yang. Smart but not an intimidating control freak. You really need to be smart, pushy, focused, strict and control freak to become Jobs.

    Looking at the face of Page I cannot think he has all those qualities.

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    1. Smart people with no people and business skills and hardly speaks (hardly seen) shouldn’t be CEO of a tech company that gets so much attention like Google. That’s what Page is. Why do you think he stepped aside as CEO to let Eric run the company in their early years.

      I don’t doubt Larry’s smarts coz he obviously is. I doubt his ability to run and lead a company.

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  9. I don’t believe this will have much, if any impact on the organization. Page and Brin have probably had final say in all major decisions since Schmidt came on board. Schmidt has been more of a consultant than the decision maker, the way it sounds. Google will still be an engineering focused company.

    Is this what Google needs? Are the shareholders happy with the direction of the company? Are the users happy? Largely I think they are, for now. Engineering focused companies can solve a lot of problems. But great engineering doesn’t always create a good user experience. That’s where Google needs to focus a bit more. Great products need both great engineering and great UI.

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    1. That’s a great point, Travis — Google has always been exceptionally good at the engineering part of the equation, but it continually falls down on the social/usability side (see Google Buzz, Wave, etc.)

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  10. [...] The bottom line is that Google needs to get the same kind of scale quickly, and there’s no indication that it has what it takes to do that, even with a brand-new CEO. [...]

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