Google the 21st Century Conglomerate? Bad Idea


In “The President’s Analyst” — a great relic of 60s paranoia — James Coburn plays a doctor plagued by spies working with the film’s villain TPC, a sprawling tech conglomerate obsessed with collecting information. It’s amusing today to think that TPC — aka The Phone Company — was patterned after AT&T (s t). It’s a little less funny to realize that our era’s TPC is Google (s goog).

Unlike some, I don’t believe Google is a villain. And it doesn’t employ spies because it doesn’t have to — Google knows more about our emails, chats, web surfing and phone messages than we would ourselves care to remember. But its obsessive desire to organize information and our access to it is turning the company into a 21st century conglomerate. And whether you consider that a good thing or a bad thing for web users, it’s going to be a big problem for Google.

In the past few months, Google has been pushing into new industries that no one expected it to be in even a year ago. Most notably, it began offering the Nexus One, moving into the business of selling (and supporting) hardware devices, and now it’s sticking a formidable toe into the broadband access business with its fiber-to-home experiment. Those efforts resemble Google’s move to build and maintain a massive, stealth data network — at the time, a radical one for a search company.

All, of course, were aimed at the same goal: improving the way we access and experience the web. But that simple goal — summarized in Google’s longtime mission “to organize the world’s information” — is leading to a complex corporate structure that may not benefit Google in the long run. Every time Google takes on one of these ambitious plans, it adds another ball to those it’s already juggling. And even the most gifted executives can juggle only so many projects at once.

Google’s history of expansion is a mixed one, complete with more than its share of abandoned experiments. The $102 million purchase of dMarc in 2006 presaged an expansion into radio advertising that Google later decided wasn’t worth it. With Buzz, the company is trying once again to draw an audience in social media — a longtime goal never quite achieved with Orkut, Base or Wave. But none of those were as expensive as the Nexus One and broadband initiatives could be if they fail.

Google’s growth is turning partners like Apple (s aapl) and Motorola (s mot) into rivals, and potentially enemies. The company’s strongest years of growth occurred during times of little friction with other companies, save Microsoft (s msft). And when other big companies are less likely to work with you or even to work against you, it becomes a distraction to achieving the company vision.

What’s more, the new initiatives are costly. Analysts have worried about how much a Nexus One could hurt profits if Google decides to eat some of the subsidies often necessary with mobile phones. Now, they are concerned that the broadband network experiment could be another cash-burner. Google has never made profit margins a paramount concern, but if investors yell in protest and the stock falls (along with the value of employee options), that’s another big distraction.

A conglomerate with tentacles in myriad industries is not necessarily a good thing. It’s an inordinately tough act to pull off: GE (s ge) has done it, but it took decades of work. And for Google it will mean giving up the culture of Internet innovation that made it a success in the first place. Conglomerates pour their innovation into management and process — that is, into improving what exists — not necessarily into creating what will be.

If Google insists on straddling multiple industries, it faces a choice: It can spend its energies holding the sprawling empire together, or it can focus on shaping the web. But it can’t do both with any success for very long.

Image courtesy of Wikimedia Commons.

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Rohit Tripathy

Because Google was started by a group of techies, some of its weaknesses have clearly come to the fore..specially in marketing and finance sides. A lot of their products can very well be sold at very high premiums at the Enterprise markets, but it has no way to reach those markets. A lot of its energy has been locked into competing with Microsoft, and getting into competitive markets (OS, Online Office, Website building etc.)

Innovation is a core strength of Google, and there is nothing wrong in creating an array of products using your core strength. My problem is Google is not creating enough of “Creating What Will be” rather than diverting resources into “Competing/Improving what exists”.

But then when it started search, it was not the first but the fifth major search engine !!!!

Andrew McFarland

It’s not so much that Google shouldn’t expand. The more relevant question is whether Google is pursuing expansion in areas that are synergistic with their corporate culture and core competencies. Early indicators are that they are off track (or need to develop those competencies quick).

Phil Hendrix

Kevin – I agree with some of your conclusions, but would take a slightly contrarian position re: the premise. The term “conglomerate” suggests a company with its hands in a wide range of unconnected businesses. I think there are threads linking Google’s efforts together – e.g., accelerating adoption, boosting use of the internet; unlocking content, information for users; etc. (these are drawn from slides I prepared for the GigaOM Pro webinar last Aug. on Google’s Mobile strategy;; in the process of updating for a broader context). Google is attempting to innovate on an unprecedented scale and at an extraordinary pace. Having said that, their execution is often undisciplined, as the recent launch of Google Buzz shows. I think large companies falter not so much because they’re pursuing too many opportunities, but when they display hubris, focus more on protecting their legacy businesses and fail to innovate on behalf of customers. Time will tell whether Google can avoid the trap of most incumbents.

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