Nicholas Carr wrote an interesting and fascinating thought piece on Google in the most recent issue of strategy+business. Nicholas is a renowned author and speaker, and is probably best known for his essay and book Does IT Matter?.
There have been countless articles and discussions about Google’s success over the last few years and it is hard to imagine that Google has been around for less than 10 years. Since incorporating in September 1998, Google’s growth has been dizzying – even when looking at just the last couple of years when revenues have grown from than $500mm in 2002 to over $10.5 billion in 2006. And that is before mentioning its astronomic market value of more than $216 billion. People continue to argue what industry or business category to place Google. Is it a software company, advertising agency, search company, telephone company, publisher, processor, movie studio or an entirely new kind of business?
Nicholas simplifies Google’s business model as follows: “Google brokers and publishes advertisements through digital media. More than 99 percent of its sales have come from the fees it charges advertisers for using its network to get their messages out on the Internet.” Nearly everything Google does is aimed at “reducing the cost and expanding the scope of Internet use”.
But is it a business model or innovation program to follow? Nicholas says that executives have to be cautious before jumping on Google’s bandwagon. First, Google is still a young company and has not been tested by adversity or a complete business cycle. An interesting viewpoint is that it is not clear if Google’s management and innovation approaches are a cause or result of its success. Second, Google’s model may not apply to other companies because it is so different.
Can we learn from Google’s approach to innovation? Nicholas says “yes and no”. Most of Google’s success and profits can be traced to three innovations: changing the way search engines rank and present results, perfecting the process of letting advertisers bid on key words and the design of its parallel-processing computer system which incorporates hundreds of thousands of computers. These innovations predate the now famous Google innovation process and provides the company with advantages and freedoms not enjoyed by most other companies. For example, Google can hire the best software engineers and provide them with perks and salaries to keep them happy. Plus, Google has the ability to throw more resources at innovation than other companies. Google also organizes product development into small teams with considerable freedom and allows engineers to devote 20% of their time to pet projects with little oversight.
Nicholas points out that Google, like all smart and consistently profitable companies, exhibit the same three qualities:
- Hire talented people and give them room to excel
- Measure progress and results rigorously
- Be disciplined in work and in spending
In conclusion, Nicholas ends with this lesson – “Beware the inevitable hype about how the latest business trend or the newest overnight success “changes everything.” Yes, markets and technology change, sometimes with devastating speed, but through the turmoil, the underpinnings of business success remain fairly stable”
For the complete story, read the entire article here.