Technofile: Ten reasons why Google’s in trouble. And five why it’s not

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GoogleCompanies often make disturbing announcements just before public holidays. It gives the markets a long weekend to digest the news. That’s what Google did when it announced late on Thursday just before Martin Luther King Day that its CEO Eric Schmidt was handing over day-to-day responsibility for the business to its co-founder Larry Page.

Business commentators sounded shocked. That was surprsing because the technology media has been voicing increasingly loud concern about Google’s lack of direction for months.

They point to a number of areas which need to be addressed if they are not to lead to the long term decline of the company.

1. Google is a one-trick pony

This criticism, most famously voiced by Microsoft CEO Steve Ballmer, has been aimed at the company pretty much since two Stanford PhD students Larry Page and Sergey Brin started the company in 1998. It remains true that search still accounts for almost all Google’s income and profits. And having all its eggs in one basket can be seen as a vulnerability.

2. Its search doesn’t work properly any more

Given that this is the company’s absolute core business, this seems the most serious charge against it. Google’s rise to prominence began little more than a decade ago simply because it enabled internet users to find information far more accurately and quickly than any of its competitors. Perceived problems in its search technology go to the absolute heart of the company.

The problem comes from so-called “search engine optimisation” (SEO) which is either a black art or a legitimate marketing tool, depending on which way you look at it. The practice comes from the way Google tries to ensure users see relevant answers to their often vaguely-worded queries. To achieve this Google uses a sophisticated series of top-secret computer-driven rules known as “algorithms”. At their most simple they measure the importance of a web page according to how many other pages are linked to it.

Specialist SEO companies would say their job is to ensure the organisations they work for receive due prominence in search results. They point out, for instance, that badly designed or worded websites can be missed by Google’s machines which rely on strict criteria.

But it’s a very fine line between improving a website to make it easily searchable and cheating to give it unfair prominence. Much SEO oversteps the mark to trick the search engine into believing a website is more important and original than it really is.

There’s a suggestion that SEO is now so good that it has rendered much search as meaningless. It is certainly not unusual to enter a term into Google and find the first results link to websites containing nothing except badly-written content culled from elsewhere.

3. Google has no interest in fixing its search

Although Google is involved in many types of business, advertising remains far and away its biggest earner. Most of this income is brought in by the sale of the little classified “AdWords” you see down the side of the page every time you do a search.

The suggestion is that because these and the AdSense ads which appear on websites are so intimately tied in to SEO that if Google were to clamp down on the cheats it would have a huge effect on its profits. Longer term, however, if Google doesn’t stop companies from conning their way to the top of search rankings users will vote with their feet. Competitors including Microsoft’s Bing already appear to provide more useful results for some searches. (It’s extremely difficult to make objective comparisons though.)

And there remain deficiencies in Google search that are so obvious that we take them for granted. There is still, for instance, no obvious way to sort search results chronologically. (This is an issue which appears to be being addressed by the new, but less-than-easy-to-use, Blekko.

4. Search doesn’t matter any more

In April 2010 Apple CEO Steve Jobs said:  “On the desktop search is where it’s at; that’s where the money is. But on a mobile device search hasn’t happened. Search is not where it’s at, people are not searching on a mobile device like they do on the desktop.”

Of course he was having a did at Google which has become arguably Apple’s biggest competitor in the global smartphone business. But he does have a point in that people don’t go and type a query into a box using a mobile handser in the same way they do with a computer. And mobiles are overtaking PCs as the way to access the internet.

5. It doesn’t attract the brightest and best any more

Google used to be seen as the place where the world’s brightest geeks aspired to work. Not any more. Now its perceived as ageing, bureaucratic and rudderless. Its place has been taken by Facebook, Apple or one of the start-ups which may be the next Facebook, Apple or even Google.

6 Social networking has passed Google by

With the growth of Facebook, Twitter and other social networks, people are more inclined to ask a friend than trawl through pages of search results. Also, with Facebook being a “walled garden” it’s impossible to index and search.

Hundreds of millions of users prefer the restricted view afforded by Facebook to the vast uncharted expanse of the web. And there’s no incentive for Mark Zuckerberg to let Google in.

7. Google’s recent history is a litany of failure

It’s not as if Google didn’t see the threat of social networks coming. In fact, it launched its own, Orkut, a month before Facebook in January 2004. It’s now big in Brazil and India.

More recently Google’s tried to compete with Twitter through Buzz which isn’t making much noise any more. Wave, a messaging and email hybrid, crashed without a splash worth mentioning. The long-forgotten Wikipedia competitor Knol has been put out to grass. And, of Google Answers, no questions remain.

8. It’s not in the world’s fastest growing consumer market

Google’s battles over censorship with the Chinese government fit the company’s unofficial motto: “Don’t be evil.” From a purely business perspective some say it might be better to retreat a little from the moral high ground. It was disagreement over this point that many commentators suggest was the reason Eric Schmidt step back from his role as CEO.

9. Even Google’s biggest success outside search is a mess

It’s almost impossible to find an analyst who doesn’t expect the battle for smartphone supremacy to develop into a two-horse race between Apple’s iPhone and Google’s Android. Others such as RIM BlackBerry, Microsoft and Nokia will end up as niche also-rans.

Apple and Google operate in starkly different ways. Apple controls and makes profits from everything to do with the iPhone, from the sale of the handset to the apps that run on it. Google develops the Android operating system then gives it away free to any handset manufacturer that wants it.

For consumers this means Android phones are cheaper, but the choice is bewildering with every manufacturer offering a different specification. Not only that but Google doesn’t have any means of compelling them to provide updates for users. (Yes I am bitter. I have an LG GW620 which hasn’t been officially upgraded since version 1.5 of Android so I’ve had to hack it myself, probably voiding the warranty in the process.)

The number of disgruntled Android owners doesn’t bode well for the future as many will look elsewhere when it comes time to renew their handsets. It also makes app developers less keen to develop for Android because of the plethora of handsets and operating systems they have to support. And Android what is expected to power most competitors for the iPad.

10. Google is easily bored

Even when the company enjoys initial success, its properties can feel strangely ignored. Google Maps, for instance, near where I live in Ibiza shows a beach resort hotel – inland, on top of hill with no proper roads. There’s no shortage of these howlers.

With video close to making up the majority of internet traffic, YouTube should be the star of the show. Yet, in innovation and frequently income it seems set to fall behind services from Netflix, Amazon, Hulu and even the BBC through iPlayer.

Even the much-vaunted Google television has launched to derision for being buggy and over-priced. If the service ever comes to the UK it must resolve these problems, but many analysts say it is too late to revive its sullied reputation. Google, they say, does not seem capable of producing the sort of consumer technology that’s expected in a television. One which just works.

11. Google fought the law and the law…

This is probably the biggest collection of threats facing Google. The global smartphone business is currently a maze of law-suits and counter-suits. These are devices that each contain dozens of patented components and pieces of code from as many suppliers. It’s not just that the cases will be expensive to resolve, but the “free” Android oprerating system doesn’t look so cheap to a manufacturer facing possible liability for massive damages.

Even more of a potential threat to Google are the investigations by authorities such as the European Union which are looking into whether it has abused its monopoly position. Similar cases in the past have had a stifling effect on two giants of the computing world, IBM and Microsoft.

Google is accused, essentially, of boosting the search ratings of its own services when compared to competitors. This recent article in the Wall Street Journal, for instance, shows Google Places being ranked highly against similar competing services.

That seems unfair. But the alternative inevitably is to stifle innovation by Google. How can it develop new services if it doesn’t design them to be easily found by its own search engine? But, if it is effective, then competitors can say Google is exploiting its dominant position.

Google is not the first massive technology company to face anti-trust legislation. In 1975 Xerox settled a suit brought by the US Federal Trade Commission by licensing its patent portfolio, largely to Japanese competitors. Its share of the US photocopier market fell from nearly 100 per cent to less than 14 per cent in four years.

At almost the same time, from 1969 until 1983, IBM was under investigation for allegedly trying to monopolise the market in business computers. The case was dropped eventtually, but it was still seen as having a debilitating effect on the technology giant. Similar problems have dogged Microsoft which has been found guilty of exploiting its dominance by both the European Commission and the US Department of Justice.

Xerox, IBM and Microsoft have all survived as huge businesses, but not in the first two cases without going through some extremely rocky times. And none are feared by competitors in the way they were. It’s not hard to see Google following the same path.

Five causes for celebration

1. Google’s figures

It’s annual revenue is almost $30 billion : Facebook’s is about $2 billion. All the figures announced at the same time as the departure of Eric Schmidt were better than analysts’ expectations. As others have said· “It may be a one-trick pony, but it’s some pony.”

2. A new Page

Aside from the way that CEO Larry Page has a name that’s a gift for headline writers, he could also bring a vision that seems to be lacking at the moment. Outgoing CEO Eric Schmidt’s corporate background was probably very useful in bringing Google from start-up to multi-billion dollar listed company, but there’s a feeling he might be holding it back now.

3. Mobile domination

Although Android is annoyingly fragmented, it’s on track to be the world’s most popular operating system for both smartphones and tablet computer (although the latter is far from certain). Okay, it isn’t making money yet, but if was three years before search began to bring in money for Google. Before that, the business model for search was Yahoo.

4. There’s growth in advertisiing

Google’s revenues from display advertising doubled in the last quarter of 2010. Mobile advertising is still in its infancy and Android could be the platform that benefits when it takes off. And there’s no suggestion that its current AdSense and AdWords business has come close to hitting a ceiling.

5. The surprise element

In October 2010 Google revealed it was experimenting with self-driving cars. The world laughed. But actually the company’s data-crunching techniques can be applied in all sorts of situations. As Schmidt said then: “It’s amazing to me that we let humans drive cars. It’s a bug that cars were invented before computers.”

Yes, Google’s had loads of failures. But it can afford them.

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