Taking a Closer Look at Google's Fortunes
JOHN YDSTIE, host:
Google, a company started just eight years ago, has a market value of more than a $145 billion. That's more than triple the value of all the major U.S. airlines combined. With Google stock nearing an incredible $500 per share, we wondered what does Google have going for it, and is it sustainable?
NPR's Wendy Kaufman reports.
WENDY KAUFMAN: Few, if any companies have seen the kind of growth that Google has. Lots of factors have contributed to its success.
Professor OREN ETZIONI (University of Washington) First of all, they think big.
KAUFMAN: Oren Etzioni is a professor of computer science at the University of Washington.
Prof. ETZIONI: The second thing is they have a lot of smart people. They have a deny oxygen strategy with regards to their competition. That means they try to hire every single smart person they could find with relevant expertise, which means that their competitors - like Microsoft and Yahoo - don't get to.
KAUFMAN: Google is known for its free-willing corporate culture that encourages experimentation and innovation. Company engineers, for example, are expected to spend 20 percent of their time pursuing their own ideas. Even by Silicon Valley startup standards, it's extraordinary.
Nearly all of Google's revenue comes from ads at places on various Web sites, and from ads linked to search. Anyone from a major car company to Professor Etzioni's mother, a novelist, can sponsor links that are displayed along with search results. Every time someone clicks on the link, Google gets paid. Etzioni's mother, for example, has paid Google $7,000.
Prof. ETZIONI: But for each click, she's only paying an average of $0.70.
KAUFMAN: Sometimes advertisers pay much more per click, sometimes much less. Google figured out early on that only relevant ads should be displayed. That keeps a search results page relatively uncluttered, yet maximizes revenue. But can the juggernaut that Google has become keep growing? The company knows that to stay on top, it will have to move beyond text-based ads to ones that are video-rich.
Earlier this month, Google paid $1.6 billion for the number one video sharing site, YouTube. But Sarah Kaplan of the University of Pennsylvania's Wharton School warns that video ads are potentially intrusive.
Professor SARAH KAPLAN (University of Pennsylvania's Wharton School): That may then fundamentally clutter up the offering that they have and turn people off.
KAUFMAN: Beyond those challenges are larger issues. Google is looking for ways beyond advertising to make money. And while the company has recently launched several new projects, there hasn't been much profit there. But the projects have added to the complexity of the company's operations. Google now has 9,000 employees, and professor Kaplan says that presents major challenges to the company's management style, often described as managed chaos.
Prof. KAPLAN: But how long can that last when you become, you know, you have thousands of people in the organization. And that's why I say this complexity issue is, you know, if I had a few important concerns about Google, one of them is the complexity of managing a business that size and can they transition to that.
KAUFMAN: While many outside experts cite the internal challenges for Google, Andrew Frank of the Gartner Group, a technology research firm, says there are potential challenges from competitors as well.
Mr. ANDREW FRANK (Research Director, Gartner Group): I think the main thing that Google should be worried about is the next Google. They've clearly become a target because they've gotten so big so quickly. And as companies like Microsoft will tell you, that makes them something of an incumbent that everyone is gunning for.
KAUFMAN: But in the meantime, Google keeps raking in the big profits.
Wendy Kaufman, NPR News.
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