Google searches for the future

Tomorrow, Larry Page, the 38-year-old co-founder, takes up the role of chief executive a decade after ceding control to Eric Schmidt, who remains executive chairman. Sergey Brin, the other founder and a fellow Stanford University computer science student, will focus on new products.

The company has been transformed since Page last ran it. Google has been a sensation, helping people navigate the internet more than one billion times a day. It has become a watchword for innovation, with a string of novel applications — such as Google Maps, Streetview and Gmail — that are now part of everyday life.

However, Page knows that nothing lasts for ever, particularly in Silicon Valley. Google, set up in a garage in nearby Menlo Park in 1998, seems positively ancient to the whiz-kids who every day flood into the offices of Facebook and Twitter farther up Highway 101. The advent of social media, micro-blogging and other new internet forms has prompted Google to embark on its biggest search of all — to define its own future.

It isn’t as though Google is no longer a huge success. The $188 billion (£117 billion) company is still governed by 10 core principles that hark back to its folksy roots. One of the least-quoted is, “It’s best to do one thing really, really well”.

Google certainly does that. Its mass of algorithms index the internet with ease. The flow of advertising dollars that search mastery attracts shows little sign of slowing. In the last quarter, revenue rose by 26%. In the last year, sales were $29 billion, including $3.3 billion in Britain, pipping for the first time the top line of ITV, which includes advertising and programme sales. Google now has a cash pile of $35 billion.

The internet is changing, though. Millions of Facebook users navigate from page to page according to friends’ recommendations, not through a search box. Google’s shares, which have increased in value fivefold since the company floated on the stock market in August 2004, reflect the concern. They have trodden water for the past year.

It is easy to draw comparisons with Microsoft’s share price, which has drifted sideways for a decade, roughly since a young upstart called Google first began to steal its thunder.

Google is the establishment now, plugged into governments and Wall Street. With a workforce of 25,000, expected to reach 30,000 by the year-end, it resembles a big corporation, not a start-up. One sign of maturity is that it even has its own anti-trust battle in Brussels, a cause championed by Microsoft — no stranger to allegations of dominance itself.

For Page, battling bureaucracy is top of the agenda. He aims to speed up decision making. Leading executives concede that the management structure needed to be overhauled.

“The triumvirate worked better in the early days of the company than it did in the past year or so,” said Alan Eustace, Google’s most senior engineer after Brin and Page. “There are no issues between the three of them. They just spend less time together. They used to be able to finish each other’s sentences.”

And then there is the small matter of focus. Google still has ambition on a grand scale. “Larry wants us to do big things,” said Dave Girouard, the president of Google’s enterprise arm. “Any time you think you have a big idea, Larry will tell you it is too small.”

But after some uncharacteristic flops, should Page prepare the company to do fewer things better?

The lawn outside the Android building is a sweet-eater’s delight. Eight-feet-tall models of a doughnut, an ice-cream sundae and a slab of honeycomb are ranged across the grass.

Each stands for the name of a version of Android, Google’s operating system for mobile phones. The giant collection of desserts could just as easily represent how irresistible Android has proved to be.

“Not everyone thought we would succeed,” said John Lagerling, who manages Android’s relationships with mobile phone networks and handset makers. The system was launched only three years ago but today powers 170 different devices. Android has cut through an industry that was famous for not working together on standards, arousing the suspicion of mobile giants such as Vodafone.

“Open innovation is what created so much value on the web and we are seeing that finally being replicated on mobile,” added Lagerling.

In contrast to Apple, which jealously guards the operating system that runs only in its iPhone, Android has been a free-for-all.

A third of smartphones sold in the past three months run on it — twice the market share of Apple and a sevenfold increase in unit sales from a year ago, according to the industry analyst Canalys.

Android should soon be even bigger. Lagerling expects handsets to go on sale soon for £90, less than one-third the price of early smartphones.

The system supports apps too — 150,000 of them — but Google expects to make money on the project from what it is best at: advertising, much of it able to capitalise on a user’s whereabouts. There is also a mobile music service in the pipeline.

Android is one of four big bets that Google believes show giant promise. Elsewhere in the business, YouTube, its online video portal, acquired five years ago, has finally worked out how to make money.

The third bet is Chrome, a web browser. It has more than 120m users, roughly 15% of the market, but is soon about to become something much more ambitious — a whole PC operating system to compete with the likes of Microsoft Windows.

Google seems positively ancient to the whizz-kids at Facebook and Twitter It will be installed on laptops from Acer and Samsung. Other hardware firms, including some that don’t make PCs, have inquired about using Chrome.

It seems a lot of effort for a market that Microsoft has had sewn up for years.

Linus Upson, who oversees the Chrome project, begs to differ.

“Most consumers don’t realise all of the headaches their computer has. To the extent that we can make the web faster, simpler and more secure, that goes straight to Google’s core business.

“This is one of the few places where you have the opportunity and resources to go after really, really big problems,” he said.

The fourth bet is on making money out of business users. The company is selling computer applications, like email and word-processing.

The services are hosted not on the client’s own PCs but in the “cloud” — the industry jargon for remote server computers, in this case belonging to Google.

David Girouard, the enterprise boss, oversees 1,500 staff plus 2,000 resellers, all focused on persuading businesses to let Google run their office applications. He already has more than 30m users in businesses and schools.

“We will be disappointed if we don’t have more than 100m users in a few years,” said Girouard.

Beyond Google’s big four, speech-recognition technology, alternative energy and health projects all jostle for attention. What about making money? The mantra is: let’s worry about that later.

These projects have big numbers in common. The theme seems to be, if Google can help people improve their productivity by harnessing its huge computing power, they will spend more time online and advertisers will spend more money.

Not everything works, though. Last year’s stab at social media, Google Buzz, sparked a storm over privacy when the system revealed each Gmail user’s list of contacts to others. A settlement with the Federal Trade Commission was reached only last week. Wave, a Twitter-like messaging platform, also fell flat. The misses have made Google even more determined to succeed.

The first thing Alan Eustace does is apologise. Google’s senior vice-president for engineering and research can only explain away what he is wearing — shirt, jacket and slacks — because he was hosting a senator on campus that morning.

Google likes its staff to be comfortable. There are tips on how to get a good night’s sleep posted over the urinals and advice on eating enough fibre stuck up in the free canteen.

For some, the unique way of life is not enough. In its biggest hiring year — when Eustace received 75,000 CVs in a single week — Google is fighting a rearguard action to hang on to its top talent.

Four of Facebook’s top 13 executives used to work for Google. Even one of its top chefs defected there, providing more food for thought. Twitter has also been sniffing around. Google pays well, but since it floated on the stock market, it can no longer hand out shares like confetti to new stars from nearby universities at Stanford and Berkeley, or farther afield.

“There is certainly a lottery effect for start-ups,” said Eustace, who believes that competition for the best staff has always been tough in Silicon Valley.

“You can spin the wheel and possibly get huge amounts of money, and some people are enormously attracted to that. In some sense they are giving away paper money and we are giving away real money.”

Sitting in his shoebox office, Eustace tells it like it is. Yes, Google has a problem with focus. But singling out what projects it should give up on is no easy task.

In the meantime, launching every new application or service straight onto an unsuspecting public is not necessarily the best approach.

“I felt like for a while there were so many new things coming out in so many new areas that it was a little distracting,” he said.

Better to tune up improvements in each of its big projects. The solution to Google’s growing size is devolution, it seems.

“If you push down responsibility in a bunch of different areas and have them [managers] execute independently, they can execute really fast,” Eustace added.

“The minute you slow down, other companies will beat you.”

And can Google finally make progress in social media? Last week’s launch of a +1 button that recommends web pages to friends shows it is still trying.

“I probably wouldn’t bet against Google, just in general,” Eustace cautioned. “Can anyone monopolise sharing? I don’t think so. We will have a role to play in that.”

So perhaps Google doesn’t need to reinvent itself. Like its tech peers, the giant that Page and Brin built is always striving for what’s new.

But deciding what it should search for next is the biggest challenge of all.

And it is spending $100m a year to back start-ups

Google is drawing up plans to bring its investment arm to Britain as it ramps up the number of companies it plans to back, writes James Ashton.

Google Ventures has put money into 30 firms in less than two years and may invest in 100 this year, said Bill Maris, its managing partner.

“We are firing on all cylinders,” he said. “As soon as we can find the right people to help us on the ground in Europe, we are interested. Innovation is not limited to the US.”

So far, Google Ventures has made investments in areas as diverse as educational software, biotechnology and a company that calculates the chance of crops being ruined by the weather. It is separate from Google’s in-house projects, which extend as far as developing driverless cars and new sources of alternative energy.

Maris said the aim of Google Ventures is to make a financial return, not simply find entrepreneurial talent for the firm.

“It’s an expression of Google’s optimism — the fact the entrepreneurs do great things and it doesn’t matter what the macro-economic climate is,” he said.

One of its investments, Ngmoco, an online games developer, has already been sold for a profit and this year Maris expects to float several of the companies in which he has invested, including Home Away, a portal for holiday rentals and bed and breakfasts.

He has an annual $100m (£60m) budget to take stakes costing between $50,000 and $50m, but has the scope to tap Google for more. Maris has begun offering a $10,000 finder’s fee to Google staff who recommend promising start-ups that he eventually invests in.

So-called corporate venturing — where large companies set aside seed capital to back start-ups — has a mixed record. Several companies, including the news provider Reuters, had their fingers burnt trying to back winners during the dotcom bubble of the late 1990s.

The companies that Google has invested in employ 2,000 people altogether and Maris believes he can help them find the best staff and solve engineering problems. Some have been given space in Google offices.

Separately, Google has also made acquisitions in Britain. Last year it bought Plink, a venture begun by two postgraduates whose technology can analyse and identify works of art.

It also has a stake in Ubiquisys, a developer of femtocells — modems that connect mobiles to a domestic or office broadband network to boost their signal.

Google’s supporters say Google Ventures is just another example of the company’s ability to plan for the long term even if it risks being eclipsed by newer players such as Facebook in the short term.

“People always need something new to gravitate towards,” said Michael Moritz of Sequoia Capital, the venture capital firm, one of Google’s early investors. “Silicon Valley has been full of bright, shiny objects that have their brief moment in the sun and then disappear. I would imagine most business people would happily trade a body part to swap their business for Google.”