Google and the Ghost of Silicon Valley Past

1Executive Summary

In Silicon Valley, history often repeats itself. Most often it’s the tale of a startup and its brave-heart founders who create the equivalent of a magic potion that captures the imaginations of millions — including their peers — and eventually become so successful they start to topple their bigger, incumbent competitors. Then they become hated monopolies, despised for the control they wield on their industries, and subject of government investigations.

In the late ’80s and early ’90s, this tale belonged to Microsoft, which came in from the cold and ran circles around IBM. Microsoft, in fact, became so big that the Department of Justice had to step in, investigating the company’s monopoly powers.

Then, towards the end of the 20th century, we saw the quiet emergence of Google just as the web was transforming from a publishing-oriented curiosity to an operating system–like platform. And if recent developments are any indication, Google is on the verge of having its own Microsoft-like moment, where it could become Public Enemy Number One.

This week, a Wall Street Journal story bemoaned how Google is trying to dominate the web by promoting its own local-oriented services. Among Google’s most vocal critics are WebMD, TripAdvisor, Yelp and CitySearch, all of whom compete directly with Google. Here are some snippets from the story:

  • “There is no denying that today Google is competing [with many web sites] for the same Web traffic and the same advertising dollars,” Jay Herratti, chief executive of CityGrid Media that publishes Citysearch, Urbanspoon.com and InsiderPages.com.
  • TripAdvisor Chief Executive Stephen Kaufer said the traffic his site gets from Google’s search engine dropped by more than 10 percent, on a seasonally adjusted basis, since mid-October — just before Google announced the latest change to the way its search engine shows information about local businesses.
  • Yelp CEO Jeremy Stoppelman said Google “is trying to leverage its distribution power” — the search engine — “to take an inferior product and put it in front of the user.”

To me, these allegations are nothing more than a case of sour grapes. Kaufer complains of a decline in his traffic, because Google is shifting its focus to Google Places. Of course, the story doesn’t mention the fact that he might actually be losing in the marketplace because TripAdvisor has new competitors such as Tripit and Nileguide, many of them focusing solely on smartphones and thus stealing attention away from his service, which, let’s face it, belongs to another era. The same goes for WebMD and CitySearch, which are less relevant by the day. The fact of the matter is that as Internet services, these companies have been slow in embracing new technologies and new ideas. And Yelp, which apparently had a chance of being acquired by Google for a lot of money, now needs to fight Google in the dirty old marketplace. Boo hoo!

This is not the first time Google has caused the old Internet players trouble. Google Maps emerged and beat out MapQuest, mostly because the former was a good product that utilized web’s newest technologies and trends. Did Google’s financial backing help? Of course it did, but ultimately it was the end-users who decided the winner. Similarly, the writing has been on the wall for all these vertical search companies — Google has made no bones about going after structured data-based market opportunities.

These complaints about “search neutrality,” however, do remind me of another era. In the heyday of the PC, folks often complained about Microsoft using its massive clout to promote its own services over rivals. Of course, it is easy to forget that Microsoft didn’t always succeed at its efforts, and often ended up launching mediocre products. Microsoft Money failed to dent Intuit’s Quicken, just as its software couldn’t do an end-run around Adobe’s offerings.

Google, too, has seen its fair share of disasters, many of which I have already forgotten. Google Buzz anyone? Google Checkout is still a work in progress, but it is being thrashed in the marketplace by PayPal. So to lament that Google is discriminating makes little sense. Moreover, many of these moaners have had more than a decade to establish their brands and the fact that they are complaining about Google has more to do with their own limitations than just Google’s clout.

Location, Location, Location

Google’s real problem is how users discover information via its search results page. Today, if you search for any keyword, the first results seen often include a lot of what I call Google Gunk!: snippets from YouTube, photos from Picasa, real-time headlines from Google News, shopping results, Twitter results and, of course, the all important ads. Actual information from outside sources is towards the bottom of the page, often below the fold. Essentially, Google now dominates the web search equivalent of the beachfront property.

This makes it much tougher for new web brands to be established and discovered via Google. But that is not a Google problem. If you are a smart entrepreneur — like say the founders of LivingSocial or Groupon — then you can figure out a way to establish yourself and your brand.

Microsoft Redux?

But Google has to be careful as to how it utilizes and dominates its search results page — or it’s going to find itself in a whole lot of trouble.

Microsoft had its moment of crisis when it pushed its agenda too much. Its dominant share of desktop market and the desire to embed its core technologies into the OS at the expense of rivals got the company into trouble with the Department of Justice, leading to a long and sapping investigation.

While Microsoft didn’t clearly lose, the investigation took its toll on the company’s win-at-all-expense psyche and it hasn’t since recovered from the blow. The ongoing tussles with the European Union’s anti-trust officials only add to Microsoft’s woes, especially at a time when it could ill afford to take the eye off the ball: The world was becoming more web-centric and less desktop-reliant.

Google’s Headaches

Google is already under investigation from the European Union for:

  • Favoring its own search results while lowering those of rival vertical search providers.
  • Lowering the “Quality Score’” for sponsored links of competing vertical search services. The Quality Score helps determine how much advertisers pay for placement next to certain results.
  • Enforcing exclusivity agreements with advertising partners and preventing them from running ads for competing search products on their sites. Also, for striking agreements with software and computer vendors to shut out competing search services.
  • Restricting the portability of online advertising campaign data to competing online advertising platforms.

The company has also been in trouble over the Google Street View in Germany and other EU nations. Around the world, other governments are becoming leery of Google, just as they did towards Microsoft. Already, the Washington Post is baying for Google’s blood, questioning its acquisition strategy. It is enough of a bother that Google had to respond on its own, a clear sign that it is feeling the heat.

If this wave of anti-Google sentiment continues, both inside Silicon Valley and inside the Beltway expands, the company would find itself dealing with an ongoing distraction much like Microsoft did. This is particularly dicey at this time when Google is competing with aggressive enemies on multiple fronts. Riding the social wave, Facebook is threatening to snatch the web mantle from Google. In the world of mobile, Apple and Google are duking it out. In search, Microsoft is willing to spend billions of dollars on Bing to take market share. These are not easy enemies to trifle with, and Google has to be careful as it marches onwards.

The next few years will be a balancing act for the company that for so long has tasted success and doesn’t quite understand adversity. Google will have to live and learn under the governmental scrutiny, yet not let it effect the innovation engine inside the company. If it doesn’t, then it will find itself being haunted by the ghost of Silicon Valley’s past.

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