People who know me well (in person) know that I like to talk about Google. In particular, their business model interests me because they have taken a very public, visible approach to R&D. Instead of having developers in secretive, dark “labs” where they are destined to work on projects that will most likely never see the light of day, Google encourages its developers to create visible projects that are showcased (and talked about) on their Google Labs website. This has its good sides (publicity!) and its bad sides (publicity before the apps are ready for prime time.) Most importantly to Google, it makes sure the word “Google” is always on the tip of reporters’ tongues, as Google continually refreshes its product list and finally “releases” products from Labs into the real world.
Google is not only doing this for the publicity aspect, however. Their management team is apparently of the philosophy “Let’s throw 1000 things against the wall and see what sticks.” That is, Google is hoping that eventually, a few of these Labs ideas will pay off and make big money for the company. Google shares this wealth with the employees that create the projects via Founders’ Awards — huge stock option grants for projects that make the company a lot of money. The first two Founders’ Awards were given out in 2005 and totaled $12 million in stock compensation. (reference)
That’s great for the big projects (and believe me, every employee at Google works doggedly to make sure his or her pet project is next in line for one of those awards.) But this blog entry is about those projects that aren’t the next billion-dollar idea. Obviously, by giving employees incentives to create web-based projects of their own accord, Google will have hundreds of these projects going on in a few years. Some of these hundreds of projects will be successful and will integrate with the rest of Google. The truly unsuccessful ones will either languish or be cut entirely. But what about the inevitable projects in the middle?
Let’s say (just using some random numbers as an example) an employee that Google pays $100,000 per year creates a project in his or her “20% time” that is successful. The project, funded by pageview ads, grosses $250,000 per year. That employee does not spend the majority of his or her time supporting the project… perhaps just the aforementioned “20% time”. What does Google do with this project?
“Well, keep it, of course!” you say. “It’s profitable!” Well, not exactly. Now that Google is a publicly-traded company, its shareholders are expecting big things. With annual revenue of $1 billion+ per year and stock prices in the stratosphere, it’s clear that both shareholders and Wall Street are not interested in a project that nets approximately $200K per year after expenses. The question that Google execs will have to ask themselves in the future is, “Is this developer’s time (even part of it) better spent on a project that will never net more than $200-$300K per year, or on a project that has the potential to make millions (or billions)?”
Companies have traditionally solved this problem by creating spinoffs, but at only $200K-$300K revenue vs. Google’s $1B+ bottom line, it’s not worth it to Google to spin a company off, even if it is profitable. The only choices left, then, are to either let that employee continue working on a project that will not substantially improve Google’s bottom line, or to axe the project. It’s the latter I think Google will have trouble with. After all, their roots are in creating a “startup-like culture” for their employees. Google Labs is full of projects that will likely never make the company a dime (except by some marginal publicity), like Google Mars. As long as these projects suck up nothing more than a one-time “develop and showcase” investment of a developer’s time, that’s fine. The problem occurs when these projects continue to suck up more and more time from developers who could be working on “better” (read: more profitable) ideas. It will be a tough call for Google to “prune” less profitable projects, but they will have to in order to continue to be a successful company.
Once Google realizes they have to cut back and only continue development on the projects that did “stick”, inevitably, they will crush a few of their developers’ hearts. I have a feeling some of those developers may even become jaded and go out and start their own companies (sort of like the many software companies spawned by former Microsofties in Redmond.) Those companies may even grow to become quite successful. Hmm…
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June 4th, 2006 at 2:16 pm
I have worked for Big Business and small businesses. I’d much rather work for a small business or at least a large company that still has the startup mentality. When a company becomes large, they usually start looking at the bottom line and ignoring everything else. Yes, they are in business to make money but looking exclusively at the bottom line is very short sighted. Take your example of something making only $200k a year. It might not be a big impact on the bottom line and the programmer supporting it MIGHT create something that makes $2M a year, or they might not. The things that will help the company more LONG TERM is that the employees are happy and the CUSTOMERS are happy. What happens when Google starts axing all these projects that customers are obviously using (those pageviews come from somewhere)? The customer now has to go somewhere else to find a similar tool. And if it’s making money and then gets the axe, SOMEONE out there will provide a similar service and get those pageviews. So now someone is going to a non-google site for that service. This is NOT GOOD for Google. They are striving to be your one-stop shop on the net. Axing projects that are making money will drive people (both customers and employees) away and goes against this vision. If they start killing little projects like this, I’ll be very surprised. (But I’ll admit I’m wrong and you can rub it in my face.)
June 5th, 2006 at 12:38 pm
Well, the Google strategy can be related to our changing society. We are turned into an “all or nothing” ideaology of thinking — especially in competitive realms such as business. Everyone wants to create the “next big thing,” instead of maintaining status quo or just being solid. People want to make their mark so that they gain status and a name for themselves, and this is not accomplished by being the “solid” worker bee.
It would be interesting to see some “behind the scenes” details of one of these Google developers. In most schools (well, in Illinois anyway), if we create anything that could be profitable while under contract, it becomes property of the district. For example, if we create a great educational computer program and use it to better our students we cannot market it and sell it for individual profit — it is property of the district.
In addition, it would be interesting to see how much of the decision to cut the project is on the shoulders of the developer. If you have an idea for a project that will garner only medium interest, but you are excited about your next idea that can potentially be “it,” which one do go for?
Oh — what do you think about ask.com’s new marketing campaign? Have you seen anything of it — they are totally slamming Google in it!
June 9th, 2006 at 4:37 pm
Google has so far been a great success story, and has consistently outperformed analyst predictions. While this is the case, shareholders are generally happy, and Google’s leaders and employees are given a lot of freedom and very little scrutiny.
However if at some point Google’s rapid growth slows, profits drop, and share prices start diving, they will have to endure a lot of scrutiny from shareholders. At that point it will be hard to justify the money spent maintaining swimming pools for employees or servers for running Google Moon and Mars. At that point a lot of heads are likely to roll, and a lot of neat projects are likely to be culled. It’ll be a great shame to watch them go.
June 10th, 2006 at 9:50 am
It’s as if Google labs’ efforts are purely promotional, reguardless of what sticks. Given their giant brain collection, this is unfortunate because some of these might have better served the public as an independant start-up. Perhaps over time Google will either find a way to apply the “do no evil” rule here.
Personally, I use more of their Labs’ products than search (I search with clusty, which may use a google back-end for all I know).
June 10th, 2006 at 10:06 am
^ ^ ..either “do no evil” or face developer disenfranchisement and attrition, that is.
June 22nd, 2006 at 9:02 am
Could Google just let their employees run each of these little side projects? It’s the Google way to have a non-centralised, distributed architecture with all their technical systems, so why not in their business as well? If the number of projects keeps growing, 500 employees with their pet projects generating $200K a year each is $100 million, pretty soon you’ll be talking real money.
July 3rd, 2006 at 7:30 am
Google is fostering an environment in which the next big idea is expected to sprout. What your post points out is that the time involved in waiting may be large, too large. It’s possible the original founders hitting upon their search idea was a once in a lifetime occurance. Maybe it was born partly out of necessity or timing rather than brilliant intelligence. My last thought – maybe Google should be trying to emulate the conditions under which the first ideas came (Stanford, research environment) rather than an engineer’s paradise with free meals?
April 1st, 2007 at 12:07 am
I have an idea that think has potetential to increase efficiency in the workplace and give people more leisure time and reduce pollution. How can I get help from you guys. I come from a family of scientists, philosophers, musicians, engineers, sociologists, lawyers. I have ADHD and I’m a totally disorganised insomniac whose brain doesn’t stop ticking. Help.Gabi.