Can Google Bounce Back?

In 2018 I worked at Google in New York City. Back then Larry and Sergey would still run the monthly company all-hands. It was great fun to watch these two, clearly still close friends, handle this responsibility with zero seriousness. Sergey would invite someone on stage to give an announcement and turn to Larry asking, “Have you ever heard of them?”. “Nope!” Larry would laugh in response. The speaker would awkwardly take the mic and talk about Android, Google Plus, or GCP.

Beneath the entertainment it was clear that Larry and Sergey had checked out of day-to-day operations- everyone in the audience could certainly feel it. At the time I didn’t realize how rare those moments were. In 2019 Larry and Sergey didn’t attend a single All-Hands, and in December they announced they would step down from all executive responsibilities.

There are probably four or five “end of an era” moments at Google, and this was one of them.

Last month 18-year Google vet Ian Hickson published his resignation letter online.

The 1500-word piece is blunt, criticizing Sundar Pichai, careerist middle management, and a focus on stock price over longtermism. It’s a surprisingly negative note for someone to end their career on, especially given the notorious optimism of early Googlers. One can only imagine what Ian had to deal with before penning this exposé.

I spent just under a year at Google- far from Ian’s eighteen- however in that time I was continually surprised by differences between the values in Google lore and the ones I saw manifest day-to-day. Team, talent, morale, craftsmanship, work ethic, and passion were being eroded and subsumed by careerism, short-term thinking, mediocrity, and a lack of pride. The letter points to a few of these early values:

• “We essentially operated like a startup, discovering what we were building more than designing it.”
• “My mandate was to do the best thing for the web, as whatever was good for the web would be good for Google (I was explicitly told to ignore Google’s interests).”

And how they became:

• “Responsibilities are guarded jealously. Knowledge is hoarded, because making oneself irreplaceable is the only lever one has to protect oneself from future layoffs.”
• “The lack of trust in management is reflected by management no longer showing trust in the employees either, in the form of inane corporate policies.”

The feedback loop between leadership and engineering, one built on trust and mutual respect, is currently broken.

Cultural degradation is but one of the many headwinds Google faces.

There are several challenges that it will need to navigate to regain its internet supremacy.

• Search quality. As Google grew its share of search traffic, organic user growth naturally became challenging. Other bets, especially separate Alphabet entities, have only served to diversify its cost centers. In other words, Google has not found a second act. It has grown profits not through innovation but by increasing the aggressiveness with which it serves ads. It’s well documented that Google search appears to be getting worse- not better.

Many Google searches return an entire page of ads before the first valid result.

• Other product quality. The rest of the product landscape is bleak. Google Docs has only improved by copying Notion. Hangouts/Meets are losing to everyone from Zoom to Cisco. YouTube started forcing ads to squeeze users onto Premium. AWS is widely preferred over GCP by startups (despite Firebase and other managed services) and Pixel has low single-digit market share. None of these facts inspire confidence in Google’s product leadership.
• New and existing regulatory challenges: As of December 2024, Google faces dozens of government lawsuits, including three anti-trust cases from the DOJ. They also just lost a jury case against Epic, threatening their Android Play Store monopoly. Regulation will always be a larger hurdle for incumbents than startups who can afford to be more risk-on. Process (legal or otherwise) forms the plaque that prevents large organizations from pivoting quickly enough when the moment requires it.
• Lack of AI leadership: Re-orienting an existing team is harder than starting from scratch. DeepMind has shown impressive results with AlphaFold, but its focus on gameplay over scaling language and vision models has not been a winning strategy. Moreover, Bard has had a spotty rollout and has generated none of the excitement of ChatGPT. Famously, none of the original authors of the Transformers paper remain at Google, and it’s unclear whether Google has respected AI leadership. For all his divisiveness on AGI, Yann Lecun has been leading a masterclass at FAIR, and Meta is at the top of their game. The most recent Google Gemini launch proved to be a fake demo and won’t even be available until next year.

• AI search may not be a monopoly: Google regularly shuts down projects that could be billion-dollar businesses on their own because it has an incredibly high bar for success. If the future of search converges to chat over 10 blue links (as folks like Ben Thompson have speculated), there may not be a clear winner. While this is healthy for the market, anything less than total market control will be a regression from Google’s performance up to this point.
• Surveillance capitalism may be dying: As Shoshanna Zuboff details in her brilliant book on the topic, Google is built on the profits rendered from its user’s behavioral surplus. Simply put, Google invented the greatest business model in the history of capitalism.

This model, however, relies on user’s willingness to share their data and submit themselves to targeted advertising. After years of awareness through media like “The Social Dilemma”, this seems poised to change.

“Although we haven’t reached peak surveillance, we’ve reached peak indifference to surveillance.” — Cory Doctorow

A company like Google does not fail quickly.

Their search monopoly is too important to the internet, as are their integrations throughout the tech ecosystem. YouTube, Gmail, Maps, and Workspace are all massive, deca-billion-dollar businesses that operate, to varying degrees, independently from Search.

Moreover, the precedent of a massive, mature technology business safeguarding a golden goose while spinning their wheels on other fronts is not new. The real question is whether Google can rebound from this slump, or whether these headwinds mark the beginning of a long, painful decay.

It requires a phenomenal business with great leadership to become one of the most valuable companies of all time. But to do it, lose the throne, and then regain it a decade later demonstrates another tier of resilience.

Apple, Microsoft, Yahoo, IBM, Oracle, and Sun Microsystems have all been one of the largest technology companies at one time or another, each worth several hundred billion dollars (or more) at their peaks. Whereas most of them haven’t touched their former glory, Apple and Microsoft are currently the #1 and #2 most valuable companies of all time.

So what can Google learn from the Apple and Microsoft playbook?

All of these companies are 300IQ behemoths with effectively unlimited cash, world-class products, and deep customer mindshare. But there are key differences in the way Apple and Microsoft orchestrate their product launches and M&A strategy that have allowed them to dominate for half a century where others in their position (IBM, Yahoo, Blackberry) lost their moment and declined.

Vertically integrated products: Google’s ability to scale horizontally is the reason it grew more quickly than Apple or Microsoft. However, the latter two integrate vertically which lets them build long-term advantages in key markets. For example, Microsoft’s VSCode, Github, Copilot, and Azure make up a beautifully integrated product suite for software engineers. They have a similar playbook for enterprise SaaS. Apple has an even more tightly knit ecosystem, although its most powerful vertical integrations are within product lines, not between them. With the iPhone, Apple designs its hardware, silicon, drivers, OS, and many applications. Everything from the silicon layout to the case colors is engineered. While Google does have the Android OS and Pixel devices, these components don’t multiply together in the same way the Apple stack does.

Google does design much of its data center hardware, notably TPUs, and this may prove to be a long-term advantage. While not yet realized, the integration potential between TPUs, Google Cloud, and many futures of search (LLM retrieval, voice, etc) is a bright spot.

Inorganic diversification: On the topic of M&A, it’s not that Apple and Microsoft don’t overpay for the businesses they acquire- they do. It’s that, like the best VC firms, their bets have outsized returns. Apple acquires a company about every 3 months, Microsoft slightly more frequently. Microsoft also tends to purchase larger businesses (LinkedIn for $26.2B, Skype for $8.5B, Github for $7.5B, etc), whereas Apple typically acquires smaller businesses for their technology. But all of these acquisitions either strengthen multiple existing product lines or add new, independent businesses. By contrast, Google has not been able to use M&A to diversify its profit centers. Its big wins are YouTube (perhaps the best acquisition of all time), and AdMob/DoubleClick (both ad-tech). All three are correlated, adding only to its centralized advertising business. Outside of ads, things aren’t so bright. Firebase, which Google bought for $550M in 2014, is still not properly integrated into Google Cloud. Unprofitable bets like Nest have been dumped under Alphabet, and Motorola/HTC ($12.5B and $1.1B respectively) have not turned Pixel into a serious competitor.

Winning cultures: A lot has been speculated about what made the early Google culture so singular, from the atypical founders to the free lunches. The actual reason for their whimsical culture is hidden in plain sight: limitless free cash flow. Whereas other companies had tighter margins and more competitive markets that contributed to an aura of austerity (Amazon, Apple, Uber), early Google employees saw their company spend cash on everything from luxury barges to failed social apps. Morale is easy when you know you’re on a winning team. Modern Google culture has completely detached from business success, and the employees have internalized that Google will keep winning whether or not they show up to work. I’ve spoken with current Google employees who volunteer that they think they work for an evil organization. This mindset is common.

Clear missions: Apple builds the best user experience through innovative hardware, software, and services. Microsoft’s mission is slightly more pithy (“To empower every individual and every organization on the earth to accomplish more”), but their product launches reveal a clear strategy to win over developers and the enterprise. What is Google’s mission in 2024? “Organize the world’s information and make it universally accessible and useful” feels detached from their current actions, given the declining quality of search results. “Don’t be evil” was never a rallying cry, and is too on-the-nose to be used in 2023. Employees need a north star, and outside of “AI” being mentioned 140 times at the recent Google I/O (27 times by Sundar Pichai himself), there doesn’t seem to be one.

Will Google get its second act?

In some ways, it doesn’t matter. It’s okay if Google doesn’t bounce back. I love Google as an organization- and I love that companies like Google can win against incumbents. But it’s a good thing we don’t still use Netscape, Alta Vista, or Dell computers. Consumers will vote with their attention and wallets, and those who own stock will move their funds elsewhere. The important thing is that the possibility for change in the ecosystem exists. Google has had to spend much of the past decade fighting monopoly allegations from regulators. They allege that Google’s search monopoly prevents challengers from accessing the market and that Google cannot be disrupted by better technology. On these charges, critics are one for two.

In 2004, Google’s founders famously told Wall Street “Google is not a conventional company. We do not intend to become one.”

If we were to ask Larry or Sergey to speak on the current state of Google, they might say something like: “Google was an unconventional company, and then it wasn’t.”