Google shake-up returns Page to CEO post
Facing new threats to its role as the world’s dominant Internet company, Google Inc. announced a surprise executive shake-up that appears to put innovation and technology — not management — in the driver’s seat.
Larry Page, Google’s 37-year-old co-founder, will reclaim the top job from Eric Schmidt, the boardroom veteran who brought corporate discipline to the fledgling Web start-up a decade ago, helping it become the world’s most popular search engine.
But even though it has matured into a powerful company with a rich stock price and enviable profits, Google is facing increasing competition from younger upstarts such as Facebook Inc., the social networking phenomenon that is vying with Google for Internet advertising revenue.
To get back its mojo, Google may be returning to its start-up roots.
“A lot of the growth of the company used to be driven by innovation,” said Yun Kim, an analyst at investment firm Gleacher & Co. “Having someone with the very strong products background that Larry has could bring some innovation back to Google.”
Schmidt, 55, will remain as executive chairman and will advise Page and Sergey Brin, Google’s other co-founder. Brin will give up his title as co-president to work on high-priority projects.
One of those projects is believed to be social networking tools to counter the growing popularity of Facebook, which has supplanted Google as Internet’s most talked-about and closely watched company.
While Google is showing great promise with its Android operating system that will power a new generation of smart phones and tablet computers, it has yet to come up with a satisfactory counterpunch to the growing competitive threat of Facebook, prompting a period of soul-searching at the company, which is facing one of its few direct challenges in the years it has ruled Internet advertising.
The surprise shake-up, which will take effect April 4, was announced Thursday after the close of regular trading on Wall Street.
Investors liked the move. Google shares jumped to $635.50 in after-hours trading, after falling $4.98 to $626.77 in the regular session.
Schmidt took over as chief executive from Page, then 28, in July 2001. Schmidt, a seasoned Silicon Valley veteran who had served as CEO of Novell and chief technology officer of Sun Microsystems, was brought in to provide some “adult supervision.”
He helped the company earn a profit in 2002 and guided it a 2004 initial public offering that at the time was the biggest for an Internet company. Over the years, he won kudos for shepherding the company’s fast-growing business and its headstrong founders, who remained deeply involved in the company’s products and strategic direction and didn’t always see eye to eye with Schmidt.
On his Twitter account on Thursday, Schmidt wrote: “Day-to-day adult supervision is no longer needed.”
“I believe Larry is ready” to take over as CEO, Schmidt said during a call with analysts. “It’s time for him to have a shot at running this.”
In recent months, Schmidt had assumed more of an ambassador role for Google, which is under heavy scrutiny from regulators in the United States and abroad and faces growing questions about its ability to innovate and compete against Internet upstarts such as Facebook, whose CEO is its tech-savvy founder Mark Zuckerberg.
“We will see if Larry can integrate more tightly the technology with the business model,” BGC Partners analyst Colin Gillis said.
Few were surprised that Schmidt desired more of a behind-the-scenes role as he had grown increasingly weary of the intense scrutiny and heavy demands of running a public company with the international profile of Google.
He had stopped participating in Google’s quarterly calls to discuss earnings with analysts. And he had expressed frustration with how his comments — some say gaffes — on how Google approaches consumer privacy had been picked apart by pundits and lampooned on late-night television.
But many in Silicon Valley were stunned that Page had decided to retake the reins, having given no public hints of his personal ambitions.
“It was a big surprise,” said Danny Sullivan, editor of the blog SearchEngineLand, who has tracked Google since it was founded. “I’d seen no indications that this was something he wanted.”
Page, a prodigy who began playing with computers at the age of 6, has always been more reclusive than either Schmidt or Brin.
Page and Brin were Stanford graduate students in the mid-1990s when they undertook a research project to find a better way to search the Internet, creating the foundation of Google. Google’s search algorithm PageRank is named after Page.
They formed the company in a Palo Alto garage in 1998, and Page ran the company for three years until it reached 200 employees. Page and Brin have always approached business differently. In a founders’ letter to investors, they said: “Google is not a conventional company. We do not intend to become one.”
One of the best examples of its unusual approach was its management triumvirate. The company had maintained that the leadership arrangement helped boost its business.
Though the move to install Page was widely seen as an effort to put engineering first, analysts noted that he has been closely involved with business operations as well.
“There’s always a risk with a CEO change, but I’m sure Larry has had a fair amount of input into the strategic direction and even the day-to-day operations of the company already, so I would not expect dramatic changes,” said John Lutz, senior research analyst
at Frost Investment Advisors, which owns Google shares.
Page will take over a company that is, by most measures, a gold mine.
Google, bolstered by the uptick in holiday spending, said its fourth-quarter profit rose 29% to $2.54 billion from $1.97 billion a year earlier. Revenue for the Web search giant climbed to $8.44 billion, up 26% from the same quarter in 2009.
Paid clicks, which include clicks related to ads served on Google sites and the sites of its partners, increased about 18%, Google said.
In a conference call, Schmidt said the three men for years had made decisions together but that it was a slow process. The new management structure will streamline decision making, he said.
That decision making will be crucial in the coming year as Google attempts to reclaim its status as one of technology’s companies to watch.
Google’s sweeping ambition is to reach people wherever they are and on whatever device they are using and connect them to a wide array of services and content. All that information collected across devices and services could give Google valuable insight into users and better means to deliver personalized advertising campaigns. If it’s successful, Google could regain its clout on Wall Street as a growth rather than a value player.
With the rising popularity of smart phones and tablet computers, Google has pushed its Android mobile operating system that is powering new devices to compete with Apple Inc.’s fleet of consumer gadgets.
“I don’t think the Street is particularly aware of what is coming with Android and tablets. And the accelerating use of smart phones and tablets plays directly to Google’s strengths,” Macquarie Securities analyst Ben Schachter said.
“The more people using the Internet, the more Google wins.”
Schmidt calls it “the big mobile revolution.”
“As I think about Google’s strategic initiatives in 2011, I realize they’re all about mobile,” Schmidt wrote recently in the Harvard Business Review.
To achieve its goals, Schmidt said, Google would have to do “some serious spade work” on three fronts: speed up networks, turn mobile phones into virtual wallets and lower the cost of smart phones in the poorest reaches of the world.
“We envision literally a billion people getting inexpensive, browser-based touch-screen phones over the next few years,” he wrote. “Can you imagine how this will change their awareness of local and global information and their notion of education? And that will be just the start.”
