At Google, Innovation Is Not Just Fun, Games

Times Staff Writer

Eric Schmidt has a message: Don’t let the lava lamps fool you. Google Inc. is serious.

As Google’s chief executive, Schmidt presides over a headquarters filled with trinkets, pets, free food and bouncy-ball chairs. But the whimsical workplace belies the company’s focus on cold, hard numbers.

Schmidt, 51, oversees operations -- a crucial role as the company hires voraciously to improve the search engine and launch a dizzying variety of products, such as the online spreadsheet program released last week.

Along with founders Larry Page, 34, and Sergey Brin, 33, Schmidt has shepherded the company from a money-losing start-up to an Internet giant with a market value of $117 billion in five years. With their holdings each worth billions of dollars, the three executives draw annual salaries of $1.


But rivals such as Yahoo Inc. and EBay Inc. are teaming up to counter Google, even as it increasingly encroaches on the turf of software powerhouse Microsoft Corp. The federal government has pressed Google and other Internet companies to turn over data on users’ e-mail and search habits. Newer programs such as Gmail crash often. And a recent internal review found that Google had failed to invest enough resources in its bread-and-butter product: the search engine.

Schmidt -- a former executive at Novell Inc. and Sun Microsystems Inc. -- met with The Times last week to discuss Google’s growth strategy and the competition.

Question: We’re seeing so many Internet companies forming alliances: Google invested in AOL last year, Yahoo and EBay recently teamed up, Microsoft is trying hard to strike deals. Is the industry maturing?

Answer: The industry is going to develop as a partnering industry, not as a monopoly industry. It will not end up in a structure with one dominant company. It won’t be Google and it won’t be Microsoft and it won’t be Yahoo. It will be a collection of companies.

It’s not going to end up in the PC model that everybody talks about. The reason is because the advertising industry, which monetizes it, is not a single-solution space.

After a hundred years of consolidation, the media industries are down to five mega-media companies. It seems like every day you hear some component is sold or purchased or retargeted and transferred from one large company to another.


That’s the more normal structure of large industries. We should expect that should be the eventual structure of this industry.

Q: Is Google a media company or a technology company?

A: It’s better to think of Google as a technology company. Google is run by three computer scientists, and Google is an innovator in technology in our space. We’re in the advertising business -- 99% of our revenue is advertising-related. But that doesn’t make us a media company. We don’t do our own content. We get you to someone else’s content faster.

Q: You’re rapidly adding people, real estate, servers and infrastructure. How long do you foresee that happening?

A: We are subject to something called the law of diminishing returns. You can’t continue to double between here and infinity. There are no counterexamples in humanity. All business growth rates eventually slow. We don’t know whether that’s 10 years from now, 20 years, we just don’t know. It’s not worth predicting.

It’s interesting conversation. We can chat about it in the hallway. But in terms of running the business, we’re better off to take advantage of the growth now to invest. So we inform our decisions based on our ability to grow our market share and hire great people to solve new problems.

Q: How do you personally oversee that growth?

A: We’re very analytical. We measure everything, and we systematized every aspect of what’s happening in the company. For example, we introduced a spreadsheet product this week. I’ve already received my hourly updates on the number of people who came in to apply to use the spreadsheet, the number of people who are actually using it, the size of the spreadsheets.


Q: You’re the CEO. Is that important for you to know?

A: Absolutely. Because I want to know how well it’s doing. It’s a very interesting product. We give the impression that, because of the lava lamps and all the [bouncy] balls, we’re not paying attention to these things. And while that’s very nice myth-making, it’s not true. We are just ruthless with respect to watching all these metrics, so we know what’s going well and what’s going poorly. You can tell very quickly in an online world.

Q: How do you make decisions?

A: Our culture is a consensus-based culture. If a decision is not forthcoming, then I try to get a decision to come out. In rare cases then I will force a decision.

A traditional company would be hierarchically managed; it would have very clear chains of command. All of these things would be very well articulated. We function more quickly and more creatively in this consensus-driven culture, with a lot of data. Since you asked me specifically what I do: At the end of the day, I catch the ball.

Q: Google gives engineers paid time to work on side projects. That gives some people the sense that it’s impossible to harness what’s happening here and that there’s no grand plan.

A: We benefit by occlusion. But of course there’s a grand plan. And that grand plan is search -- as we define it.

Q: As Google grows, are there particular companies you’ve studied to learn what to do and what not to do?


A: I’m not aware of any innovative companies that are growing as quickly as we are at our scale. So, we are making our own path at this point.

There are many small companies that are very innovative that we can learn from. The larger companies tend to become less innovative. Larry [Page] gives this speech -- he says he would assume that with this cash and this many people we would start taking bigger risks as opposed to smaller risks because we have so many more resources.

Q: You have been a close observer of Microsoft, competing against it at Sun and Novell. Do you see your company as a young Microsoft?

A: There are similarities and there are big differences. There are a number of things Microsoft did well. They hired very well, and they built a very strong product management organization. As far as I know, they did that the best -- way back when. We would modestly, or immodestly, argue that we have the best now.

There are some things that are different. We are much more partner-focused than they are. Our rate of innovation is much faster. And that’s to some degree because we’re at a different stage in the technology development.

I don’t really feel comfortable talking about Microsoft, because anything I say will be used out of context. Not by you, but by others.


Q: I sometimes think of it as a whirlpool, sucking in talent and attention and start-ups, and in some cases fear. That whirlpool used to be around Microsoft, and now it’s around Google.

A: I used to have a rule when I was at Sun: You should never generalize from the one monopoly in your space. By definition, such generalizations are false. Because the path they took is not available to you.

You have a different path. Everyone assumes that what was the success model for the last company is the success model for the next company. And I believe it’s the inverse.

The success model for Google is different from Microsoft and Yahoo and the other companies you named. How you achieve that is you do it with smart people, and you question every assumption.

Q: Was your corporate motto, “Don’t be evil,” a direct response to Microsoft?

A: No. It had nothing to do with Microsoft. Larry and Sergey, and certainly I when I joined the company, spent almost no time on Microsoft. This is a press-generated focus. We don’t spend very much time talking about Microsoft.

Q: They’re sure fascinated with you guys.

A: We do not spend our time talking about them. It’s perfectly fine if everyone wants to obsess about what we’re doing. We want to obsess about what we’re doing and how can we do better.


We don’t do things perfectly. We make mistakes. Our products don’t work perfectly out of the box all the time. We have features that are missing. We don’t bring in the talent as fast as we want. We don’t have buildings for them. It’s all of the problems of growth -- that’s what we want to spend our time on.

Q: When I talk to start-ups and venture capitalists and others in Silicon Valley, I hear the same trepidation in their voice when they talk about Google that they used when they would talk about Microsoft in the past. Microsoft didn’t set out to have that foreboding image, but it developed because it was so good at doing what it did at the time. How do you avoid becoming Microsoft south?

A: The fact of the matter is we’re in a different business. It’s not a zero-sum game. Our customers are one click away from moving to a different search engine. That is not true in operating systems and it’s not true in PC applications. It never was true.