
Google Takes Stricter Approach to Costs - andore_jr
http://on.wsj.com/1K2Zfze
======
wpietri
If I were a Google competitor, I'd be very happy about this.

From a Lean (as in Lean Manufacturing) perspective, I see two mistakes: a
focus on reducing _costs_ and increasing use of _control_ to do that.

The problem with a cost-oriented perspective is that is too narrow. For
example, suppose you're known for making great hamburgers. If you look at
costs, you might say, "Well, beef is our biggest expense, so let's focus on
reducing that cost." But the easy ways to do that reduce quantity and/or
quality, which also reduce value delivered. Instead the thing to do is to
focus on reducing _waste_ or increasing _effectiveness_ , both of which
increase value delivered per dollar of expenses.

And the problem with adding control structures as a mechanism is that is slows
everything down. You want employees asking, "Am I doing the right thing for
the company?" rather than having them pray to the gods of the executive suite
every time they need to make a decision.

I think a large part of what made Google so successful is that they approached
most problems like engineers rather than MBAs. Looks like there will be
opportunities for others to pick up that torch.

~~~
iaw
The fact that the current CFO is a long-term Morgan Stanley alum should be a
pretty strong signal about the direction the board wants to take Google. It's
not that hard to turn into Microsoft...

~~~
fredkbloggs
Google is _already_ Microsoft; it was almost from the very beginning. Despite
repeated and wide-ranging (especially in Google's case) efforts to build
additional businesses, both companies are from a revenue perspective one-trick
ponies. Google has search advertising and Microsoft has the Windows+Office
franchise. From a shareholder's perspective, nothing else either company does
offers any [positive] return.

My great hope is that the new funding rules will make startups accessible to
the general investing population. That would, in principle, obviate the desire
of existing companies with mature, successful businesses to go out and start
unrelated new efforts. Conglomerates aren't very popular these days and
haven't been for a long time; it would be nice to see these companies stick to
what they're good at, pay their shareholders richly, and then let those
shareholders decide whether they want to go invest that income in something
else (and if so, in what).

Well, a man can dream, right?

~~~
ISL
Windows and Office are separate ponies.

~~~
PirateDave
Also, their server/tools division was more profitable than their Windows
division starting in 2013[0]

[http://www.microsoft.com/Investor/EarningsAndFinancials/Fina...](http://www.microsoft.com/Investor/EarningsAndFinancials/Financials/FY13/Q4/SegmentRevenues.aspx)

------
abakker
With pay per click prices generally trending downward, and competition going
up, Google has to focus on actually making money - not a huge surprise there.
The bigger problem for them, I think is that their ad business is still
heavily trained on search intent, and search behavior. Certainly, google
understands search behavior better than any other company, but as an end user,
I find that my web behavior now is far less predicated on the functionality of
search than it once was.

With search, I show intent, frequently looking to purchase something. However,
as google's results have become worse and worse at surfacing useful
information for me, I increasingly rely on my bookmarks, or other favorite
places to start. Because the search is not getting better at the same rate
that the internet is getting bigger, I find I don't bother with extensive
search-based shopping, and instead hit standard review sites or shopping
sites.

This wouldn't be such a problem if I still got to _those_ sites through
advertising, or search, but I don't do that much at all.

IMO, google really needs to change their tactics with search in order to put
themselves back into the purchase intent stream a bit more.

~~~
coliveira
I think mobile is a big problem for them. The average iPhone user (and even
Android users) doesn't visit web sites anymore, since almost all relevant
sites have apps with better user interface. In that situation, the app stores
are now the starting point of navigation, not web search. And Apple is
covering increasingly more space with siri and spotlight. In a few years web
search may just become a legacy technology.

------
theseatoms
From later in the article:

"Mr. Page said he looks to Berkshire Hathaway Inc., the insurance-focused
conglomerate run by billionaire Warren Buffett, as a model for how to run a
large, complex company, [...] "

I recall hearing a guest on the a16z podcast say something along the lines of
'high-growth tech companies eventually become big boring banks,' but I can't
remember who said it. Is there a notable quote to this effect?

~~~
scott_karana
Your quote might be correct, but I think Berkshire Hathaway is anything _but_
a boring bank.

Do you read Buffet's yearly letters? They're great.

[http://www.berkshirehathaway.com/letters/2014ltr.pdf](http://www.berkshirehathaway.com/letters/2014ltr.pdf)

~~~
nickpsecurity
Thanks for posting it. That was the report on a business I actually enjoyed
reading. It has personality and good advice embedded in it. If I was a
shareholder, this particular quote would have me feeling quite assured:

"Indeed, we are far more conservative in avoiding risk than most large
insurers. For example, if the insurance industry should experience a $250
billion loss from some mega-catastrophe – a loss about triple anything it has
ever experienced – Berkshire as a whole would likely record a significant
profit for the year because of its many streams of earnings. We would also
remain awash in cash and be looking for large opportunities in a market that
might well have gone into shock. Meanwhile, other major insurers and
reinsurers would be far in the red, if not facing insolvency."

Smart.

~~~
hartator
Not if the government will buy you out if you are facing insolvency. Taking
more risks is actually the right thing to do in this environment.

~~~
nostrademons
FWIW, we actually saw this in the last financial crisis, where Berkshire
Hathaway funded a $2B bailout of Goldman Sachs that he exited for a healthy
profit.

A bailout is basically just redirecting the assets of the healthy part of the
economy towards a part of the economy that has lost confidence, oftentimes at
a profit (the government profited from the TARP bailout). The government does
this using its power to tax. Berkshire does it through the power of Americans'
insatiable demand for candy, sugar-water, freight transport, and peace of
mind. Having large cash reserves just lets it participate in these deals where
you would otherwise need a state-sized actor, much like how the Rothschilds
owned much of 19th-century Europe.

~~~
nickpsecurity
So he's saying more of what he already did than wondering about the future.
Nice trick. Makes it even more likely to be true in next situation.

------
partiallypro
Well, Google's top line has been shrinking in recent quarters, in order to
maintain their profit margins and propel their (recently waning) stock,
cutting cost is the only real option. PPC accounts for ~90%+ of their business
despite their inroads in mobile; it's really incredible how Android has
yielded virtually nothing for Google. If anything the mobile shift has come as
a detriment since mobile ads have lower conversions.

I suspect if cost cutting doesn't help pad the bottom line after the top line
adjustments investors will start pressuring them to do something with their
massive market share...which in the end could come as a detriment to their
presence.

~~~
rogerbinns
Android has been a lifesaver for Google. If it didn't exist then phones would
be in ecosystems from Apple, Blackberry, Microsoft, Nokia, Samsung, plus other
up and comers. Each one of those would demand payment from Google for being
the default search, maps, video etc. For example Google already pays Apple
over a billion dollars a year to be the default search engine on iOS. Apple's
change to its own maps resulted in Google losing over 30 million lucrative
maps users (power of platform defaults).

Being dependent exclusively on others for the success of your own business is
insane. Having your own alternatives around (eg Android, Chrome) to keep
everyone else "honest" is a very good strategy.

Look at it another way - if Android was a non-Google company then Google would
be paying them in the ballpark of a billion dollars a year. If Google can
develop Android for less than that, then Android is profitable even if it has
no direct revenues.

User activity is the lifeblood for the Google business. It is what the
revenues hang off, it is what improves existing products, it is what lets you
measure what is actually going on, and it provides a ready place to introduce
products and change existing ones.

~~~
coliveira
This is a false dichotomy. Google has to pay to be in particular platforms
because they're viewed as a competitor. Even nowadays Apple doesn't seem to
have any interest in search technology. If Android didn't exist, Google could
concentrate their efforts in being the known and trusted source for web search
and partner with Apple and other companies, the same way this works for
Facebook, Twitter, Yahoo, and so many other web-based companies.

~~~
brazzledazzle
When you don't own the platform you don't control the advertising. Facebook
now competes with Youtube, even if there's not perfect overlap in the markets
they target. Did Google+ fail? Certainly. But Facebook can leverage its way
into things like competing with Youtube by using its existing user base. So
just sitting around being the "best" at something doesn't mean squat. Your
current partners might very well be your future competition when they see how
much money there is to be made.

------
dude_abides
It's fascinating to be able to see generational power shifts in such short
cycles of time. I still vividly remember the days when M$ could never do
anything wrong, and only a few years later, an upstart Google became the next
M$, and Facebook the next Google, and so on. Old timers may also remember the
IBM to M$ power shift, which played out over multiple decades.

~~~
wutbrodo
I don't know that Facebook ever took over from Google in terms of reputation.
There was a brief period during which they were being extremely competitive
with salary, but Facebook has never inspired the excitement (and trust) that
systematically attracted large swathes of top talent. The reputation of Google
was idealistic and awesome for a long time and then it shifted towards the
more traditional MS-corporate-evil thing. Facebook pretty much started out
with a reputation for being ruthless and "evil", which has a real effect on
how excited talent gets about working for your company.

~~~
TillE
Facebook was super cool _as a service_ for a couple brief years when they were
serving only college students. But yeah, I don't think they've ever been well
liked as a company. In many ways they're the modern AOL.

~~~
wutbrodo
Yea I was in one of the (relatively) earlier groups of users since I was in
college when they were college-only. I loved it when it was photo-sharing and
event planning, but never got into (and still have never used) any of the
other features they started adding. It's only recently that enough of my
friends use FB messenger that I've started checking it once every day or two.

------
praptak
_" In a meeting during early December with top shareholders, Chief Executive
Larry Page said Google understands the need to balance long-term investments
against the risk that a weak stock price will dent employee morale and hurt
recruiting and employee retention."_

Yeah right. Nothing sends the morale soaring like the "necessary cuts".

~~~
jjulius
> The company is still aggressive about retaining employees, often offering
> more equity, he added.

> Some employees cite other examples of increased frugality, albeit at a
> workplace that is luxurious compared with most others. Travel, supplies and
> events all require more justification or approvals than in the past,
> according to two people familiar with the changes.

It doesn't look like they're interested in making drastic cuts just yet. The
innumerable perks that Google offers its employees in the form of retreats,
trips, food, play, etc. are what will be cut first. You can still keep morale
up if you don't send your entire data center team to a cabin or Disneyworld
twice a year, or if you don't send more people to a job site than you really
need.

~~~
wutbrodo
From what I understand, it's more of a "death by a thousand cuts" thing.
Nobody really complains that the offsites aren't as incredible or anything,
but little things like crowding in desks everywhere in open-office plans and
lowering the quality of kitchenette foods.

------
esturk
Does anyone recall Larry Page saying how he foresee 32 hour work weeks or 4
day work weeks to make things more efficient? Well the first group of people
that can test this idea is probably HR or the recruiting department. Would
anyone from big tech companies mind sharing if such schemes are being
implemented?

------
sytelus
This is bit concerning:

 _Since last year, many Google teams have had to submit plans describing how
additional employees will produce specific business objectives, such as
increased revenue or more users. ... In one ad-marketing group, new hires are
tied to generating revenue, said a person who recently left the group._

While this might cut the cost in short term, it is also an anti-thesis of long
term vision, exploration and playing in uncharted territory. How does a team
make a proposal for scanning books or building email system or maps with no
real business plan in this kind of environment? Most properties on Google
don't make ton of money but they provide - what is known in business - "free
parking" model. These properties have more subjective role in overall image of
Google. Do we expect all these properties to stagnate moving forward? I hope
Wall Street folks are not finally catching up with Google's visionary
leadership. Don't they still have voting majority anyway?

It would be nice to hear about what Googlers think of this article and changes
they have experienced.

~~~
MichaelGG
And how are you supposed to hire people to do things like improve build
tooling? That doesn't generate any money except indirectly. "How much revenue
does this janitor contribute?"

------
rdl
This is probably great news for startups overall. Not only does it reduce the
chances the next big thing will come out of Google, it probably means Google
will be less competitive at hiring people, or retaining people who could
otherwise join (or found) a startup.

~~~
tajen
I have never really seen Google investing on the Next Big Thing. Google Ads is
what they do correctly. Google Maps, certainly strategic. Driving cars?
Awesome, but why not wait for a thousand startups to invent it and aquire.
Android? It's a defensive position. The rest goes in decreasing order of size
and revenue and half of it could be shut down.

If they want to make an impact, AirBnb, Spotify, Uber, Facebook, MongoDB,
iPhone, AWS, those were the next big thing in the last 10 years. On all those
topics they're on the second step. None of them were particularly hard,
especially when you have the funding.

At least with that many talent, they have good chances of inventing a human-
grade IA; with that much data they could decently feed their IA; with that
much computing power they're ready to host the IA. If they don't, then they
should have settled with the first 5000 employees who made the Search, Maps
and Android.

~~~
rdl
I think it's more that if they're not in "wartime" mode, and employ a bunch of
brilliant people who are well resourced and not working flat-out, they have a
good chance of coming up with big things accidentally. gmail isn't necessarily
huge compared to AdSense, but it's big compared to startups.

What sucks for startups is when there's a google-subsidized free or below cost
kind of crappy option for something at $0 or $50/yr, which crowds the market
out for a $200/yr version. Or when something like Reader happens, which
basically kills all innovation in an area, and then eventually gets killed on
its own after those other competitors have died.

I'm kind of bitter because there are 2 big projects I'd love to do, but
there's a crappy Google (or in one case, Google + a couple other companies)
product in the middle of the field in the low price position.

~~~
pw
What are the 2 big projects?

------
programminggeek
Once I hear the word cost cutting, I think, "Well, it's going to make them
money, but it's not going to make them morale."

TPS reports incoming Google!

------
anders30
I don't have any factual link handy but don't a small percentage of startups
take off? I remember reading here on HN that a VC will invest a little money
in a lot of companies knowing (hoping?) that most ideas will fizzle, some will
do okay, and a few will make millions or more.

Having grown up with Google, I had hoped to see Web ads as their first Unicorn
and expected more of the side projects they let their employees work on "take
off". It's certainly not for lack of trying; it would be very interesting to
summarize Google's pushes into other markets and see why they have failed to
expand their core competencies.

Google has in no way failed, but I have always expected another PageRank type
success somewhere.

------
egillie
Bing + yahoo now have just over half of google's marketshare (edit: in the
US): [http://searchengineland.com/bing-reaches-20-percent-
search-m...](http://searchengineland.com/bing-reaches-20-percent-search-
milestone-in-us-market-218574)

Anecdotally, I've noticed my campaigns getting a better CTR on Bing (perhaps
their audience is less tech-savvy or just clicks on more ads?), and the CPC is
lower to boot. If your market is a good fit for their audience, I consider
advertising on bing to be a well-kept secret right now.

~~~
st0p
There are a lot of people outside of the US, and most of them aren't using
either Bing nor Yahoo. Over here in europe, google is still king and I think
that in Asia it's Baidu. I don't want to downplay the successes of Bing, Yahoo
or Baidu, but looking globally Google is still pretty much uncontested.

~~~
seanmcdirmid
Baidu is only popular in China, not the rest of Asia where it doesn't appear
on the radar at all. Also, blocking Google probably has something to do with
Baidu's success. And it's a crappy search engine, the Chinese I know use Bing
for serious searches if they don't have a VPN to use google.

------
ChuckMcM
I've mentioned before that the declining ability to extract profits from the
search advertising business was going to lead to stricter cost controls. I've
been in enough companies that have gone through that process to know it can be
really hard on the employees. The good news is that if you survive it, you are
much stronger for it.

------
JohnnieWalker
This probably explains the quality of the swag given away at this year Google
IO.

------
imron
I run a small website that makes use of the Google Translate API for some
functionality. Use of that functionality is pretty low and so I get billed
$0.04 or $0.06 every month.

Unless Google has terrific rates on credit card charges (and they probably do,
but certainly not _that_ great), it's probably costing them more to bill me
than they make.

Maybe there aren't that many low paying accounts and so it's not worth the man
hours to work around, but it's always struck me as strange when there are 2
easy solutions 1) not bill accounts where the amount is < credit card fees, or
2) always bill a minimum amount (e.g. $5) which gets stored as credit and
slowly used up.

------
estefan
> Mr. Pichette cited Google’s decision to end sales of the initial version of
> its Glass Internet-connected eyewear, as an example of its discipline.

So it's not all bad news...

------
drawkbox
Interesting that the stock has been sideways since the split into GOOG (Class
C) and GOOGL (Class A) in Q1 2014, also around the same time the first
dividend appeared.

[http://investorplace.com/2014/07/goog-google-stock-
split/#.V...](http://investorplace.com/2014/07/goog-google-stock-
split/#.VaVouPlVhBc)

------
super_mario
Now that Googlers have to justify their hiring needs and demonstrate how
hiring someone will increase profits, perhaps they will change their hiring
strategy and actually care about experience and what potential new hires have
actually done in the past. Once can imagine, but at this point it's not even
cool to work for Google any more.

------
tlogan
The problem with Google is that they did not find cash cow which will replace
their ads business (I'm not saying that they did not build some great product
- I'm saying that they did not find something which will replace their ads
business).

I think Google needs a new CEO. Somebody from inside. Before it is too late.

------
nmb
[http://archive.fortune.com/2009/03/26/technology/google_layo...](http://archive.fortune.com/2009/03/26/technology/google_layoffs.fortune/index.htm)

------
trhway
nothing boosts morale like the auditors with MBA background... snooping around
... timing your bathroom breaks... Sounds like Google has reached another
stage in a lifecycle of a big company...

------
dharma1
Anyone working at google care to comment if this is being felt? Gravy train
left the station?

I think it would be a mistake to cut spending on innovation, you risk becoming
irrelevant.

------
eruditely
This is the beginning of the end if I ever saw it. If I could point to any
particular point in time as when a company has the chance to break their
stride it would be something like this, and it's on an article as opposed to
being kept private. Something is amiss.

~~~
jblow
They have been hiring way too fast for way too long. The beginning of the end
is years ago, at least.

------
wnevets
sounds like the bean counters are taking over.

------
hartator
Previous discussion:
[https://news.ycombinator.com/item?id=9882122](https://news.ycombinator.com/item?id=9882122)

(I didn't get why this story didn't get upvoted more, it seems like an
interesting shift.)

