Do you want to be the next Google?

or maybe not?

I am going to use the recent news that Google is selling it’s Domains product to update my theory of how Big Companies fail.

Some time ago I wrote a post called “The silent killer of big companies” on how I explain the theory that the lack of visible and measurable impact on the business creates perverse incentives in big companies.

This time I want to use a different lens, because I believe we are now able to see a real world example of the Innovator’s dilemma and it would be a shame to not dive into it.

How Google became Google

Some of you might be too young to remember, but finding something on the internet in the 90s sucked big time.

The web was dominated by portals that were curated into categories and making sure that your site was reacheable by someone was an hassle (and not very succesful). Then Brin and Page had the intuition that, if we could define how relevant a site was, then people could search for some keywords and find sites that contained the keyword and were high quality.¹

All of this served on a clean page that looked sleek and even had a cocky button called “I am feeling lucky” just to demonstrate how good the algorithm was.

Everyone loved it and, even in the middle of the dot-com bubble, Google became a sensation.

This is not enough to explain how Google became Google.

To grow they needed a way to make money, monetize that excitment, and they looked at what else sucked on the web: advertisement.

It might seem crazy today but at that time you would find large ad networks just rolling any kind of ads in any kind of site, it was literally just reproducing the advertisement of newspapers. You can also imagine that click-through-rates (CTR) for those ads were quite poor and there wasn’t so much money made with ads on the web.

So the intuition was, in hindsight, pretty simple: what if we could increase the CTR by serving better (more relevant) ads? Advertisers would pay a lot of money for this.

And they were right! Spawning an entire new industry and supporting the spectacular growth of some companies that learned how to accurately use this tool to increase their revenues in a scientific manner (looking at you Booking.com).

More eyeballs == More money

This new model meant that all that Google needed to do was to make sure people used its search engine as much as possible, so they could scientifically link user attention and time spent using Google to revenues.

This is why Google decided to modernize a bunch of services and give them away for free (Gmail, Chrome) because the user interactions and their attention was all it needed to grow their revenues.

The company entire goal was to feed the engine, the entire organization was bent over feeding the engine.

And Google became the behemot we know (and love?).

20 years later Google is still feeding its engine

Compare Alphabet’s (Google holding company) revenues with similar tech companies (source: https://www.visualcapitalist.com/cp/big-tech-revenue-profit-by-company/)

Now look at Microsoft, Google main competitor:

Or Apple:

What do we see?

Google has never developed a true alternative to ads, only 10% of its revenue come from a different business (Google Cloud) that is loss-making and heavy from an operational perspective. Plus another 10% comes from services that Google is slowly killing (Nest and Fitbit).

Microsoft on the other hand is much older than Google but it was able to save itself under Satya Nadella and diversify away from Windows and Office, creating a much more robust split.

Even Apple has a strong financial services revenue stream with Apple Pay.

The purest form of addiction

Google is not alone in this vulnerability obviously, I worked for many year for Booking.com and until the day I left the growth engine is still the main focus of the company, but what stands out is how blatantly Google has tried and failed to diversify.

Killed by Google

Google prides itself for his ability to kill projects that are not working, but something has gone terribly wrong if you do it so often that someone makes a popular website about it. And I think that Google Domain being sold off is a great example of where things go wrong inside Google:

• Google Domain is a wildly successful product, with tens of millions of domains registered and hundreds of millions of revenues

• It is impossible to lose money on a product like this, the infrastructure requirements are trivial, you only need a few lawyers to deal with law enforcement and court cases related to those domains but that is priced in the domain registration fee²

• It is a product that follows the usual strategy of Google, give you a service that normally sucks so that you can use the closely related services (Google Cloud Platform)

But it got killed anyways, even worse, they killed also Cloud Domains.

This doesn’t make any sense, or does it? Any avid user of Google’s services can see a common thread across all product offerings, Google spends as little as possible on Customer Service and dealing with their customers.

And I am convinced that, in Google, any product that needs any kind of operational excellence mindset is seen as a needless hassle that isn’t worth the money. What’s 200M$ when ads make 60B$?

Perverse incentives

Google is the company that kickstarted the LLM revolution with their seminal paper “Attention is all you need” and used the transformer technology to improve Google Translate but didn’t invest heavily into disrupting the search engine.

So another way that big companies can fail is to get addicted to their growth engine in a very successful industry and never develop the skills to be successful in any other way, making the company extremely vulnerable to market shocks or by the action of competitors.

Those companies recognize the risk and they get scared of losing.

Any bad press is to be avoided at all costs, any mistake coming from innovation is unacceptable, every dollar must be spent toward the precious engine. So they fill their ranks with lawyers, PR professionals and make sure process is the dominant force in their company. All to defend the status quo.

And this is how innovation dies, how a company like Google can die.

But there is hope.

Google has recognized the threat and reorganized their AI/ML divisions heavily and started pushing a lot of GenAI products to protect their core.

Will they again kill this effort in a year from now? Only time will tell..

1. Please don’t shoot me, I know is not a very precise definition of Pagerank but I feel that this intuition is mostly correct in layman terms

2. I know this very well because I was exposed to the magnitude of the TLD .it organization, and it’s literally a money printing machine