Part 5 (1/2)
Silicon Valley companies, accustomed to thinking of Microsoft as a foe, were now becoming uneasy about Google. When Yahoo executives read Google's financial reports, they were punched in the nose with the realization of how much more successful and efficient Google was in selling search advertising. Google's search business was growing twice as fast as Yahoo's, and was attracting more text ads. Yahoo poured engineering resources into a new automated ad-sales system, code-named ”Panama,” vowing that it would help them catch up. Microsoft and Yahoo conducted talks to see if there was a way to slow the Google juggernaut. And eBay, which had long sold advertising on Google, grew alarmed that Google had started a cla.s.sified-advertising service that competed with its listings, and had inaugurated Google Checkout, which competed with its PayPal online payment service. So fearful of Google was eBay that the Wall Street Journal Wall Street Journal reported on its front page in 2006 that eBay was holding secret talks with Microsoft and Yahoo about allying against Google. Bill Gates further stoked the fever of fear when he told reported on its front page in 2006 that eBay was holding secret talks with Microsoft and Yahoo about allying against Google. Bill Gates further stoked the fever of fear when he told Fortune Fortune magazine that Google was ”more like us than anyone else we have ever competed with.” magazine that Google was ”more like us than anyone else we have ever competed with.”
GOOGLE'S MANEUVERINGS AND DEALS may have made it unpopular with various media companies, but these did not tarnish Google's image with the public. What happened in China did. In 2002, a Chinese-language version of Google search was launched, and then Google News in 2004. As user traffic mushroomed, the Chinese government found some of the news politically objectionable. China didn't want users to be able to search for news about ”free Tibet” or for photos of Tiananmen Square protests. At first, Google refused to engage in any self-censors.h.i.+p. Often, the Chinese government banned Google searches. Senior Google executives believed they had to make a choice between denying Chinese citizens some some political searches and denying them political searches and denying them all all searches. Google decided to comply with Chinese laws, stripped its news results of offending material and eventually, in 2006, created a separate search Web site, searches. Google decided to comply with Chinese laws, stripped its news results of offending material and eventually, in 2006, created a separate search Web site, Google.cn, on which it would offer politically sanitized searches in China. If a user searched for a picture of Tiananmen Square on Google in London, The Guardian The Guardian reported, the iconic picture of one man blocking a tank's path appeared; if the same search was conducted on reported, the iconic picture of one man blocking a tank's path appeared; if the same search was conducted on Google.cn, a picture ”of happy smiley tourists” appeared.
Having escaped as a child from an oppressive government, Brin was anguished by the decision. Four years later, at Google's annual shareholder meeting, two resolutions were introduced calling on Google to support human rights and oppose all forms of censors.h.i.+p in China; the resolutions implicitly rebuked Google. Page and Schmidt and Google management had the votes and defeated the resolution. Instead of vigorously opposing Google's decision, Brin meekly abstained. When a shareholder rose to ask for an explanation, Brin gave a long tortured reply that vacillated between ”I agreed with the spirit of the resolutions,” and ”I am pretty proud of what we've been able to accomplish in China.”
Google rationalized its decision. Executives said they were complying with Chinese law, as they complied with German law to screen n.a.z.i materials or would later comply with the government of Thailand by blocking YouTube videos that ”defamed” the king. It said it was serving Chinese users, who still received more information from even a bowdlerized Google search than from any available alternative. It said that the Internet would, over time, help democratize China. And it said it would be transparent and notify users when search requests were blocked.
Google could also justifiably claim that it did not cross the line Yahoo had when, perhaps inadvertently, it shared with the Chinese government the e-mail accounts of prodemocracy journalists, resulting in long jail sentences for two journalists. But there was another reality Google confronted, and it was acknowledged in testimony made to Congress in February 2006 by Elliot Schrage, Google's vice president, global communications and public affairs. Baidu, a Chinese search engine, had seen its market share jump from just below 3 percent in 2003 to 46 percent in 2005, he testified, while Google's plunged to below 30 percent, and was falling. China was steering its citizens away from Google. ”There is no question that, as a matter of business, we want to be active in China,” Schrage said, adding, ”It would be disingenuous to say that we don't care about that because, of course, we do.” What Schrage and Google were less transparent about was that Google had invested in Baidu, and presumably had to win the concurrence of the Chinese government in order to do so. The next year Google sold its 3 percent stake.
Perhaps for the first time, Google executives were feeling defensive, troubled that folks thought they had violated their ”Don't be evil” pledge. In the wake of China and the Google IPO, Eric Schmidt said he expanded his own job description. ”It took me a while to figure out that we had to reach out to traditional media,” he said. ”It's part of acknowledging they are inc.u.mbents.” But he, like Google, was just making nice. ”I'm happy to be diplomatic,” he added. ”But I'm about winning!” What wasn't clear was: Winning what? And at whose expense?
Schmidt was not diplomatic with Elinor Mills, a reporter for CNET News, a Web site that contains various online networks, including business news, technology, video games, and television programs. Mills in 2005 was working on a story about how much private information Google collected. As part of her research, she used Google search and Google Maps to run a quick search on Eric Schmidt. She located his Atherton home and address on Google Maps, his approximate net worth, political contributions, and a fair amount of other personal information. Then she published what she found, writing, ”That such detailed personal information is so readily available on public Web sites makes most people uncomfortable.” It certainly made Schmidt uncomfortable.
”CNET was informed,” wrote Randall Stross, ”that Google was unhappy with the use of Schmidt's 'private information' in its story, and as punishment, Google as a matter of company policy would not respond to any questions or requests submitted by CNET reporters for one year.” Schmidt's and Google's reactions invited derision; Schmidt was accused of a ”hissy fit.” Google executives tried to reason with Schmidt, to coax him to apologize, to end the ban. Months later, without offering an apology, Stross wrote that Google ”quietly restored a normal working relations.h.i.+p with CNET.”
Google was becoming more defensive but also began to slowly worry about a potential threat far more powerful than any compet.i.tor: government. Google was alienating media companies, and when these companies speak, Was.h.i.+ngton listens. These companies are a major source of campaign funds and jobs; they provide the stage and microphone for elected officials. By 2005, broadcasters and telephone companies and others were raising questions about Google. Google may have been a multibillion dollar company, but it was unprepared to fight back. It had no political action committee; for a long time its only Was.h.i.+ngton presence was a one-man office located in suburban Maryland. This office reported to both David Drummond and Elliot Schrage in Mountain View. Drummond was supposed to oversee policy, and Schrage communications, which led to some confusion as the two often go hand in hand.
Although Google was not yet alarmed, it was on notice. At the weekly executive committee meetings, they talked about beefing up their presence in the nation's capital. Brin volunteered to stop off in Was.h.i.+ngton to say h.e.l.lo to various government officials the next time he was back east visiting his parents in Maryland. But the the trip was hastily planned, as Brin admits: ”Because it was the last minute, we didn't schedule everything we wanted to.” Among the key people he didn't get to see was Senator Ted Stevens of Alaska, then the chairman of the commerce committee, with jurisdiction over the Internet. (Senator Stevens's knowledge of the Web appeared limited. He once referred to an e-mail by saying that ”an Internet was sent by my staff.”) The Was.h.i.+ngton Post Was.h.i.+ngton Post depicted the poor reception as a snub of Google; it probably didn't help matters that Brin's outfit that day included a dark T-s.h.i.+rt, jeans, and silver mesh sneakers. depicted the poor reception as a snub of Google; it probably didn't help matters that Brin's outfit that day included a dark T-s.h.i.+rt, jeans, and silver mesh sneakers.
Brin did manage to meet with senators John McCain and Barack Obama, and the topic was ”network neutrality,” an effort by Google and others to ensure that the telephone and cable companies who provide high-speed access to the Internet didn't charge higher fees to Web sites with heavy traffic. Around the time of Brin's visit, an organization called Hands Off the Internet, financed by telecommunications companies, ran full-page newspaper advertis.e.m.e.nts accusing Google of wanting to create a monopoly and block ”new innovation”; one ad featured a grainy photograph of a Google facility housing a sinister-looking ”ma.s.sive server farm.” Brin saw it for the warning it was. ”I certainly realized we had to think about these things, and that people were going to misrepresent us,” he said. ”We should be ent.i.tled to our representation in government.”
Like Microsoft in the late nineties, the Google leaders.h.i.+p, ”composed of ideological technologists,” as Schrage put it in 2007, was slow to appreciate the political and the human dimensions of the technical decisions it made. Schrage's resume spans a law degree, years of teaching, a senior executive position at The Gap, and work as an international consultant on corporate social responsibility. He acknowledged that Google engineers were new to the ways of Was.h.i.+ngton. ”Some call that naivete. Some might criticize this; others might applaud it. No question that people here regularly discuss Microsoft's experience and use that as a cautionary tale.”
Later, meaning to explain rather than criticize, Schrage told me, ”One can make the argument that the genes of technological innovation are frequently in conflict with emotional intelligence. Successful technological innovation is all about disruption. Effective emotional intelligence is all about collaboration, how you get talented people to work together and enjoy it.”
Collaboration was central to the thinking of Lawrence Lessig, who was widely hailed as an Internet oracle and was then teaching at Stanford Law School. Lessig had just been treated as such at Facebook, where he'd been invited to speak to its employees and expounded on the virtues of an open Web. Afterward, we had dinner at Il Fornaio in Palo Alto, which is a favorite Valley canteen, and there he asked, and answered, a central question people increasingly posed about Google: Is Google becoming what Microsoft was in 1998?
”The argument is that in an important way, they are the same,” he said. ”In fact, whether now or soon, Google will have more power than Microsoft did at the time. Google's power will extend to more than one layer of the network.” Microsoft's power was its ability to leverage its potent operating system to control the various applications that use the operating system. So Microsoft offered a free browser to knock out the Netscape browser and attacked Java software that might ”facilitate compet.i.tion with the underlying operating system.”
Google's power flows from a different source, he said. ”They have produced this amazing machine for building data, and that data has its own 'network effect'”-the more people who use it, the more data generated, the more advertisers flock to it. ”Everything sits on top of that layer, starting with search. Every time you search, you give Google some value because you pick a certain result. And every time you pick a result, Google learns something from that. So each time you do a search, you're adding value to Google's data base. The data base becomes so rich that the advertising model that sits on top of it can out-compete other advertising models because it has better data.... The potential here is actually that the data layer is more dangerous from a policy perspective because it cuts across layers of human life. So privacy and compet.i.tion and access to commerce, and access to content-everything is driven by this underlying layer. Unlike the operating system, which couldn't necessarily control the content that you got.
”The way they are different is that I don't think there is any evidence that Google has misbehaved in the way Microsoft misbehaved when they tried to leverage the operating system to protect themselves against compet.i.tion. So far, they've been good guys. But that leads to a question: Why do we expect them to be good guys from now till the end of time?”
Lessig, who benefits from the broad education and reading many Googlers lack, was nevertheless alert to how Google, like Microsoft, might become intoxicated by power and succ.u.mb to the same human failures. Of Google, he said, ”I fear theirs is an old story about how good people deceive themselves. As Microsoft did in the nineties, you become so convinced that you are good that you become oblivious. I sense that is true at Google today. They've drunk the Kool-Aid.”
PART THREE.
Google Versus the Bears
CHAPTER EIGHT.
Chasing the Fox (2005-2006).
Rupert Murdoch, the audacious and sometimes outrageous media mogul, made another move in July 2005 that unnerved his peers. He was in the habit of doing so. For four decades Murdoch's News Corporation had been playing bold offense, forcing other media companies to defensively respond. Starting with a single newspaper in Australia, and then England, he build a newspaper empire in both countries, and forced the modernization of newspaper work rules in England. At a time when the audience for the three broadcast networks was aging, he had pioneered the Fox broadcast network, with its youth-oriented programming. He established satellite broadcasting that blanketed much of the globe. He eclipsed the once-dominant CNN in ratings with the Fox cable news network. Journalistically, his impact could be pernicious-spurring tabloid television with his syndicated A Current Affair, Current Affair, fomenting shrill, nineteenth-century press partisans.h.i.+p with Fox News, fomenting shrill, nineteenth-century press partisans.h.i.+p with Fox News, The Sun The Sun in London, and the in London, and the New York Post. New York Post. But even as he was disdained in certain quarters, he was always carefully watched. Media companies chase Rupert Murdoch as hounds do a fox. But even as he was disdained in certain quarters, he was always carefully watched. Media companies chase Rupert Murdoch as hounds do a fox.
Murdoch again shocked his peers when he acquired Mys.p.a.ce.com in July 2005 for $580 million. After just two years of existence, the youth-oriented social network and music site had sixteen million monthly visitors ; that number would quadruple over the next fourteen months. in July 2005 for $580 million. After just two years of existence, the youth-oriented social network and music site had sixteen million monthly visitors ; that number would quadruple over the next fourteen months.
Before Murdoch's announcement, it was expected that Sumner Redstone's Viacom would lay claim to Mys.p.a.ce. It was a natural fit with Viacom's MTV, with its own youthful audience of more than eighty million monthly viewers. And it was widely believed that Viacom CEO Tom Freston was close to making the acquisition. But before he could, Murdoch swooped in with a higher offer, which Redstone refused to match. Within months, Redstone had replaced Freston, grousing to a.s.sociates that had he been more aggressive he could have sealed the Mys.p.a.ce deal. Actually, what happened, according to a Viacom official involved in the negotiations and confirmed by others, was this: ”Rupert made a preemptive bid. Sumner told Tom he did not want to get into a bidding war.” The parsimonious Redstone had flashed a red light to Freston.
By acquiring Mys.p.a.ce, Murdoch intended to instill in News Corporation a fresh Web-centric sensibility. By contrast, when Viacom tried to instill its MTV television sensibility online with a music site called MTV Overdrive, it stumbled. In early 2007, Mys.p.a.ce cofounder Tom Anderson announced to the German magazine Der Spiegel, ”I think we have replaced MTV Mys.p.a.ce is more convenient. You can search for things, while MTV is just delivering things to you. On Mys.p.a.ce, you can pick your own channel and go where you want. That's why TV viewers.h.i.+p is dropping among the Mys.p.a.ce generation.” Mys.p.a.ce had the traffic and the buzz. MTV had the profits, of course, which Mys.p.a.ce did not have. But Murdoch was nonetheless perceived as once again having set the pace for media companies.
IN THE YEARS SURROUNDING the Mys.p.a.ce deal, Internet visionaries began to dominate discourse in the media, and the prospect of new online challenges attracted some of old media's most creative minds. New media was invading the entertainment business, becoming a magnet for talent, for those wanting to stretch their muscles or pad their wallets. Believing that new media would define the future, more than a few executives fled old media. Viacom lost one such prominent executive, a man named Albie Hecht. After successfully creating music videos earlier in his career, Hecht oversaw the creation of MTV Network's Spike TV, which pitches its programming to young adult males, and then was president of Nickelodean Entertainment. But in 2005 Hecht, then fifty-two, suddenly stepped down, saying he wanted to get back to creating products rather than managing them. It was seen as a blow to Viacom. ”I left because one of the lessons right now is that the small, fast-moving company with a specific mission can strike. The Viacoms and the rest of them are having a hard time. They take entrepreneurs and make them executives. They take authentic brands and turn them into their brands. And they put bureaucracy into place and reduce the risk taking and speed to market. That's a killer combination.” Big companies, he said, are too impatient because they can't explain to public shareholders how they will quickly get a return on start-up investments. He wanted, again, to be a fox.
Hecht, a full-throated enthusiast partial to T-s.h.i.+rts, khakis, and white sneakers, set out on a ”vision quest” similar to the one Barry Diller took when he left as CEO of 20th Century Fox in 1991, purchased a PowerBook laptop to explore the new online world, and embarked on a ten-month odyssey to decide where to stake his future. Diller decided that cable would dominate the media's future. Hecht came to a different conclusion. He had visited studios, directors, writers, producers, digital animation studios, anyone who set out to create programming for the Web. ”What kept coming back to me,” he said, ”was that the most exciting people, the most exciting work I saw, was all on the Web.” One night as he watched his seventeen-year-old son, his thinking congealed. ”He was up in his room,” Hecht said. ”He's on the phone. He's watching TV He's playing a video game. He's IMing. He's reading-thank G.o.d he reads! All at the same time! You look at that and you go, 'This is a new world with new media and new audience behavior. You have to capture that audience by capturing the way they are engaged.'” His son was not just receiving information or entertainment. He was interacting. This audience wanted different modes of storytelling.
Hecht's son was typical, according to a 2005 study of media usage among eight- to eighteen-year-olds by the Kaiser Family Foundation. The study reported that young people nationwide spent a daily average of six hours and twenty-one minutes with media; when mult.i.tasked activities like reading or listening to music were included, the daily total is eight hours and thirty-three minutes, more than ”the equivalent of a full-time job.” Nearly four hours per day was expended watching TV, videos, DVDs, or prerecorded shows, and 40 percent of this time youngsters were mult.i.tasking, usually by simultaneously going online. Outside of schoolwork, sixty-two minutes were spent on the computer, forty-nine minutes playing video games, and only forty-three minutes reading. School homework consumed an average of fifty minutes per day. A later study by the market-data firm, Forrester Research, found that Americans between the ages of eighteen and twenty-seven spent nearly thirteen hours per week on the Internet, nearly two and one half more hours than they spent watching TV When he left Viacom, Hecht established a company, Worldwide Biggies, in a brownstone office not far from Times Square. With venture capital funding of nine million dollars, and a staff of twenty-two, they create interactive Web shows and video games and other multiplatform activities. ”I use the word engagement engagement as the new metric, as opposed to viewing,” he said. ”Some people call it leaning forward as opposed to leaning back.” In the products they produce, they look for ”six levels of engagement.” The audience must be able to (1) watch (on any device); (2) learn (by searching for information about it on the Web); (3) play (games); (4) connect (social networks, IM); (5) collect (microtransactions involving money on the Web); and (6) create (user-generated content). ”If we have four of the six, we put it into development. If we get six out of six, we think we have a hit.” He has since created successful Internet games and a popular mock.u.mentary series on Nickelodeon called The Naked Brothers Band. as the new metric, as opposed to viewing,” he said. ”Some people call it leaning forward as opposed to leaning back.” In the products they produce, they look for ”six levels of engagement.” The audience must be able to (1) watch (on any device); (2) learn (by searching for information about it on the Web); (3) play (games); (4) connect (social networks, IM); (5) collect (microtransactions involving money on the Web); and (6) create (user-generated content). ”If we have four of the six, we put it into development. If we get six out of six, we think we have a hit.” He has since created successful Internet games and a popular mock.u.mentary series on Nickelodeon called The Naked Brothers Band.
The new hits will differ from the old ones, he said. Storytelling will have to change. ”We're learning that now. Some of it is that a story isn't necessarily a story. Facebook is a story. What's the story? 'I'm going to look at what Albie is doing now. I'm going to go on my Facebook page and it said that Albie is now doing an interview. And just yesterday Albie posted seven pictures.' That's a story.” Hecht, like many a high-concept Hollywood executive, thinks in formulas, but his are broader (in a business sense). He said games are about ”experience,” TV about ”character,” and movies about ”stories.” In the stories Worldwide Biggies is working on, he said, ”If we can move someone so they love this character, and they're moved through a story, and they're playing a game, and they're connecting with their friends about that game, and they're collecting objects in that, and at the end of this experience they have created their own video of this experience, we'll have moved them into a different type of storytelling.”
He believes the Web is not just a distribution platform. Rather, because of its interactive nature, he believes, ”The platform itself is content.” Hecht feels like an entrepreneur again. ”It's all about the new Wild West for me,” he said.
JASON HIRSCHHORN WAS ANOTHER Viacom refugee. He grew up in Manhattan wanting to be a music entrepreneur. When he was fifteen, in 1986, New York City bars were lax about checking the IDs of teenagers, until the ”preppy” murder case. A teenager, Jennifer Levin, left an East Side bar with Robert Chambers late one night in 1986. Her body was found that morning in Central Park. Bars cracked down on minors, and kids could not easily congregate.
Borrowing his father's empty briefcase, Jason approached the owner of the old Fillmore East, where he had been bar mitzvahed, and made this offer: on nights the place was closed he would fill the hall with teenagers, in return for half the gross. No alcohol would be served. The owner agreed to the experiment. Jason called all his private school friends and asked them to call their friends; this extemporaneous network became viral. Seven thousand teenagers showed up. ”We grossed seventy thousand dollars the first night,” he said.
When Jason was a senior at New York University, he discovered the wonders of the Internet. ”You could ask questions and find things,” he marveled. He started building a music-trading site. From his East Ninety-sixth Street apartment, and with an a.s.sist from his sister, he built a site, the CD Club Web Server, that offered users advice on how to work the CD clubs and catalogues to get the most for their money. Consumer Reports described it as a great resource, prompting Columbia House, a music catalogue, to phone to tell him to take down their trademarks.
”Why don't you just advertise?” he asked, half joking.
Instead, they proposed to pay ten dollars for everyone he signed up. ”All of a sudden,” Hirschhorn said, ”I'm making thirty thousand dollars a month!” With this money he built Musicstation.com, which linked to other music sites. He created a music search engine that scanned the Web and television to find music, place it in categories, and fas.h.i.+on a music index. Not long after, five media companies got into a bidding war to buy his company. A lifelong MTV fan, he chose Viacom in early 2000. He was twenty-eight and ”I was the lone digital guy.” Over the next six years, he was promoted six times, becoming the youngest senior executive at Viacom, the chief digital officer of the MTV Networks. Soon after Viacom pulled back from its bid to buy Mys.p.a.ce, a bid he had instigated, he resigned. While he won't criticize the failure to acquire Mys.p.a.ce, he was frustrated. ”I was an entrepreneur who came into a big company and tried to treat it as a start-up,” he said. ”Big companies don't innovate. They operate. Frankly, I think MTV should have owned the Internet.”
He was thirty-five and opted to take what he said was a 90 percent pay cut and accept equity to become president of the Sling Media Entertainment Group. Sling Media sells a product, the Slingbox, which allows users to watch their home television and DVR on their PC, MAC, or mobile devices. His editors selected what they think of as ”the best stuff, putting it on the front page” of a Sling media guide. They plan to make money by selling ads and sharing revenues with their content providers. One day, he hopes, Sling Media will also create its own content. Sling Media aims to become another distribution platform, letting users watch what they want when they want it on various devices, and letting Sling gather data on user preferences which they would share with content partners. Once again, Hirshhorn struck gold. Soon after he joined, Sling Media was sold for $380 million to EchoStar Technologies, the satellite television company. ”We've built a virtual cable distributor online,” he said. He knew that the Slingbox, like Apple TV, could prove to be a dud, or that he could feel restrained operating under a new corporate owner. But Jason Hirschhorn was very rich and had a sandbox to play in.
For a while at least. Chafing under the constraints he felt working within a traditional media company that he said ”did not move fast enough into the digital age,” in late 2008 Hirshhorn did what he had done at Viacom and left in search of another sandbox. He found it in the spring of 2009, when the company he wanted Viacom to buy-Mys.p.a.ce-had slumped and Murdoch brought in new management, including Jason Hirshhorn as chief digital officer.