Package Research: Making Money Working

Yesterday's announcement that Google's Eric Schmidt will be handing the CEO reins back to co-founder Larry Page came as a shock, but with the company's aura of invincibility fading, and its core business showing signs of age, the time was right for a change. There was "an example every hour," of how triumvirate decision-making by Schmidt, Page, and co-founder Segrey Brin was hurting the company, Schmidt said. If Google wants to assure investors and consumers that rumors of its looming insignificance have been greatly exaggerated, there are a few key things that Larry has to do.

No. 1: Fix Search

Google's cash cow is its online-search advertising business, but the search results are starting to look awfully spammy. Between content farms that flood the Internet with meaningless search bait and black hat optimizers that use sleazy tricks to get top results, there are entire industries devoted to gaming Google's algorithms.

People who depend on Google for their livelihood have started to notice, and consumers are showing signs of getting antsy: There is a reason Microsoft's Bing quickly picked up 12 percent of the search market, and it's not because of its Gossip Girl product placements, or even vastly superior search results. Google has also drawn some ill will with an aggressive, some say illegal, tendency to push its own services to the top of the page.

It looks like Larry gets the seriousness of the problem. Friday, on day one of his regime, Google acknowledged the issue in a blog post, even as it downplayed its severity. "Reading through some of these recent articles, you might ask whether our search quality has gotten worse," said principal engineer Matt Cutts. "The fact is that we’re not perfect, and combined with users’ skyrocketing expectations of Google, these imperfections get magnified in perception. However, we can and should do better."

It will take more than a wonky breakdown, but it's a start.

No. 2: Find Growth

The aforementioned cash cow is still so lucrative that it's easy to forget that Google has never really succeeded in any other business. Despite the ubiquity of Gmail and YouTube, they are not yet successful stand-alone businesses. YouTube only recently made it into the black after incurring hundreds of million of dollars in losses over the years.

It's not like Google isn't aware of the problem. Witness the frenzied diversification into anything that looks hot: cars that drives themselves, social networks, and yesterday's long-expected news of a Groupon clone. But trying everything hasn't produced much of anything.

Larry needs to ditch the side projects and focus on the most promising ones: the Android mobile-phone operating system, and the mobile ad network AdMob, which even makes money from iPhones as it serves up 2 billion ads a day.

No. 3: Stop the Brain Drain

Here's an enigma for Larry to unravel: Why does a company with five-star chefs, high-tech nap pods, and free massages have to throw millions of dollars in cash money at employees to get them to stay?

Part of the problem is Google's convoluted management structure, which Page is clearly trying to fix. If a team has been working on an amazing project for a year, only to hear that it overlaps with someone else's pet project, who wouldn't want to jump ship? But it also has to do with Google's size and a potentially fatal inability to face up to an unpleasant reality. From what we hear, there's reluctance from some of the old guard to accept that Google is a massive corporation now.

There is a major intangible at play as well, something that may not be easy for someone who is more Chief Engineer than Chief Executive to grapple with. If the ambitious go-getters that make it through Google's onerous interview process sense that the cool, sexy projects are happening at Facebook, Apple, or some stealth VC project with no name, then no amount of money is going to keep them on side, no matter how big a money truck Google backs up to their cubicle.

Which leads to....

No. 4: Consider a Personality Transplant

Tech bloggers were smitten with Eric Schmidt, but for all the wrong reasons. Sure, he grew Google into a $200 billion behemoth, but he also had a weakness for creepy Big Brother jokes delivered so dryly that no one could be sure he was joking. Contrast that with the controlling and charismatic Steve Jobs, surely one of the best salesmen in modern history, with a reality distortion field that may have made enemies but also bestowed an ineffable cool on his entire company.

Larry, by all accounts, makes Eric Schmidt look like Steve Jobs.

Ken Auletta explains:

He is a very private man, who often in meetings looks down at his hand-held Android device, who is not a comfortable public speaker, who hates to have a regimented schedule, who thinks it is an inefficient use of his time to invest too much of it in meetings with journalists or analysts or governments. As C.E.O., the private man will have to become more public.

Google's engineer-driven approach to new products has been a long-standing problem. (Google Wave, anybody?) Unlike Apple, it seems to build for engineers and developers, not consumers. That's great when you're making an open source mobile platform like Android, which is hot on the iPhone's tail due to its openness and potential ubiquity across multiple carriers and devices. It's not so great when you made everyone on Gmail opt into Google Buzz ’ or for creating fanboys and girls who want to use your products, even if they have to anyway.

Either way, Larry, you're going to need some charm to lend Google the same cool factor it had last time you were in charge. Maybe start by looking up from your Android phone every once in a while.

By Lindsay Beyerstein, Media Consortium blogger

Meet the new global elite. They're pretty much the same as the old global elite, only richer and more smug.

Laura Flanders of GritTV interviews business reporter Chrystia Freeland about her cover story in the latest issue of the Atlantic Monthly on the new ruling class. She says that today's ultra-rich are more likely to have earned their fortunes in Silicon Valley or on Wall Street than previous generations of plutocrats, who were more likely to have inherited money or established companies.

As a result, she argues, today's global aristocracy believes itself to be the product of a meritocracy. The old sense of noblesse oblige among the ultra-rich is giving way to the attitude that if the ultra-rich could do it, everyone else should pull themselves up by their bootstraps.

Ironically, Freeland points out that many of the new elite got rich from government bailouts of their failed banks. It's unclear why this counts as earning one's fortune, or what kind of meritocracy reserves its most lavish rewards for its most spectacular failures.

Class warfare on public sector pensions

In The Nation, Eric Alterman assails the Republican-controlled Congress's decision to scrap the popular and effective Build America Bonds program as an act of little-noticed class warfare:

These bonds, which make up roughly 20 percent of all new debt sold by states and local governments because of a federal subsidy equivalent to some 35 percent of interest costs, ended on December 31, as Republicans proved unwilling even to consider renewing them. The death of the program could prove devastating to states' future borrowing.

Alterman notes that the states could face up to $130 billion shortfall next year. States can't deficit spend like the federal government, which made the Build America Bonds program a lifeline to the states.

According to Alterman, Republicans want the states to run out of money so that they will be unable to pay the pensions of public sector workers. He notes that Reps. Devin Nunes (R-CA), Darrell Issa (R-CA) and Paul Ryan (R-WI) are also co-sponsoring a bill to force state and local governments to "recalculate" their pension obligations to public sector workers.

Divide and conquer

Kari Lydersen of Working In These Times explains how conservatives use misleading statistics to pit private sector workers against their brothers and sisters in the public sector. If the public believes that teachers, firefighters, meter readers and snowplow drivers are parasites, they'll feel more comfortable yanking their pensions out from under them.

Hence the misleading statistic that public sector workers earn $11.90 more per hour than "comparable" private sector workers. However, when you take education and work experience into account, employees of state and local governments typically earn 11% to 12% less than private sector workers with comparable qualifications.

Public sector workers have better benefits plans, but only for as long as governments can afford to keep their contractual obligations.

Who's screwing whom?

Former Secretary of Labor Robert Reich is calling for a sense of perspective on public sector wages and benefits. In AlterNet he argues that the people who are really making a killing in this economy are the ultra-rich, not school teachers and garbage collectors:

Public servants are convenient scapegoats. Republicans would rather deflect attention from corporate executive pay that continues to rise as corporate profits soar, even as corporations refuse to hire more workers. They don't want stories about Wall Street bonuses, now higher than before taxpayers bailed out the Street. And they'd like to avoid a spotlight on the billions raked in by hedge-fund and private-equity managers whose income is treated as capital gains and subject to only a 15 percent tax, due to a loophole in the tax laws designed specifically for them.

Signs of hope?

The economic future looks pretty bleak these days. Yes, the unemployment rate dropped to 9.4% from 9.8% in December, but the economy added only 103,000, a far cry from the 300,000 jobs economists say the economy really needs to add to pull the country out its economic doldrums.

Andy Kroll points out in Mother Jones that it will take 20 years to replace the jobs lost in this recession, if current trends continue.

Worse yet, what looks like job growth could actually be chronic unemployment in disguise. The unemployment rate is calculated based on the number of people who are actively looking for work. Kroll worries that the apparent drop in the unemployment rate could simply reflect more people giving up their job searches.

For an counterweight to the doom and gloom, check out Tim Fernholtz's new piece in The American Prospect. He argues that the new unemployment numbers are among several hopeful signs for economic recovery in 2011. However, he stresses that his self-proclaimed rosy forecast is contingent upon avoiding several huge pitfalls, including drastic cuts in public spending.

With the GOP in Congress seemingly determined to starve the states for cash, the future might not be so rosy after all.

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.

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Monday, January 24, 2011

Making Money Working

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