The Achilles' heel of large monopolies

Amin A.
By Amin Ariana — September 2014

The rise of Facebook, and the Google Plus strategic cluster-fuck

Disclosure: I’m an ex-Google engineer. The following strategic pre-mortem analysis does not represent the company. Based on publicly available and non-confidential information, these comments are published as reflections in the Stanford School of Business class, Scaling Up Excellence , lectured by Professors Robert Sutton and Huggy Rao.

The admiral of all the ocean seas

In January 2011, online advertisers, competing over users' attention spans, were increasingly attracted towards Facebook news feed over Google search results. Google’s position as the monopolistic superpower in charge of all advertising channels was under threat from Facebook. This was an eery reminder of the ad industry's disrupted history. An immediate defensive maneuver became the absolute first priority for Google.

History repeats itself. Newspaper Advertisers didn't see the rise of Online Search in Google. And Google didn't see the rise of Social in Facebook.
Monopoly over advertising and the defensive cluster-fuck, 1950 to 2012

History repeats itself. Newspaper Advertisers didn't see the rise of Online Search in Google. And Google didn't see the rise of Social in Facebook.

Google’s CEO Eric Schmidt, during the peace time growth of the company, had admittedly neglected to allocate any focus to the Social threat.[1] Orkut, a successful grassroots innovation from inside Google, capable of standing up against Facebook, received very little resources and support. The leadership at Google later confessed to have been under the illusion that Social solutions were non-threatening; and that dominating revenue from search advertisements was offense, employed as the best defense.

The executives at Google finally came to the rushed realization, in 2011, that Facebook was an existential threat. All of the company’s resources were immediately redirected towards thwarting the danger of Facebook. Eric Schmidt, the peace time CEO, stepped down, announcing via Twitter “adult supervision no longer needed”. And Larry Page, the war time co-founder, stepped up as CEO.

The shock

To compensate for the illusions of the past, an impatient policy was employed to allocate most of the resources to Google’s new Social product, "Google Plus". Vic Gundotra, an ex General Manager from Microsoft, was recruited for leading the effort. Distracting products and innovations were killed under the More Wood Behind Fewer Arrows doctrine. And every existing successful product was ordered to integrate with Google Plus, the “Social Layer”, as if it was an Operating System to human identities, relationships and interactions. Impatience turned Google Plus into a solid engineering infrastructure rather than an experimentally validated, evolutionarily developed, living product.

Where Google Plus gained, as a creationist's scaled up machine, it lost on slow evolution's gift of life and spirit.

The voice of the employees were ignored during the massively organized construction of Google Plus. With impatience brewing in the face of Facebook’s Pearl Harbor affront, neither the feedback from the employees nor the indifference from real world users were being absorbed. Nurturing cultural values such as "20% time" for innovation faded away, while defensive maneuvering took a front and center role. Long-term innovators received no encouragement, while short-term accomplishments were placed on a pedestal. The responsibility of long-term thinking slowly fell into the lap of the less strategically competent employees who were selected for effective but blind execution.

The cluster-fuck

In mid-2012, Facebook went IPO at a public valuation of about 4 times Google’s IPO value in its early days. Google lost its advertising monopoly position; and several of its top minds flocked to the much smaller Facebook for better prospects. Despite Google’s ability to maintain a high bar of competence, its technical edge over Facebook was eroded due to impatience. Facebook was now not only firmly bolted down in its strategic standing, it was also at a technical advantage due to its more nimble size being populated by equally formidable and competent talent.

Early in 2014, Vic Gundotra, now the Vice President of Social at Google, resigned, after seven years of service, before the end of war was in sight, for “personal reasons". The fate of Google Plus is to this day left in a limbo, while the public market valuation of Facebook has doubled, to $200 Billion, since its rocky IPO.

Complacence about planning a defensive maneuver leads to leading by illusion, fixing by impatience, challenging with incompetence, and ending in a strategic cluster-fuck for large companies.

Large monopolies, like the American empire, stare blindly into the horizons of their Pearl Harbor moments.

Startups thrive on the Achilles' heel of large monopolies:

Lethargic reaction to a peripheral threat will in the end cost the larger incumbent its life line.

Japan strikes Pearl Harbor without warning, then declares war on the U.S. - The first tidings told of
Monopoly over the oceans and the defensive cluster-fuck

Japan strikes Pearl Harbor without warning, then declares war on the U.S. - The first tidings told of "doubtless, very heavy losses" to Americans.


Notes:

  1. "At Google, the biggest mistake I made was not anticipating the rise of the social networking phenomenon,” Schmidt said. "Not a mistake we're going to make again. I guess in our defense we were busy working on many other things, but we should have been in that area and I take responsibility for that." ZDNet: Google's Eric Schmidt reveals his biggest mistake

Amin Ariana is a software entrepreneur in San Francisco.

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