Will Google Finally Learn the ABCs of Business?

Google now gets the difference between invention and innovation?

Google's recent announcement to split out its core internet business under a new parent called “Alphabet” begs the question if after all this time Google might actually get the ABCs of business, entrepreneurship and innovation. Their strategy to split the core business from their emerging businesses is sound, it is just amazing it has taken Google so long to get it. Never in the history of business has so little been done with so much for so long as Google.

Though Google hires the brightest and spends lavishly on development, most of Google’s income is still not from their own innovation. Google’s income is because they hold a near monopoly on search and related advertising in the same manner Microsoft had used its OS and desktop monopoly. Both companies are studies in how windfall tech businesses stifle true innovation. Consider that after all these years 90% of Google’s revenue is still derived from search related advertising, which originated mostly from Google’s many acquisitions (such as from YouTube, DoubleClick and Applied Semantics) not services they invented, other than their original “PageRank” algorithm insight Larry Page and Sergey Brin had while students at Stanford.

Possibly if Sergey and Larry had stayed in school a bit longer and taken a basic course in entrepreneurship they might have learned their entrepreneurial business ABCs. (Full disclosure—I teach entrepreneurship at Northwestern University.) It seems these Google founders have been stuck for years in a classic trap that Peter Drucker clearly outlined as far back as 1984 in his “Innovation and Entrepreneurship” where he points out that managers are focused on optimizing the current core business and not creating new viable ones.

The temptation in the existing business is always to feed yesterday and to starve tomorrow.” --Peter Drucker

Now with the Google - Alphabet split finally the core Google advertising and operating systems businesses are on one side and all the emerging companies on the other (Nest, Labs with their Self-Driving Cars, Fiber). This this way there can be the two culture, which is necessary to allow for both managing and optimizing the existing business, and innovation and entrepreneurship for the new ones.

Maybe Larry and Sergey should not be entirely blamed for not understanding the basics of innovation since they are indeed under great pressure to perform in the short term, to focus on shareholder value, an idea which even Jack Welsh calls “the dumbest idea in the world.” Many others have stated that customer delight is the goal, not shareholder value including Salesforce CEO Marc Beniofff, Whole Foods John Mackey and others, but have Larry and Sergey denounced this yet? Not that I have heard. And when you go after shareholder value you get neither delighted customers nor a happy Wall Street. Larry Page has indeed acted as a classic manager mistakenly presuming among other things that financial incentives are effective in increasing knowledge worker’s productivity.

Why is it that virtually all of Google’s projects never succeed in being widely adopted and loved? Could it be that up to now Google fundamentally does not understand what entrepreneurship and innovation are and how to do it? Google seems to have consistently confused “invention” with “innovation.” A classic technologist confusion. Working on cool new stuff does not make or delight customers. Drucker put it well way back in 1974 when he said that the purpose of a business is to create a customer, and today leading business thinkers suggest that we need even more, we need to delight customers. Sure Google hired the smartest engineers and gave them a great place to tinker, but they forgot that invention is not the end, successful products and services require innovation. Innovation is the ability to connect the creative invention with the customer (or group of customers we might refer to as “the market.”)

Most of Silicon Valley, the high-tech companies, are still inventors rather than innovators, still speculators rather than entrepreneurs.  –Peter Drucker (in 1985)

Google’s user interfaces are difficult to deal with and their support is impersonal, just like dealing with my cable, electric or other utility, or the government for that matter. I delight in Google just about as much as my cable company. If you ask me Google’s moto went from “Don’t be Evil” to “A Necessary Evil.”

Maybe now Google’s Alphabet will include learning the ABCs of business entrepreneurship and innovation.

Written by

Jay Stanton Goldstein