What Google's Executive Reshuffle Means for Investors
Early in the meeting's Q&A session, an individual investor took the microphone, nervously. He started saying that he hoped to ask his question even though he held only 50 or so shares when Schmidt (pictured in center) cut him off, declaring in an avuncular tone: "You are welcome here." It was a gracious move, casting Google as a company that took any and all investors seriously.
The second thing I thought of was Google's IPO prospectus, which began with its legendary "founders' letter." Written by Larry Page (right), who will succeed Schmidt come April, the letter was presented as an "owner's manual" for Google shareholders -- as if a share of Google stock was somehow as complicated and vexing as a Windows PC.
In the founders' letter, Page stressed that Google was "not a conventional company." He explained this meant Google would "serve end users" and not necessarily investors. That Google would "look forward as far as we can" and not simply focus on immediate profits. And that Google would "not shy away from high-risk, high-reward projects because of short-term earnings pressure."
Breaking Up the Band
And for much of the last decade, that's how it's gone. Google was ruled not by a single executive but by a "Triumvirate" (which nobody ever seemed to call a Triumvirate except its own members). Page and Sergey Brin were the shaggy hackers with a 300-year vision, Schmidt the buttoned-down old guy who smoothed things over with Wall Street and Fortune 500 advertisers. That balance worked well for a long time.
But now, the power trio is breaking up. It's the Police all over again: Sting wants to play the guitar, so the elderly Andy Summers must find a new role. And Stewart Copeland is going to focus on all that futuristic stuff.
Seriously, the analogy isn't much of a stretch. Look at the photo on the blog post Google made to announce the new "clarification of individual roles": Page is in the driver's seat. Brin isn't even in the passenger seat – his best hope is to be a backseat driver. And Schmidt? He's not even in the car. But they're all trying to look so happy.
So, as Page takes the reins from Schmidt, the question for investors is: Will things really change? Will Page steer Google back to the spirit of that first founders' letter, plowing revenue into new research projects that might bear fruit five or 10 years from now, pulling down margins in the meantime?
Put another way, will Google return to embracing risk over steady earnings growth?
The Old Google Spirit Lives. . .at Facebook
The answer may lie in last year's founders' letter, also written by Page. Nowhere in sight is the rebel who threw down gauntlets before Wall Street like Molotov cocktails. Instead, we get rhetoric like this: "With size comes scrutiny and a certain amount of skepticism." Which may or may not be a dispiriting riff on Stan Lee's "With great power comes great responsibility."
And that's the problem. In designing the future of the Web, Facebook is smaller, more user-oriented, more forward-looking and more risk-taking than Google. Google's technology may not overlap entirely with Facebook's, but its source of revenue does. It's all Web ads, and Web ad spending is migrating to social networks.
More important, Facebook's spirit is closer to the Google of 2004 than to the Google of 2011. Today, it's easy to imagine Mark Zuckerberg writing Google's 2004 founders' letter. It's harder to imagine today's Larry Page composing it. In 2011, Facebook is doing everything in its power to resist an IPO and the quarterly task of jumping through the hoops investors hold up. Meanwhile, Google's CEO-in-waiting is talking to investors like he's Steve Ballmer.
Bring Back Page the Rebel
Page's first founders' letter fought bitterly the constraints of quarterly earnings. I agreed with him, although I knew investors wouldn't. The investors eventually won their way with Google, and its stock has vacillated sideways for the past three years.
I do not own any shares in Google. But if I were an investor, I would want the Page who wrote that first founders' letter to lead the company, and not the one who wrote the 2009 letter, because it's the former Page who is needed to fight back against Zuckerberg.
We need the rebels leading Google again -- that earlier Page who, along with his futuristic drummer, Brin, would refuse to compromise their ideas about how people should interact with information. His return would mean enduring long storms of screeches and howls coming from a Wall Street obsessed with immediate gratification.
It would also mean some rough times as Facebook surged ahead in the short term. But if the rebels held to their vision in the long term, I wouldn't bet against Google.