Google is in the NYT for managing its cost base via cutting subsidies for child care facilities and evening canteen services, and this apparently implies it is losing its Mojo (via Slashdot):
Actually, we noted the first sign of MoJo loss was when it bought YouTube, which we believe was its “Netscape Moment”, for 3 main reasons:
- It was clear Google could no longer innovate and build their own service in this major new space, ie we could see their strategic and technical limits (just as Microsoft’s limits were exposed when they had to crash Netscape)
- It was a defensive acquisition, to prevent a major competitor from gaining an advantage.
- The price paid was thus not what a smart acquirer with market power on its side would pay.
At the time (18 months ago) we reflected that from now on a number of other behaviours are predictable, such as:
(i) Increasing reliance on acquisitions for making up revenue growth, and paying increasing premiums for them…;
(ii)….but these then often being strangled by internal politics, which usually becomes both more vicious and petty
(iii) Increasing difficulty in attracting and retaining “the best”
Another classic sign of the “End of the S Curve” and the move to utility is cost management by perks removal. This usually implies two things are going on in the business:
(i) It is unable / unwilling yet to confront where the real main cost wastage is, so “easy” targets (ie no Baron owns them) are hit first - aka reshuffling or removing “Deckchairs on the Titanic”
(ii) Decisions are probably no longer being made by line operatives or by involved top management, but by management admin / staff types (aka “Suits with MBA’s” rather than “Shirts with MSc’s”).
For those who have been around the corporate block, this sort of behaviour is very predictable owing simply to the amount of times its been seen before in the last 50 years or so (at least). These are classic signs of slowdown of margins, even if revenue is still growing. That’s due to the flattening of the growth curve as the business moves into its Utility phase. Other signs are typically a shift in reliance from technological innovation to economic (acquisition, price crashing) and legal means to gain competitive advantage.
This is not good or bad per se*, merely a stage in the growth of any major enterprise. Google is becoming the new Microsoft. Microsoft is now the new IBM. IBM is the new GE….
So who is the new Google?
*The daycare ploy here is a little bit more cynical than most, however, as by reducing subsidy it raises annual daycare prices to $50k+ per annum, thus limiting it to more senior (ie powerful) employees:
Google may be providing the greatest day care ever, but so what? It doesn’t matter how good the day care is if only its wealthiest employees can afford to use it. If Google had really wanted to do something path-breaking about its day care crisis, it would have spent less time creating elitist day care centers and more time figuring out how to “scale” day care for everybody no matter what their salaries.
In other words, the net effect is that junior new mums are taking the brunt (and maybe being managed out the business, as they are both expendable and no longer able to sleep under their desks on all nighters?). Maybe not Evil, but definitely not a nice way of doing things.
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