Google: A Tale of Radical Innovation & Surveillance Capitalism.
Abstract.
This article looks at the company Google and describes:
- The firm's early strategy shift from providing search services to exploiting search data,
- How the focus on data mining placed advertising at the center of the firm's revenue model,
- How Google’s culture fosters radical innovation in order to avoid creative calcification,
- How a culture of radical innovation will be an asset against Google’s biggest challenge: the rise of individual digital privacy
For any comments, reactions or suggestions please feel free to comment below.
I - The early shift towards data mining.
Financial challenges brought by the pop of the dot.com bubble (A) cornered Google into shifting to a new business strategy focused on extracting and exploiting user data (B).
A- Google survival threatened by the dot.com bubble.
Google is an american company which was incorporated in 1998 by Larry Page and Sergey Brin just two years after the Mosaic Web browser opened the world-wide-web to computer owners world-wide.
That same year, Google launched Search, a powerful internet search engine based on a previous iteration of a web crawler called BackRub.
A year after its launch Google was selected as research partner by internet giant AOL, then one of the biggest internet provider in the world. This partnership cemented Google’s reputation as the best search engine in the market despite fierce competition from the likes of Lycos, MSNSearch, Inktomi or Ouverture.
Google’s quick rise to dominance was due to its superior technology. The algorithm it had developed to power Search (PageRank) not only yielded better results, it also used meta-data from user queries (keywords, clicks, time spent on page, etc) to improve the relevance of future searches, effectively getting incrementally better as the number of users grew.
In her breakthrough book “The Age of Surveillance Capitalism: The Fight for a Human Future at the New Frontier of Power”, Harvard professor Shoshana Zuboff called this positive feedback loop Google’s “behavioral value reinvestment cycle, in which all behavioral data (meta-data from search queries) were reinvested in the improvement of the product (Search)”
What Google lacked though was a meaningful monetization model for its revolutionary search engine.
Page and Brin had already turned down the idea of charging users a fee for web searches and, as Zuboff points out, “selling search results would also have set a dangerous precedent for the firm, assigning a price to indexed information that Google’s web crawler had already taken from others without payment”. Google’s first revenues instead were dependent on licensing deals for web services with internet browsers like Yahoo! or sponsored ads linked to search query keywords.
As Saul Hansell brilliantly put it in a 2002 article: “Google’s toughest search [was in fact] for a business model”.
This lack of significant revenue became a pressing issue during the pop of dot.com bubble which started in April 2000. As the prospect of selling the start-up to a big company started to falter in the face of a complete market-meltdown, many of Google’s early VC investors including Sequoia Capital pressured Google’s founders to re-engineer their business model in order to generate cash flow.
B- Google saved by the discovery of behavioral surplus.
Google AdWord’s team (then staffed by only 7 engineers) was charged with the delicate mission of alleviating investors’ anxiety and find ways to make money for the firm. Larry Page insisted that the process should be simplified for advertisers who “shouldn’t even get involved with choosing keywords, Google would choose [for] them”.
Being forced to monetize a free-service represented a considerable engineering challenge as well as a massive cultural shift for the start-up.
Dr. Zuboff gave a brilliant description of how Google was able to achieve this by turning “behavioral surplus” (i.e meta-data from search queries) into a goldmine.
“Google [turned] its own growing cache of behavioral data and its computational power and expertise towards the single task of matching ads with queries (...)” she explains. “Ads no longer were linked to keywords in a search query but rather were targeted to a particular individual for the purpose of matching ads to their interests.”
Behind the scene, user search patterns were analysed then bundled with other meta-data to create User Information Profiles (UIPs)
These complex data sets were then converted into prediction models of “who will click on which configuration of ads” and sold in the form of “derivatives” products to advertisers via the company’s high-frequency prediction markets (AdWords and AdSense).
This revolutionary approach largely took the guesswork out of advertising, replacing it with the precision of a science which could be measured through new metrics such as “click-through rates”, “impressions” or “conversions”.
AdWords, Google’s first prediction market for digital advertisers was launched in October 2000 and hit immediate success; generating enormous revenue for the firm and delighting its investors.
Almost 20 years later, AdWords (re-branded as Google Ads in 2018) is still at the core of Google’s revenue model. In 2017 advertising accounted for 87.6% of Google’s cash flow and bagged an eye-watering $116 billion USD in 2018.
This strategic turning point is a great example of how Google was able to turn a costly weakness (warehousing droves of costly meta-data) into its biggest strength (selling predictive models to advertisers).
II- The constant focus on radical innovation.
Through creative people and project management, Google has created a unique culture of radical innovation (A) which will be a key asset in dealing with Google future challenges (B).
A- Radical innovation to defeat creative ossification.
In his 2017 paper titled “Software Engineering at Google”, Google software engineer Fergus Henderson describes many of the management processes that have made Google such a special place to work and innovate.
Henderson highlights how constant training, fun facilities and an open workplace completed with dynamic transfers and seating encourages communication, creativity and the sharing of ideas across departments.
“Google is famous for its fun facilities, with features like slides, ball pits, and game rooms. That helps attract and retain good talent. Google’s excellent cafes, which are free to employees, provide that function too, and also subtly encourage Googlers to stay in the office; hunger is never a reason to leave. The frequent placement of “microkitchens” where employees can grab snacks and drinks serves the same function too, but also acts as an important source of informal idea exchange, as many conversations start up there. Gyms, sports, and on-site massage help keep employees fit, healthy, and happy, which improves productivity and retention.”
Henderson also describes Google’s very important “20% time rule” which allows “engineers [...] to spend up to 20% of their time working on any project of their choice, without needing approval from their manager or anyone else”.
Henderson considers this rule to be “very valuable” because it fosters innovation, keeps employees motivated and allows for agile iterations of new products into Google’s portfolio (ps: contrary to popular belief, Gmail did not start as a 20% time project).
But maybe Google’s core belief in radical innovation is best crystallized by Google X also known as its “Moonshot Factory”.
Similar in concept to the MIT famous Media Lab, Google X self-describes as “a diverse group of inventors and entrepreneurs [who] approach projects that have the aspiration and riskiness of research with the speed and ambition of a startup”.
Google X constitutes an incredible in-house reservoir of innovation which helps the firm nurture a culture of radical innovation and keep track on the technologies that might disrupt it tomorrow.
Innovation is key because, even for Google, the danger of becoming irrelevant always looms over the horizon.
In his March 2019 book “Loonshots”, physicist and biotech entrepreneur Safi Bahcall explains why “teams, companies, or any group with a mission will suddenly change from embracing wild new ideas to rigidly rejecting them, just as flowing water will suddenly change into brittle ice”.
This pattern of creative ossification has been the downfall of many companies which were once at the bleeding-edge of their industry.
Perhaps the most famous example of this phenomenon being Kodak.
In a 2016 article for Harvard Business School titled “Kodak’s Downfall Wasn’t About Technology” Scott D. Anthony breaks-down how the photography company lost its edge (and its shares) in a market it once dominated.
“The right lessons from Kodak are subtle” starts Anthony.
“Companies often see the disruptive forces affecting their industry. They frequently divert sufficient resources to participate in emerging markets. Their failure is usually an inability to truly embrace the new business models the disruptive change opens up. Kodak created a digital camera, invested in the technology, and even understood that photos would be shared online. Where they failed was in realizing that online photo sharing was the new business, not just a way to expand the printing business”.
Unlike Kodak, Google has (so far) been very successful at anticipating trends in technology and direct resources to probe or compete into new markets such as telephony or quantum computing.
Spreading its resources across multiple markets has also had the benefit of stimulating innovation as new talents are acquired and/or developed, thus creating a positive feedback loop: innovation begets more innovation.
However, despite being an innovative power-house, Google has not been able to separate itself from a business model based on surveillance advertising.
B- Can radical innovation solve the privacy puzzle.
In ”The Age of Surveillance Capitalism” professor Shoshana Zuboff accuses Google of giving birth to a new market form she’s dubbed “surveillance capitalism”.
According to Dr. Zuboff, surveillance capitalism is based on “secretly extracting behavioral data from users in order to make predictions as to their future behavior”.
Under this logic, human behavioral data is repurposed as the raw material that needs to be extracted from users and commoditized in the form of prediction products called prediction derivatives.
Dr. Zuboff identifies previously described Google Adwords as the first historical example of a technology based on surveillance capitalism principles.
Since the quality of prediction derivatives heavily depends on the volume of data that can be extracted from user behavior, organizations that participate in surveillance capitalism are incentivized to lower every single barrier to the flow of behavioral data.
Smartphones, for example, have “become a mere supply-chain interface for extracting behavioral data from users” explains Dr. Zuboff.
Data must keep flowing in.
Since its inception at Google, the logic of surveillance capitalism has spread to the entire digital economy.
Take for example the game PokemonGo developed by Niantic Labs (which itself started as a Google X start-up).
Under the innocent guise of a fun augmented reality video game, PokemonGo really was a social experiment on population herding where the prospect of catching new Pokemons was a mere pretext to drive foot-traffic to commercial locations.
Another obvious example is Facebook which, like Google, engages in behind-the-scenes data mining of user behavioral data in order to sell targeted ads and posts to advertisers via Facebook Blueprint.
This new economic logic based on hidden technological surveillance with the goal of freely extracting and monetizing behavioral data has been the cornerstone of Google’s business model for almost 20 years now.
This lucrative strategy is not without risks, however.
Wide-reaching privacy laws such as the European GDPR or China’s Cyber Security Law are gaining momentum around the world and redefining how user data can be handled and harvested.
How would Google fare in a world where data could no longer be freely extracted from users but instead had to be bought from them or their government?
This is where Google’s unique culture of innovation comes as a strategic asset.
Google must harness its incredible talent pool to diversify its revenue stream beyond surveillance-based advertising in order to mitigate the risks born out of the rising concern for individual privacy and a general public disgust for the mechanisms of surveillance capitalism.
In the words of comic book super-villain and Batman arch-nemesis Two Face: “You either die a hero or live long enough to see yourself turn into the villain” and while Google might have lost the innocence of its “Don’t be Evil” salad days, it has ample resources to walk away from the quick riches of surveillance capitalism and champion technology that truly respects user privacy and bring cohesion to our society.
F0x.
References
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