Google makes more money and you are paying for it

Eric Schmidt, the Chief Executive Officer of Google disappointed investors yesterday as the company announced a dramatic rise in income. In the past three months, Google’s revenues have risen by a whopping 23% compared with the same period last year. But it wasn’t the CEO who announced it. In an attempt to “streamline” reporting, Google has decided that the CEO will no longer announce their financial results. What? That’s right, a company with a share price approaching $600 has decided that investors don’t need to hear from the boss.

Eric Schmidt, CEO Google

Eric Schmidt, CEO Google. (Pic from:

Analysts are struggling for reasons today to explain why the share price fell, in spit of the unexpectedly positive results. The truth is, they feel snubbed. Wouldn’t you? What would your investors think if you decided that someone else would tell them about your financial results? The chances are they’d express their dislike in some way.

Google tells us we should not “read anything” into Mr Schmidt’s departure from the financial reporting system; they say he is “everywhere” anyway, so we shouldn’t worry about it. No, analysts aren’t worried, they just expect the boss to talk to them about their investment. That’s not such a difficult requirement is it?

When companies get really big they often forget, or lose, the emotional connection they have with their stakeholders. For instance, the company has had an increase of 7% in the average cost of each click made on the sponsored links listings. Many of those clicks, of course, are not on Google itself, but on its “AdSense” sites – websites that carry Google AdWords sponsored links. Your website can carry them if you wish. So, the AdSense partners are effectively sales people for Google; they publish their adverts. So how did Google reward this group of stakeholders for their contribution to this 7% rise? Well they gave them an increase of only 2%. In other words, Google increased its margin.

So, they’ve already upset analysts and now they appear to be upsetting their AdSense partners too. The company has also upset China, it has upset authors and photographers, annoyed the Italians and caused Rupert Murdoch to limit what Google can do with his company’s content. The company is also potentially upsetting the advertisers themselves – that’s the likes of you and me. Why? Because of the increase in the average price we are paying – almost four times the level of inflation.

Of course, none of this is to be unexpected. Google is a massive company that dominates its market. It will therefore be in pivotal position to upset all sorts of people and to get considerable criticism. The real issue is much the same as any big business. The bigger you get, the more distant you become from each of your stakeholders. And that means you start to lose the important emotional connections which have helped you achieve your greatness.

Like most large corporations, Google only achieves its financial success because of dominance. That comes from a combination of good ideas and excellent marketing. There are better operating systems than Windows, for instance, but Microsoft has the best marketing. There are better search engines which help you search for specific information, but Google has market dominance. And like Microsoft, its size and its resulting income means it can simply drown out the marketing from competitors.

So is there anything to learn from all this? Absolutely. If you want to succeed and do really well you need to to dominate your market – and that comes about initially with brilliant marketing. Remember that when Google started it had no income and had to do loads and loads and loads of free marketing in order to get a foothold against the dominance of Yahoo!. But more importantly, perhaps, the Google situation tells us that if you want to retain your leadership status you need to maintain an emotional connection with all of your stakeholders. Losing contact with your investors, your customers, your staff and everyone else who brings you success is why many companies – big and small – fail. Retaining those emotional connections is fundamentel and it’s the mistake that big companies make time and time again. Google is behaving no differently to other sizeable corporations.

The reaction of the stock markets to quite brilliant financial results suggests that Google is potentially in danger of reducing their emotional connections to an important group of stakeholders. And if that happens one way of getting it back will be for the next quarter’s results to be even better than the latest excellent figures. And guess who will pay for that? That’s right…you will…!

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