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by Ken Auletta
Steve Jobs delivered the Gettysburg Address of graduation speeches in June of 2005. This corporate rebel would not dress for the occasion. His long black robe didn’t completely camouflage his jeans and dark sneakers, and only the red sash around his neck added a splash of color to his pale skin and the pronounced stubble on his face. It was a gloriously sunny day, and for 14 minutes Jobs stood behind a lecturn at Stanford University and through round, frameless glasses read a very personal speech, pausing only to sip from his plastic water bottle or allow the applause to subside. A man famous for not sharing personal information began by telling his audience he wished “to tell three stories from my life.” “The first story is about connecting the dots.” He recounted how he had been adopted by working-class parents who never graduated from college. Seventeen years later, he attended Reed College but decided to drop out after 6 months when he realized that he was bored and was exhausting “all of the money my parents had saved their entire life.” He spent the next year sleeping on the floor of friends and auditing classes that provoked his curiosity. Of particular interest was a calligraphy class, where he learned about spacing between letters and “what makes great typography great…. None of this had even a hope of practical application in my life. But ten years later, when we were
2 designing the first Macintosh computer, it all came back to me. And we designed it all into the Mac. It was the first computer with beautiful typography.” It was copied by Microsoft’s Windows. “If I had never dropped out, I would never have dropped in on this calligraphy class, and personal computers might not have the wonderful typography that they do.” “My second story is about love and loss.” He described starting in a garage with his friend Steve Wozniak, of building Apple into a $2 billion company, and of getting fired at age 30. He felt humiliated, rejected. But over time the “heaviness of being successful was replaced by the lightness of being a beginner again, less sure about everything.” Over the next five years he started a new computer company, NeXT, that one day allowed him to return to Apple; he acquired and built Pixar as the world’s first computer-animated feature film studio; and he met his wife and started a family. “I’m pretty sure none of this would have happened if I hadn’t been fired from Apple… Sometimes life hits you in the head with a brick. Don’t lose faith. I’m convinced that the only thing that kept me going was that I loved what I did. You’ve got to find what you love… If you haven’t found it yet, keep looking. Don’t settle.” “My third story is about death.” When he was 17 he read a piece of wisdom that stayed with him: “live each day as if it were your last.” Every day since, he said, “I have looked in the mirror every morning and asked myself: ‘If today were the last day of my life, would I do what I am about to do today?’” Never forgetting that he would one day die “is the most important tool I’ve ever encountered to help me make the big choices in life.” He told of being diagnosed with pancreatic cancer a year earlier and warned by his doctors he would be dead in a few months. They did a biopsy and discovered that his was
3 “a rare form of pancreatic cancer that is curable with surgery.” He had a reprieve, but it forced him to think about death differently. Death, he said, “is the destination we all share. No one has ever escaped it. And that is as it should be, because Death is very likely the single best invention of Life. It is Life’s change agent. It clears out the old to make way for the new. Right now the new is you, but someday not too long from now, you will gradually become the old and be cleared away.…Your time is limited, so don’t waste it living someone else’s life… Don’t let the noise of others’ opinions drown out your own inner voice.” He concluded by describing Stewart Brand’s Whole Earth Catalog, which had been a bible to him and others of his generation, but after several issues Brand decided they had nothing left to say. On the back of the final issue was a photograph of a country road in the early morning, the kind of road adventurous hitchhikers might take. Below the picture in bold letters was printed, “Stay Hungry. Stay Foolish.” “It was their farewell message as they signed off… And I have always wished that for myself. And now, as you graduate to begin anew, I wish that for you. “Stay Hungry. Stay Foolish.” Not a bad way to sum up the life lessons of the Sinatra of business leaders. Steve Jobs’ stirring speech provokes me to wonder: What are the enduring lessons we might draw from a close look at Google and today’s rapidly changing digital media landscape? I came up with these 25 media maxims:
4 The passion Steve Jobs imparted to Stanford graduates is among the foremost lessons one derives from Google. Start with the the same words of advice – “Don’t settle” – that Larry Page offered the Stanford class in 2002. This intensity was revealed in the zeal with which he and Sergey Brin inspired the entire company to “serve the user,” to take more risks, to radically improve search. Recall Eric Schmidt’s words: while he assumed that “Google would be an important company; the founders always assumed that Google would be a defining company.” A moment after he finished describing Google as “a rare” company, I asked Michael Moritz, an early investor in both Yahoo and Google, whether he felt the same enthusiasm for Yahoo. He winced, hesitated, then finally said: “Yahoo is a company I’ve been close to for a long time and feel a lot of affection and loyalty towards. But within the first 18 months to two years of being associated with Google, I began to understand this was a very different company than Yahoo. It was rooted in the studies of the founders. Google was built on a foundation of Larry’s and Sergey’s intellectual pursuits. Yahoo was built on the foundations of Jerry’s and David’s interests. And there’s a big gulf between those two.” That deficit of passion, he suggested, was a reason that Yang and Filo chose not to be fully engaged full time with the company they created.
Focus is Required: Passion without focus can lead you astray. Bill Campbell thinks the key to Google’s success is “focused passion.” He credits Schmidt for bringing a focus to the founders. In an interview with Betsy Morris of Fortune, Steve Jobs offered an interesting
5 and, typically, upside-down perspective on focus: “People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the 100 other good ideas that there are. You have to pick carefully. I’m actually as proud of the many things we haven’t done as the things we have done.” Without a determined focus, decisions made on the fly can turn out to be wrong. Michael Eisner offered an example from his tenure as CEO of Disney. In 1999 Disney had acquired one of the early search engines, Infoseek, and coupled it with another acquisition to create the Go.com network. To lead it, Eisner installed Steve Bornstein, “one of the geniuses behind ESPN,” he said. Standing at a stall in the men’s room next to Bornstein one afternoon, he mentioned that he had heard that some search engines were thinking of having paid searches. (This was long before Google contemplated the same thing.) “I said to Steve, ‘Should we charge?’” “ ‘Michael, we studied it. It’s not Disneyesque,” Bornstein replied. “You’re right,” Eisner quickly agreed; he was wary of allowing advertisers to jump to the top of the search results. But, Eisner said today, “I never thought you could identify the ads, put them on the right side of the page. That one men’s room, nonthoughtful decision – how many billions of dollars slipped through my fingers?... I was always looking for what the next application was. I just missed it.” Barry Diller, who had that unsettling session with Page and Brin in the early days of Google, when Page would not look up from his PDA to talk to him, now thinks what might be construed as rudeness was really focus. “They had their own method of communicating and processing,” Diller said. “They give much less quarter than other people do to common business courtesies.
6 They’ve stayed true to this. It’s a spectacular strength. It means you never get de-focused by the crowd.”
Vision is Required: Without vision, even the most focused passion is a battery without a device. “Don’t be evil” is a vague incantation. Page and Brin’s effort to make “all the world’s information available,” and to first and foremost serve users, is a vision – one that successfully drove Google to index the Web, make news and books searchable, treat ads as information and to reject dollars if the ads were not “relevant,” help users search for the best or cheapest products, find simple travel directions, store and search their e-mail, and share calendar information. Such a vision does not come from survey research and is not associated with “other-directed” personalities. Vision was Steve Jobs insisting that Apple make both software and hardware, anticipating that even stylish companies like Sony would falter if they did not devise the operating systems for their own hardware, or deciding to create a simple-to-use digital jukebox to download individual songs for just 99 cents and combine this software with the gorgeous iPod hardware. It is said that Jobs creates “a reality distortion field,” meaning that his vision is so strong that he is able to bend people to ideas that at first seem unrealistic. Vision is also Amazon’s Jeff Bezos insisting on “Earth’s biggest selection,” or for the Kindle, “every book ever published in 60 seconds.” Bezos believes that “there is a lot of encouragement in a big vision… It’s motivating to me. It’s motivating to the whole team. It’s also more fun.”
7 Before he became a billionaire venture capitalist, Michael Moritz was a journalist. He still enjoys plumbing the mysteries of why some leaders succeed and others fail, why some have clarity and others are muddled. How did two guys so young and inexperienced, I asked, approach Google with such clarity of vision about how to treat users or employees? “I ask myself the same question,” Moritz had said. “Where did Steve Jobs’s vision come from at age 19 or 20? Where did Bill Gates’ come from when he said no at age 22 to Ross Perot when he wanted to buy his company? I think about that a lot. I wish I had the answer.” Part of the answer, he believes, comes from smart engineers – or those like Jobs who think like them – who “question everything and wonder why things have to be done as they were done before. I frequently shake my head in disbelief at how many big decisions they made at Google when the conventional path went in a different direction.” In his 2005 speech to graduating engineers at the University of Michigan, Page told them they didn’t have to go to business school. He said he had read an entire shelf of business books when he was younger, and among the lessons he learned was that “many of the amazing insights that happen in business actually come from people who really aren’t in the business.” He cited Amadeo Giannini, a San Francisco merchant who founded the Bank of America because he was angry that bankers would not make loans. Ted Turner, who studied classics before he was thrown out of Brown, believes passion, focus, and vision have to come together. “They laughed at me when I started CNN,” he once told me. “They laughed at me when I bought the Braves. They laughed at me when I bought the Hawks. They laughed at me when I bought M-G-M. I spent a lot of time
8 thinking, and I did not fear, because of my classical background. When Alexander the Great took control when his dad died, he was twenty years old. He took the Macedonian army, which was the best army in the world at the time, and conquered Greece, got the Greeks to all join with him, and then marched across the Hellespont and invaded Asia. They didn’t even know where the world ended at that time. And he was dead at thirty-three, thirteen years later. He kept marching. He hardly ever stopped. And he never lost a battle.”
A Team Culture is Vital: We’ve seen how Google’s 20 percent time and generous benefits give employees a sense of empowerment. True to its open-sources, wisdom-of-the-crowd ideals, Google has created a networked management that functions from the bottom-up as well as the top-down; in both directions, it unleashes ideas and effort. Recall Larry Page’s astute observation: “There is a pattern in companies, even in technological companies, that the people who do the work – the engineers, the programmers, the foot soldiers if you will – typically get rolled over by the management….. you end up kind of demoralized. You want to have a culture where the people who are doing the work, the scientists and the engineers, are empowered. And that they are managed by people who deeply understand what they are doing.” The merger of AOL and Time Warner has become a classic example – as the merger of Bank of America and Merrill Lynch may one day duplicate – of an inability to mesh two very different cultures within the cauldron of human resentments the merger unleashed. Just months after the merger, I remember standing beside a senior executive
9 from Time Warner in a room populated by executives from AOL and Time Warner. He glared about the room and growled, “Those bastards!” He resented that AOL executives referred to Time Warner as “old media,” even though a division like HBO made $600 million that year and was growing fast. Before long, AOL Time Warner’s stock plunged, the top AOL executives exited, and the name of the company was changed to Time Warner. The AOL and Time Warner executives lost a vital component of success: the ability to listen. That’s how one builds a networked company. Millard (Mickey) Drexler is a good example. When he was CEO of the Gap, or now as CEO of the J. Crew Group, he made it a point to escape his office, to visit stores, to bombard his employees and customers with questions. Susan Lyne, the CEO of the Gilt Groupe, recalled a visit she and the company’s two founders made in 2008 to Drexler’s J. Crew office. He sat at a conference table in an open room, and had with him his marketing chief and another executive. Lyne explained that Gilt.com bought excess inventory from high-end manufacturers and conducted online first-come, first-served sales, admitting only the site’s 500,000 registered members. Drexler said he had his own 300 stores, and didn’t know why this would be relevant for J. Crew. He was curious, though. He pushed the intercom and bellowed: “Anybody on the floor who shops at gilt.com call me!” His phones lit up. He summoned several dozen employees to the meeting. When they arrived, Lyne said, he asked, “ ‘So who’s bought something on gilt.com?’ Every hand shot up. He then conducted a focus group, peppering them with questions: What did you buy? Why? How often?”
10 He asked his marketing chief, “Why don’t we do flash sales in our stores?” And before Lyne left he said, “Let’s figure out something we can do together.”
Treat Engineers as Kings: For most Valley companies, engineers are the equivalent of the television writer, the movie director, the book author. They are the creators. The 20 percent time Google grants its engineers gives them a sense that they are liberated to take risks, to follow their passions. Innovation, as Bill Campbell told The McKinsey Quarterly, comes when “the crazy guys have stature, where engineers really are important…. empowered engineers are the single most important thing that you can have in a company.” It is no accident that Page and Brin and Schmidt spend so many hours each week in meetings with engineers. Just as it is probably no accident that Apple’s engineering (like Yahoo’s) slipped when the company was run by a CEO more attuned to marketing. For most traditional media companies, the engineer is less as central. However, as digital is now part of the mainstream, and as older media companies struggle to master its challenges, they would do well to heed the advice Google’s David Eun offers: Don’t do what these companies traditionally do and stick “the geeks in a corner.” Instead, CEO’s should have at their elbow “a top Chief Technical Officer.” Or as Disney’s Robert Iger explained, he wanted Steve Jobs to join the Disney board to have “someone like that in the boardroom when we’re discussing technology…”
11 Treat Customers Like a King: An important reason Google is usually listed among the world’s most trusted brands is that it conveys a sense that the user comes first. Advertising may produce 97 percent of Google’s revenues, but to a user it doesn’t feel that way. Google services are free, and they’re user friendly, just as an iPod is. The lessons Larry Page took away from reading Donald A. Norman’s The Design of Everyday Things helped shape Google’s approach to its customers. Or as Page said, “Having an attitude that your customer or users are always right, and your goal is to build systems that work for them in a natural way, is a good attitude to have.” Jeff Bezos uses a customer-is-king approach to shape Amazon’s corporate strategy. The most common question he’s asked outside the company, he once told the Harvard Business Review, is “What’s going to change in the next five to ten years?” It’s the wrong question. The right one, he said, is this: “‘What’s not going to change in the next five to ten years?’ At Amazon we’re always trying to figure that out, because you can really spin up flywheels around those things. All the energy you invest in them today will still be paying you dividends ten years from now. Whereas if you base your strategy first and foremost on more transitory things – who your competitors are, what kind of technologies are available, and so on – those things are going to change so rapidly that you’re going to have to change your strategy very rapidly too.” He recalled an old Warren Buffett story of the three boxes he kept on his desk: an in-box, an out-box, and a too-hard box. “Whenever we’re facing one of those too-hard problems, where we get into an infinite loop and can’t decide what to do, we try to convert it into a straightforward problem by saying, ‘Well, what’s better for the consumer?’”
12 Consumers are no longer tethered to a network program schedule, a wire, a single screen or device – a TV set, a game console, a physical newspaper, magazine, or book – for their information or pleasure. With choices, consumers feel in control, putting an end to the old agument over which is king, content or distribution or technology. It’s the consumer.
Brand Often Means Trust: Along with “synergy,” the most overused shibboleth in the vocabulary of business executives is “brand.” They prattle on about “extending the brand” and “building the brand.” In most cases, they don’t have a clue what brand really means. “As soon as someones extols ‘the brand’ it means they are out of ideas and on their haunches,” venture capitalist Moritz said. In simple terms, brand often equals trust. In journalism, brand equals credibility, and it means that consumers trust that the news is written for them, not for advertisers, or for the mayor or bank president. Successful stockbrokers earn the trust of investors by communicating that they are less interested in maximizing an investor’s returns. To understand how Google earned the trust of its users, go back to its IPO. Again and again it referred to the users as sancrosanct: “We believe that our user focus is the foundation of our success to date. We also believe that this focus is critical for the creation of long-term value. We do not intend to compromise our user focus for short-term economic gain.”
13 By focusing on the user, Page and Brin provided an organizing principle for Google employees that echoed Sam Walton’s adage: “ ‘If you don’t listen to your customers, someone else will.’”
Every Company Strives to Take the Risks Out of Capitalism: Every company wants to grow, crush competitors, and minimize risks. If it can avoid the sheriff, every company lusts to become a monopoly. This truism is not peculiar to the digital age, but was clearly enunciated by a former media baron, Ted Turner: “You need to control everything. You need to be like Rockefeller with Standard Oil. He had the oil fields, and he had the filling stations, and he had the pipelines and the trucks and everything to get the gas to the stations. And they broke him up as a monopoly. You want to control everything. You want to have a hospital and a funeral home, so when the people die in the hospital you move them right over to the funeral home next door. When they’re born, you got ’em. When they’re sick, you got ’em. When they die, you got ’em.” He smiled and added, “The game’s over when they break you up. But in the meantime you play to win. And you know you’ve won when the government stops you.”
Every Company is a Frenemy: What Lord Palmerston said of nations applies as well to corporations: There are no permanent allies, only permanent interests. A medium like the Internet blurs the borders between companies, sometimes making it more difficult to sight a potential rival
14 or to distinguish between ally and foe. Google started as a search engine, but quickly realized it could efficiently sell ads or aggregate news or search books or use its infrastructure to create cloud computing or expand into video by acquiring YouTube or expand into mobile devices. At the same time, Google’s AdSense supplies ad dollars to newspapers; AdWords partners with ad agencies to sell products; YouTube is a coveted promotional platform for the television networks; Android software supplies an operating system for more than a few mobile telephone companies. Amazon’s Jeff Bezos was one of four original investors in Google, and Amazon is among Google’s top ten advertisers, yet the two companies grind up against each other in cloud computing and in electronic book publishing, where Google now supplies digital books to Sony’s Reader, a direct competitor to Amazon’s Kindle. No one is more admired by the Google founders than Steve Jobs, and Eric Schmidt, Bill Campbell, Al Gore, and director Art Levinson serve on the Apple board. Yet the two companies collide with smart phones and Google’s Android software and cloud computing for inexpensive laptops that might subvert Apple. The infrastructure a company builds for one service can be efficiently employed for another use. Thus Cisco, which makes the routers and infrastructure for much of the Internet, now vies to sell servers for cloud computing; this pits them against Microsoft, HP, IBM, and Google, all Cisco customers. These horizontal ambitions, coupled with the fears aroused by the speed of technological change, inevitably frays the bond of trust among companies. Most companies become frenemies, both cooperating and competing.
The Speed Of Change Accelerates:
The harnessing of electricity was a more disruptive technology than the Internet. As noted earlier, without electricity there would be no manufacture of cars or airplanes, no lights, refrigerators, telephones, air conditioners, televisions, subways -- or Internet. What, then, is unique about what is deservedly called the digital revolution? The rate of change is different. As also noted earlier, it took telephones 71 years to reach 50 percent of American homes, electricity 52 years, color TV 18 years, cable 15 years. Yet the Internet reached more than 50 percent of Americans in a mere decade. Facebook built a community of 200 million users in just 5 years. The swiftness of change makes those who make corporate decisions more insecure. They are forced to worry constantly whether a new technology will invade their domain; whether they’ve wrapped their brains around a mind-numbing new bit of engineering before making an investment bet; whether they are cannibalizing themselves by using the Internet to distribute their primary products; whether their naysayers are prophets or fools. At best, insecurity tends to breed fear, and at worst, paranoia. Neither emotion produces clarity.
Adapt or Die: In football, the winner of the Super Bowl is usually the team that played outstanding defense. In business, the opposite is true. Smart companies focus on offense, they do what David Calhoun, the CEO of Nielsen suggested they lean in, not out. When he was CEO of Microsoft, each year Bill Gates would go off for what he dubbed “think
16 week,” where he read sheafs of material, and upon his return to Microsoft he would pepper the staff with memos. On May 16, 1991, he zeroed in on a 44-page document written by John Walker, the founder of Autodesk, a software company. Walker sent his memo on April 1, 1991, addressing it to the executives of the company he had stepped down from its board three years before. Walker’s title surely caught their attention: “The Final Days.” In his critique, Walker said he had “no desire whatsoever to see Autodesk’s management removed” or “to resume any role in management myself.” But he feared his beloved company was no longer alert to change, including “the emergence of a new standard applications platform” – Microsoft Windows. He enumerated the many companies “left behind” because “the game changed, but they did not” -- PC software like MicroPro’s Wordstar, Digital Research’s CP/M, among others. The “problem that afflicts Autodesk,” the founder warned, “stems from a failure of self-confidence, the self-assurance in the face of uncertainty that what we are doing is right, which is essential to any entrepreneur. When confidence ebbs, the courage to act dies with it…. caution rules… timidity and unrestrained risk-aversion gain the upper hand…” For Gates, the core lesson he took away from Walker’s “brilliantly written and incredibly insightful” memo was that he was “talking about how a large company slows down, fails to invest enough and loses sight of what is important.” It goes without saying that every company has to play defense as well as offense. Media companies have legitimate legacy businesses to defend from piracy, copyright infringement, and the risk of devaluing their products by allowing them to be used for free. And even if older companies shift to offense, they may find that it is too late, that they have become still
17 another victim of the Innovator’s Dilemma. However, as is true in football, aside from throwing an interception, the worst thing a quarterback can do is stand like a statue and wait, and wait, for a receiver to get open.
“Life is long but time is short.” The words belong to Eric Schmidt, who explained: “Life is long in the sense that we have long memories. Time is short in that you have to move very quickly. But to me the most important thing to know is that life has a way of working things out. We forget so quickly what the problem was 3 or 4 years ago. So my personal view of life is that every problem is an opportunity.” This is a variation of “Adapt or die” and “The speed of change accelerates,” but it is different. This is a reason to think and act boldly, as Google has, to take risks, and not to be anchored down by “long memories.”
A “Free” Web Is Not Always Free: The Web needs another revenue stream. The Internet grew to adulthood as a largely “free” medium but only by using the advertising-reliant model pioneered by radio and television broadcasting. As Stanford President Hennessy had told me, echoing a heretical thought I encountered more and more while reporting this book. “We should have made a micro-payment system work.” Free works for Google search. It will work for other sites. But it does not work for most content businesses. Whether the right model is micro-payments, or subscriptions, or pay-for-services, or some combination of these is
18 less important than making an effort to end advertising dependency. Even Wired editor Chris Anderson, who once more forefully advocated that free was the perfect model (his 2009 book is titled, Free), has been intellectually honest and amended his position. Blaming the deep recession, Anderson appended a “Coda” chapter near the end of his new book in which he wrote that he now believes “Free is not enough. It also has to be matched with Paid.” Eric Schmidt also shifted his view on charging for content on the Internet. “My current view of the world,” he told me in April 2009, “is you end up with advertising and micro-payments and big payments based on” the nature of the audience. The recession is one reason to seek another revenue stream. The other is the risk posed to journalism – and to many Websites – when content providers grant life-anddeath power to advertisers. Advertisers will always want the most conducive setting for their ads; they want to sell products, and have perfectly good business reasons to be concerned with the environment in which their ads appear. The problem is that this impulse leads them to push for more “friendly” news: a senior network news executive said, “I’ve seen increasing incursions by advertisers into morning show content. Can the evening news be far behind?” Of course, network news has in recent years made itself more of an inviting target for advertisers by allowing the morning shows and evening newscasts to become “softer” and more superficial. Likewise, it is as certain as a sunrise that advertisers will want tamer social networks and more predictable YouTube videos to accompany their products. To better target their ads, they also want to extract as much information about their potential customers as they can. But news outlets or Websites that share users’ private information or allow themselves to be seen as bought and paid for
19 will lose the trust of their customers. An additional revenue source will give them more leverage to resist.
Digital is Different: “When a product or industry goes digital, it changes fundamentally and irreversably,” Marc Andreessen said. Hardware becomes less important, software more so. “Because software is malleable in a way that hardware is not, it can be adopted worldwide and quickly.” Fewer resources or infrastructure are usually required. A digital newspaper, for instance, is not merely an extension of the print edition. It is a different product, and the software makes it so. Online news doesn’t have to wait for the next morning to appear. And it comes with links to other stories and even publications, to videos or audios that amplify the story. If a reader wants to dig down into a subject, digital archives are available. The function of the letters to the editor page is taken over by blogs, involving communities of readers and also compelling journalists to engage with the public.
Don’t Think of The Web as Another Distribution Platform: In speeches, Michael Eisner likes to say that the Internet is just another distribution platform. He also says, as he did to me, “I don’t think a lot of the rules for storytelling are unique for the Internet.” I think he’s wrong. The Internet is a totally different medium. It is interactive, allowing not just two-way communication but also a
20 stage for new story tellers. It is not one distribution channel but many thousands of them, each one a website on which stories might nest. There are no scarcity issues – sorry, we have only 21 hours a week of prime time to squeeze your program into; sorry, we have sold every 30-second spot in the Super Bowl. Because there are so many choices on the Web, and only a click away, Web stories will often be shorter, more like “snacks.” According to Scott Moore, who until late 2008 was Yahoo’s Senior Vice President and head of media, on the Web “people have shorter attention spans. We find the ideal length is one to three minutes.” The shorter time is partly a function, he said, of the fact that “prime time is daytime for us”; he means that people looking for diversions at work naturally jump around more. Also, on the Internet, users “expect to be in control,” and they like to roam. The ease of jumping around further attenuates attention spans, making the Internet a less hospitable medium for longer stories.
Technology Provides Potent New Targeting Tools: Instead of guessing about consumers’ behavior, advertisers will have tools to measure what they actually do. “Targeting will move from predicting behavior, to reaction, to intent,” Irwin Gotlieb said. Every digital device -- a computer, a cable box, a broad band connection, a hand-held device, a game console -- will collect data on what we’ve consumed, what ads we liked or didn’t, where we are located at any moment. And advertisers will be able to add to this a wagon-load of additional census and other data that will allow them to aim a rifle at particular individuals, rather than blindly firing a
21 shotgun at groups. This rifle is a powerful weapon for advertisers, and a potential menace to privacy.
The Web Forges Communities, and Threatens Privacy: In the analog world, where communication is one-way, the audience passively watches and reads – or switches channels or mediums to passively consume something else. On the Internet the user is engaged, empowered to share information. Communities form, and the glue is often trust. We have seen how Google benefits from the trust earned from its users. If Google is to grow beyond search, that trust is critical. Those who decide to dispense with packaged software and instead store their applications or content in a Google cloud – or those who opt for an Android-powered mobile device -- will do so only if they trust that the service is reliable and believe that their most sacred private information will not be shared with advertisers or leak out. In the digital world, trust and privacy are synonymous. While it is true, in the words of a famous New Yorker cartoon, “on the Internet, nobody knows if you’re a dog,” it is also true that your cookies know what that dog does online. This is information advertisers would pay dearly for, and the temptation grows for cash-poor social networks and other sites to share more of our personal data with advertisers. We again caught a glimpse of this tension between serving a community and building a business in February 2009 when Facebook issued its new terms of membership and the contract seemed to grant Facebook perpetual ownership of users’ content to do with it as it wished. After two days of protests, angry blog posts, membership withdrawals, and threatened lawsuits,
22 Facebook retreated, restoring the original contract terms. This was still another reminder that even on social network sites -- where users share the most personal information – the issue of privacy is a ticking bomb.
Beware The Government Bear: The marketplace alone does not determine winners and losers. When government decides to play the role of referee, its decisions matter. Google was compelled to abandon its advertising alliance with Yahoo when the Justice Department threatened an anti-trust lawsuit. Google succeeded in loosening the grip of the phone companies over the spectrum space by allying itself with the FCC. Government decides whether to approve mergers, rescind old media ownership regulations or impose new ones, levy “Buy American” laws, relax immigration strictures so companies can hire more foreign-born engineers, invest taxpayer funds to build up the Internet’s infrastructure, or decides whether to declare that Google monopolizes search. Overseas, the European Union foists privacy rules on Google, operating system rules on Microsoft, and competitive chip requirements on Intel; China insists that Google and other companies conform to their rules, or abandon the world’s largest consumer market.
Paradox:The Web Forges Both Niche and Large Communities: A paradox of this Internet age is that it opens the world to us, yet allows us to settle into comfortable niches. We can access nearly any book or newspaper, locate lost
23 friends, search the world’s libraries, escape local stores to find better prices, place online orders, tap into medical knowledge to care for a loved one, reach out to strangers from other countries. But while the Internet broadens, it also narrows. We create smaller Facebook communities. Often, teenagers on Facebook would rather ping Facebook friends than converse with people in the room; Google searchers settle for a single piece of information, and don’t enlarge their frame of reference, as one does reading a book; interactive services like Twitter serve to make us more self indulgent, for many who tweet assume that their narrow community of friends are eager to know they just went to the bathroom or ate a hotdog. Although the world’s information is at our fingertips, often we choose to access only the subjects that interest us.
More Media Concentration, Yet More Choice: Another paradox of the Internet age, and one that is as confusing to government referees as it is to the rest of us, is that giant media companies get bigger but also weaker. Media companies expand their reach – telephone companies into cable, cable into telephone, broadcasters into websites, Google into video, Amazon from books to an online shopping mall that sells everything. At the same time, technology offers consumers more choice. Skype and Google facilitate Internet phone calls. Yahoo and Google News aggregate news from everywhere. PBS airs Charlie Rose, and so does YouTube. Google makes available millions of books that had gone out of print. Just several years ago, there was widespread alarm that newspaper chains like Gannett, or a radio conglomerate like Clear Channel, were too powerful; today there is widespread
24 alarm that they are too weak to withstand competition from the Internet or iTunes, satellite, and Internet radio. With digital TV or the Internet, consumers’ choices are nearly unlimited. This does not mean the choices are better. It does mean that anti-trust policies or government regulations are in constant need of a re-think because of the digital disrupter.
Luck Matters: “The single most important element in success is luck, which is neat because luck is the most egalitarian of human characteristics.” So said Jeff Bezos, who offers a vivid example of Amazon’s luck: “When we started in 1995, every single person we talked to in the book industry pleaded with us not to launch with one million titles. ‘Cut it back to 300,000 titles!’” Even if it had been only 300,000, Amazon would still have more titles than the largest superstore. Out of hubris, Amazon decided to plunge ahead with one million titles, only to discover a secret formula for success. “A lot of our word-of-mouth was driven by people who marveled that they got obscure books from Amazon they could not get from a bookstore.” The accidental lesson for Bezos was this: “If you want to earn credibility with customers, the best way to do it is to make difficult promises and keep them. It was luck because the ‘wrong’ decision turned out to be the right decision.” Andy Grove, the former CEO of Intel, offers a stunning example of how a chance event helped determine Intel’s success: “I blew an Intel/Apple relationship by dissing Steve Jobs. He went to Motorola.” It was the early eighties and Jobs “demanded the lowest price” for Intel’s memory chips; Grove refused and bad-mouthed Jobs in the
25 process. Apple turned to Motorola to make its chips; Intel instead made deals with IBM and Microsoft, and both came to dominate the PC industry. “”Had I respected Steve like I learned to respect him,” Grove said, “Intel would be Motorola!” Timing can also be a matter of luck. Sometimes a cool new product fails – like Apple’s hand-held Newton, introduced a decade before the Blackberry – partly because it appeared too early and consumers were not ready for it. And Google might not have succeeded had it started earlier. “We were lucky that we were late to the search engine business, because you can learn from others’ mistakes,” said Urs Holzle, the third engineer hired by the founders. When other search engines failed by focusing less on users than on creating a destination site, Google benefited from their negative example. Discovering the right advertising formula, Larry Page confessed to a Stanford class, “probably was an accident more than a plan.” Timing, serendipity, and luck – not just a smart strategy and brilliant execution – can be a determiner of success.
No More Old Media Magic: The traditional media world Mel Karmazin came from, where emotion and relationships mattered more than data, where middlemen and inefficiencies were often accepted as part of “the magic,” is fading. Think of Google as a surrogate for the Internet, which disrupts old ways of distributing and selling products, and allows the audience to talk back. Some traditional media businesses will die, some will be transformed. All will be compelled to change and to become more transparent. Because change will be difficult
26 does not mean it will be tragic. The change from typewriters to PCs was painful for those who worked in the older industry. Employees were laid off, stores closed. And for those who still use typewriters, it has become an inconvenience to find ribbons and parts. But most of us don’t moan that the typewriter has become a relic. And, no doubt, some of the dire predictions about the media will prove false, as they did when pundits announced that television would destroy radio. To survive, industries must adapt; radio branched into car radios, FM, stations with distinct music niches, talk radio, and now radio online. Said Fred Seibert, co-founder of Next New Networks, which creates Internet and television programs, “I don’t believe anything ever goes away, except for Vaudeville.”
No More New Media Magic, Either: Old media executives get annoyed when new media executives condescendingly lecture them that Old media is dying. One of the strongest rebuttals came even before the 2008 recession imposed a measure of humility on Web 2.0. At the annual Digital, Life Design (DLD) media conference in Munich, speaker after speaker – Dina Kaplan, cofounder of Blip.tv, Suranga Chandratillake, CEO of Blinkx, Niklas Zennstrom, creator of Skype and co-founder of Joost, Patrick Walker, a senior executive at YouTube – disparaged old media and extolled the new world they were forging. Rage was building in the tightly wound frame of Sir Martin Sorrell, and when these presentations concluded he raised his hand to ask a question. By way of preface, he said his WPP employed 102,000 people in 106 countries. His was a real business, and he wanted to be sure that the wizards on stage represented
27 real businesses too. To determine if this was so, Sorrell asked: “Can each panelist precisely say what their revenues, profits, and cash flows are today, and what they will be in a few years? Please be precise.” “Unfortunately, almost no one was,” reported Randall Rothenberg on his incisive blog from the conference. The wizards paused, squirmed, did their best to dance around the question. “None of them were making a profit,” Sorrell recalled. And they were not soon expected to. As the digital revolution strips older media of their magic tricks, the recession will probably also strip some digital darlings of their aura. One magic trick encountered in the Valley is to hear people proclaim that if you build user traffic, profits inevitably follow. This did not prove true for Netscape, as it may not prove true for YouTube, Facebook -- or for Twitter, which lept from 1.6 million users in April 2008 to 32.1 million a year later without a penny of revenues. Another common Valley trick – especially at Google -- is to publicly assert that media is not a zero-sum game, that if old media is smart enough to work with new media there will be no losers, that the Internet will expand everyone’s audience, just as the new medium of television once brought new revenues to the older medium of movies. You have to believe!. There were fewer media options when television came along, and consumers were not saturated with choices. More choices spread the wealth, but it will not build if advertisers have no more money to spend; even if consumers will pay for online content, they don’t have unlimited disposable income. And it is an assertion of faith, not fact, that online revenues will add more revenue to old media than they replace. Every time I hear the there will be no losers exhortation, I think of evangelical supply siders who proclaimed that slashing taxes without budget cuts would somehow produce
28 government surpluses, not deficits. You have to believe! To differ with either was to be placed in a box alongside all fuddy-duddies who don’t get it!
Don’t Ignore the Human Factor : As a journalist, the deeper one burrows, the more complicated narratives and the people who populate them usually become. As Christopher Morley, author and cofounder of the Saturday Review of Literature, once observed, “Truth is a liquid, not a solid.” Among the enduring truths I keep bumping into when reporting books or New Yorker pieces where there is the luxury of time to get to know people or institutions, is that their decisions are often – not always, not even most of the time, but often -- made for what are not, strictly speaking, reasons of logic. These can be ascribed to human factors. If we’re talking about government, we have no difficulty attributing many decisions to politics, vanity, pride, greed, testestorone-induced competitiveness. We don’t make the same judgment, however, when we think about business or academia or most any other institution. We should. Earlier in my career, I wrote a three-part series for The New Yorker and later a book, The Underclass. I was reporting on poverty in America, but the more I probed the people stuck at the very bottom of the ladder, the more I learned that those mired in longterm poverty often lacked more than income or a job. They had behavior habits, which conservatives preferred to call pathologies. These traits -- low self-esteem, lack of confidence, crippling anger, a sense of being a victim, not knowing how to behave on a job interview or in certain social situations -- held them back as well. A couple of years
29 later, in the mid eighties, I wrote a book on Lehman Brothers and Wall Street and discovered that the oldest partnership on Wall Street imploded not because it lacked a good business plan or record profits or brilliant bankers. Lehman collapsed because of the greed and egoism and rioting hatred among its partners. John Malone was once the most powerful man in television. He ran the largest cable company in the world, Tele-Communications, Inc. He announced in 1993 that he was selling his company for $33 billion. When I profiled the reclusive Malone for The New Yorker soon after this announcement and persuaded him to allow me to be a fly-onthe-wall at his company, I noticed that the phones in his office rarely rang – except for a red phone in a drawer behind his desk, which rang just before noon and again before 5PM. After each call he rushed out of the office to go home to lunch with his wife, Leslie Malone, and to meet her at the gym in the late afternoon. After watching him for several days, I asked Malone why he agreed to sell his company. The financial logic was there – it was a rich price. He knew he was a political lightning rod in Washington, and a new corporate parent might better stave off government regulations. He surprised me, however, by citing a very human reason as well: Leslie Malone had threatened to leave him if he didn’t spend more time with his family. As if watching a car crash in slow-motion, I saw Bill Gates and Microsoft fail to avert a damaging anti-trust lawsuit. At the trial, the Justice Department introduced 20 hours of taped interviews with Gates, mostly conducted by Justice’s attorney, David Boies. The federal judge, Thomas Penfield Jackson, told me Gates’ deposition was among the most damaging pieces of evidence against Microsoft. What was immediately apparent in watching that deposition was a surly, unprepared Bill Gates snarling at Boies,
30 obviously so angry that his credibility and the honor of the company he had built was being questioned that he was intolerant of any questions. Because Gates could not control his own rage, he came off as thinking he was above the law. Similarly, pride got in the way in the courtroom, when Microsoft would not admit it dominated PC operating systems. Instead of trying to extol the benefits this dominance awarded consumers, it defiantly denied the obvious. Microsoft lost a trial it could have settled at minimal cost – had pride not gotten in the way. Every time we learn of a merger between an AOL and a Time Warner, or a Bank of America and a Merrill Lynch, out spill the business reasons for the merger -- new synergies, new cost-savings, etc. Repeatedly ignored are the human obstacles, particularly the difficulty of merging corporate cultures that are not only very different but often pulsing with resentments. AOL CEO Steve Case induced Time Warner CEO Gerald Levin to merge, both men confirmed, only after Case said he wanted Levin to run the merged company. Levin could not bring the companies together in more than name. The Time Warner folks resented AOL for talking down to them as “old media,” and stayed in their silos. Employees of the Charlotte-based Bank of America were irate with the bonuses paid by Merrill Lynch after their bank saved Merrill from bankruptcy. Sometimes there are equally ignored human factors on the positive side of the ledger. How to measure wisdom, judgment, sensitivity, relationships? Google has performed brilliantly in producing mathematical algorithms and applying engineering to eliminate inefficiencies. And it has been wise in winning the trust of its users, in building a team culture, and in thinking long-term. But when you start from a blanket assumption that the old ways of doing things are probably wrong, you’re bound to make unwise
31 mistakes. Page was unwise to assume Google could immediately digitize all books, just as Google was wrong to assume that it could devise formulas to better sell ads for newspapers and broadcast radio, two efforts it has since abandeoned. Google has not always been wise in avoiding battles, in being insensitive to copyright, or privacy, or the concerns of government. Quoting Aristotle on “practical wisdom,” Barry Schwartz, a Swarthmore College professor who studies the interplay between psychology and economics, delivered one of the most heavily applauded speeches at the February 2009 TED conference. Brin and Page, who usually attend this annual four-day event, did not this year. The hall in Long Beach, California, overflowed with hundreds of their peers and colleagues, including Bill Gates, Jeff Bezos, Marissa Mayer. Standing behind a lecturn in the darkened auditorium, Schwartz said, “At TED, brilliance is rampant. It’s scary. The good news is that you don’t need to be brilliant to be wise. The bad news is that brilliance is not enough. It’s as likely to get you and other people in trouble as anything else. I hope that we all know this.” He offered example after example of smart people making dumb decisions, of rigidly refusing to bend the rules, of teachers and business and government executives following scripts “which spare you from thinking” and represent “a war on wisdom.” A corollary could be that “the wisdom of crowds” can be like relying exclusively on mathematical algorithms. Often they will yield brilliant answers. Sometimes, however, the wisdom of crowds – or algorithms -- may be as dumb as the old familiar ways.
There are no Certitudes:
Today, Google appears impregnable. But a decade ago so did AOL, and so did the combination of AOL Time Warner. “There is nothing about their model that makes them invulnerable,” Clayton Christensen, Harvard business historian and author of the seminal, “The Innovators Dilemma,” told me. “Think IBM. They had a 70 percent market share of mainframe computers. Then the government decided to challenge them. Then the PC emerged.” Seemingly overnight, computing moved from mainframes to PCs. For a long while, Microsoft seemed unstoppable, he said, only to be diverted by government intervention and the emergence of Linux and open-source software. “Lots of companies are successful and are applauded by the financial community,” Christensen said. “Then their stock price stalls because they are no longer surprising investors with their growth. So they strive to grow but forget the principles that made them great – getting into the market quickly, not throwing money at the wrong thing. When you have so much money you become so patient that you wait too long. Again, look at Microsoft. No one can fault them for not investing in growth ideas. But none of these have grown up to be the next Windows.” Maybe, he added, we are now beginning to “see this at Google.” The company has poured money into YouTube and Android and cloud computing, but has yet “to figure out the business model for each.”
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