Google Inc (PDF)

Document Sample
Google Inc (PDF) Powered By Docstoc
					Google Inc.

Google is back on its game. In April 2012, the search giant announced an effective two-for-one
stock split, its first ever, as it recorded higher revenues and earnings for the first quarter of

Net income rose 60 percent to $2.89 billion, or $8.88 a share, compared with $1.8 billion, or
$5.59 a share, in the same quarter a year earlier. The company said revenue rose 24 percent to
$10.65 billion.

The results beat analysts’ expectations. According to First Call, analysts had been expecting
revenue of $8.15 billion. Analysts also focus on the amount advertisers pay for clicks on Google
ads, a metric called cost-per-click, which dropped 12 percent from the quarter a year ago and 6
percent from the fourth quarter. But the number of paid clicks was up 39 percent from the
comparable quarter a year ago and up 7 percent from the fourth quarter of 2011.

Google disappointed in its previous earnings report, for the fourth quarter of 2011. Its biggest
stumble during the 2011 fourth quarter was not in finances but in public relations. The company
rolled out a new privacy policy that let it combine results from across the Google empire to help
it target ads better. In essence, the company said it would construct a profile of users as they
watched YouTube, wrote e-mail and searched for diversion or information. Google called it “a
simpler, more intuitive Google experience.”

Users called it invasive and complained noisily. The company’s arch-rival Microsoft ran mocking
ads. Politicians took notice.

Google’s motto, famously, is “Don’t Be Evil.” An ambitious goal, or at least a cheeky assertion —
and one that is called into question by commentators each time there is another privacy flap.
But Larry Page, who marked his first year as chief executive in April 2012, seemed to up the
stakes when he wrote in a letter to the Google community that “we have always wanted Google
to be a company that is deserving of great love.”

Under Scrutiny of Federal Regulators
During 2012, Google has become the subject of almost constant scrutiny from regulators,
competitors and privacy advocates. In mid-April, the Federal Communications Commission hit
Google with a $25,000 fine for impeding an investigation into its data collection practices.

At the end of April, the Federal Trade Commission escalated its antitrust investigation of Google
by hiring a prominent litigator, sending a strong signal that the agency is prepared to take the
Internet giant to court.

In May, the European Commission warned Google that it must move quickly to change four
business practices or face formal charges for violating European antitrust law. The commission,
after a two-year inquiry, had found that Google might have abused its dominance in Internet
search and advertising, giving its own products an advantage over those of others while
maintaining that it offers a neutral, best-for-the-customer result.

In the U.S., the F.T.C. is examining Google’s immensely powerful and lucrative search
technology, which directs users to hundreds of millions of online and offline destinations every
day. At issue is whether Google abuses its power in the market for Internet search. Google
controls about 66 percent of the United States search market. Microsoft’s Bing accounts for
about 15 percent of Internet searches, with Yahoo gathering 14 percent.

Competitors have said that Google at times adjusts the algorithm that produces its search
results to lower the likelihood that a link to a competitor or a potential competitor for its
products appears near the top of the results.

Agency officials cautioned that no decision had been made about whether to bring a formal case
against Google. But the hiring of Beth A. Wilkinson, a former Justice Department prosecutor
who played a lead role in the conviction of the Oklahoma City bomber Timothy McVeigh,
immediately catapulted the investigation to another level. The F.T.C. has hired outside litigators
only twice in the last decade.

The case has the potential to be the biggest showdown between regulators and Silicon Valley
since the government took on Microsoft 14 years ago.
A spokeswoman for Google declined to comment.

In 2012, Google revealed that the cars it was using to map streets were also sweeping up
sensitive personal information from wireless home networks. In mid-April 2012, the Federal
Communications Commission charged that Google had “deliberately impeded and delayed” an
investigation into the data collection.

The F.C.C. censured Google for obstructing an inquiry into the Street View project, which had
collected Internet communications from potentially millions of unknowing households as
specially equipped cars drove slowly by.

But the investigation, described in an interim report, was left unresolved because a critical
participant, the Google engineer in charge of the project, cited his Fifth Amendment right and
declined to talk. It is unclear who else at Google might have known about the data gathering, or
when they might have known.

Google maintains that the data gathering was unauthorized, according to a person with
knowledge of the matter, but the engineer is maintaining that other people at the company
knew about it. Google was fined $25,000 for obstruction, a penalty it can challenge.

The secret Street View data collection led to inquiries in at least a dozen countries, including
four in the United States alone. But Google has yet to give a complete explanation of why the
data was collected and who at the company knew about it. No regulator in the United States has
ever seen the information that Google’s cars gathered from American citizens.

Google might be one of the coolest and smartest companies of this or any era, but it also upsets
a lot of people — competitors who argue it wields its tremendous weight unfairly, officials who
says it ignores local laws, privacy advocates who think it takes too much from its users.

In May 2012, European antitrust regulators gave the company an ultimatum to change its search
business or face legal consequences. American regulators may not be far behind.
The high-stakes antitrust assault, which will play out in summer 2012 behind closed doors in
Brussels, might be the beginning of a tough time for Google. A similar United States case in the
1990s heralded the comeuppance of Microsoft, the most fearsome tech company of its day.

Google’s Stock Split

Shareholders had long pushed for a stock split to make Google’s shares a bit more affordable,
given that they have been hovering around a whopping $650 each.

The stock split would allow Google to issue a special new class of shares to current shareholders.
The catch: the new class of shares has no voting rights.

The entire stock split is expected to solidify the founders’ control of the company by diminishing
the future voting power of the shareholders.

The decision could be made without a real vote, because Larry Page, Google’s co-founder and
chief executive, along with the company’s other co-founder, Sergey Brin, and the chairman, Eric
E. Schmidt, collectively already control 66 percent of the vote through special Class B shares. But
Google said it will go through the motions of a vote at its annual meeting.

So far, Google’s shareholders have been more focused on the company’s results, which have
been largely positive.

Perhaps it’s not surprising that Google’s shareholders aren’t up in arms, considering that when
Google went public in 2004, the founders made it very clear that, through a dual-class share
structure, they intended to maintain control of the company.

Adding Social Networking to Search

In early January 2012, Google sparked controversy when it made some of the biggest changes
ever to its search results, adding content from its fledgling Google Plus social network. That
includes posts, photos, profiles and conversations from Google Plus that are public or were
shared privately with the person searching. The new feature is called Search Plus Your World.

Google Plus posts that appear in search results are only from people whom Google users have
chosen to follow on Google Plus and who have shared specific items with them or made them
public. But critics said that it violated users’ privacy because when people posted on Google
Plus, they did not know that the posts would show up in search results.

Google settled with the Federal Trade Commission in 2011 over privacy misrepresentations it
made related to Buzz, a social networking tool. It agreed to start a privacy program, submit to
audits and pay a fine for any future misrepresentations. One watchdog group, the Electronic
Privacy Information Center, said that it thought Google Plus violated that agreement.

Privacy Issues

In January 2012, Google said that it would revise its privacy policies and terms of service. Google
billed it as a way to streamline and simplify the privacy practices it employed worldwide across
about 60 different online services, and to introduce greater clarity for users. The new rules take
effect March 1.

To alert users about the changes, Google undertook its biggest notification effort ever by
notifying every Google user in the world via e-mail and a home page announcement.

Google’s new efforts build on changes it made to simplify its privacy policy in 2010. Other
companies, like Facebook, have also tried to shorten their policies, as industry regulators
demand clearer and more concise statements.

On Feb. 28, the French data protection authority said that Google’s new privacy policy appeared
to violate European Union law, raising the stakes in a showdown with the company only days
before it planned to put the new system into effect.
The French privacy agency, the National Commission for Computing and Civil Liberties, said in a
letter to Mr. Page, that the proposed policy was murky in the details of how the company would
use private data. Google and other Internet companies gather personal information in an effort
to build anonymous profiles of users, helping them to sell advertising.

The warning to Google carries potential implications not just for France but also for other
European Union countries, because in this case the French regulator was acting at the request of
an advisory panel to the European Commission, which asked the CNIL to conduct an initial
assessment of the Google privacy changes. Meanwhile, the commission is in the process of
overhauling its privacy rules to bring them into line with the era of the Internet and cloud
computing. The commissioner in charge of privacy, Viviane Reding, has called for streamlined
privacy rules, which currently vary widely across the Union.

The warning to Google over its new policy comes as the company also faces an antitrust
investigation in Brussels, where the European Commission is scrutinizing its dominant position in
Internet search. The privacy policies of individual Google services, especially its StreetView
mapping feature, have also been investigated in a number of E.U. countries.

In addition to issuing warnings, the CNIL has the power to fine companies up to €300,000, or
$400,000, for privacy breaches in France. It can also seek court orders to try to stop companies
from engaging in practices that are deemed to violate data protection laws. Enforcement in
other European countries would be up to individual data protection authorities.

The proposed changes have also attracted scrutiny in the United States, where privacy
advocates have urged Congress to look into the new policy.

A Ruling for Apple May Affect Google

Android is Google’s free, open-source cellphone operating system. While Android was initially
overshadowed by the popular iPhone from Apple, its user numbers are soaring.

On Dec. 19, 2011, the United States International Trade Commission, a federal agency, ruled
that a set of important features commonly found in smartphones are protected by an Apple
patent, a decision that could force changes in how Google’s Android phones function.

HTC, the defendant in the case and a Taiwan-based mobile phone maker using the Android
system, said in a statement after the ruling that it would adapt its features to comply with the
court’s decision.

At the heart of the dispute were the kind of small but convenient features that would cause
many people to complain if they were not in their smartphones. For example, the case involves
the technology that lets you tap your finger once on the touch screen to call a phone number
that is written inside an e-mail or text message. It also involves the technology that allows you
to schedule a calendar appointment, again with a single tap of the finger, for a date mentioned
in an e-mail.

The decision could potentially affect far more phones than those made by HTC because the
underlying target of the suit is Google, creator of the Android system that now powers more
than half of all smartphones sold worldwide.

The ruling was one of the most significant so far in a growing array of closely watched patent
battles being waged around the globe by nearly all of the major players in the mobile industry.
These fights reflect the heated competition among the companies, especially as Android phones
gain market share.

2011: Developments

On Nov. 16, 2011, looking to extend its reach as a hub for entertainment and social networking,
Google introduced a set of music features that include a download store to compete with

The service, Google Music, will sell individual tracks as well as full albums, letting customers
store the files in “cloud” accounts. Through an integration with Google’s nascent social network,
Google+, the company will also let customers share music by offering friends one free chance to
listen to any purchased track.
By offering a music store that has sharing capabilities, Google is directly competing with Apple,
Amazon and Facebook.

Because of Google’s dominance in Internet search and advertising, the company has been the
subject of repeated antitrust inquiries in recent years — in the United States, Europe and Asia.
Antitrust scrutiny has intensified since Google has expanded into new businesses, like
comparison shopping, local business reviews and travel search, where it competes with the
same Web sites it indexes in its search engine.

On Sept. 21, 2011, Google’s chairman, Eric E. Schmidt, testified before a Senate panel about
how Google produces its search results, and whether it favors its own businesses, thwarts
competition and hurts consumers. Google puts consumers first, Mr. Schmidt testified, even if
that means that Web businesses are upset about their search engine rankings. It emphasizes
loyalty, not lock-in, he said, so users can easily switch to another search engine if they want to.
Google uses open-source technology and is more transparent about how its search engine
works than its competitors, he said.

Senator Herb Kohl, a Democrat from Wisconsin and chairman of the panel, said Google’s mission
appears to have changed over the years, as it has acquired companies like Motorola Mobility
and Zagat. Early on, Google’s “goal was to get the user off Google’s home page and on to the
Web sites it lists as soon as possible,” Mr. Kohl said. But critics now say Google favors its own
businesses over others in its search results and other businesses like advertising and mobile.

The hearing, held by the Judiciary Subcommittee on Antitrust, Competition Policy and Consumer
Rights, was not intended as a step in building a case, but to raise policy questions and explore
the arguments on both sides of the antitrust debate about Google, Mr. Kohl said. It is one of
several ongoing inquiries into Google’s behavior, including a broad-reaching investigation by the
Federal Trade Commission.

In August 2011, in a bid to strengthen its mobile business, the company announced a $12.5
billion acquisition of Motorola Mobility, which manufactures phones that run on Google’s
Android software. Android has become an increasingly important platform for Google, as global
smartphone adoption accelerates. But the deal was met with puzzlement from analysts, who
said marrying a tech company that creates phone software for many firms with a troubled
phone manufacturer was fraught with problems. Some expect Google to unload the Motorola
plants and keep the real prize, its 17,000 patents.

Also in August, the company reached a deal on digital books with two French publishers,
agreeing to settle copyright lawsuits in exchange for control over how out-of-print, copyright-
protected works are scanned and sold.

In June 2011, Google took its biggest leap yet onto Facebook’s turf, introducing a social
networking service called the Google+ project — which happens to look very much like
Facebook. The service, which was initially available only to a select group of Google users, lets
people share and discuss status updates, photos and links.

Also in June, the Federal Trade Commission opened an antitrust investigation, focusing on the
heart of Google’s business, the search and advertising systems that account for nearly all of the
company’s $29 billion in annual revenue. In a regulatory filing, Google said it had “received a
subpoena and a notice of civil investigative demand” from the commission.

In April 2011, after an intensive, eight-month investigation, the Justice Department decided that
Google could make its $700 million acquisition of ITA Software, a flight search software maker,
which lets Google build flight search tools. Federal regulators imposed conditions limiting how
Google could use the company’s technology, potentially opening the door to broader antitrust
scrutiny of the search giant’s activities.

In March 2011, the company met a roadblock in its Google Book Search, a planned multibillion-
dollar effort to digitize every book in print. A federal judge in New York rejected the company’s
$125 million class-action settlement with authors and publishers, saying the deal went too far in
granting Google rights to exploit books without permission from copyright owners.

Under New Leadership

In April 2011, Larry Page, a co-founder of Google, took over as chief executive, succeeding Eric E.
Schmidt, the company’s longtime chief. Mr. Schmidt remains executive chairman and serves as
adviser to Mr. Page and Sergey Brin, the other Google co-founder and its president of

Mr. Page, who had served as the company’s president of products, led the company in its early
days but relinquished that role in 2001, when it was still private. He said the new move was an
effort to streamline, saying he was selected as the top decision-maker because of “the pace of
decision-making and the scale of the company.”

The problem was that the company had ballooned so quickly since its founding in 1998 that it
had become sclerotic, at least by the standards of Silicon Valley. A triumvirate of Mr. Page, Mr.
Brin and Mr. Schmidt had to agree before anything could be done. The unwieldy management
and glacial pace of decision-making were particularly noticeable in the Valley, where start-ups
overtake behemoths in months.

As chief executive, Mr. Page is facing challenges on several fronts.

Though Google remains immensely powerful and successful, it is an aging giant that moves a lot
slower than it did when it was a hot start-up. It is losing employees to the new, hotter start-ups,
and is being pushed around by government regulators and competitors like Facebook, Apple
and Amazon, which are all vying for people’s online time. While Google has had success in new
areas like mobile and display advertising, it has struggled to branch out into other businesses
like television.

Borrowing from the playbooks of executives like Steven P. Jobs and Mayor Michael R.
Bloomberg, he has put his personal imprint on the corporate culture, from discouraging
excessive use of e-mail to embracing quick, unilateral decision-making — by him, if need be.

Top-Secret Idea Lab

The future is being imagined at the company’s top-secret lab, called Google X, in an undisclosed
Bay Area location.
At the clandestine lab, Google is tackling a list of 100 shoot-for-the-stars ideas. Among the
dreams being pursued: a refrigerator that could be connected to the Internet, so it could order
groceries when they ran low; a dinner plate that could post what you’re eating to a social
network; a robot that could go to the office while you stay home in your pajamas; or an elevator
to outer space.

Google is so secretive about the lab that many employees do not even know it exists.

Google may turn one of the ideas — the driverless cars that it unleashed on California’s roads
into a new business. Unimpressed by the innovative spirit of Detroit automakers, Google now is
considering manufacturing them in the United States, said a person briefed on the effort.

Even as Google has grown into a major corporation and tech start-ups are biting at its heels, the
lab reflects the company’s ambition to be a place where ground-breaking research and
development are happening, in the tradition of Xerox PARC, which developed the modern
personal computer in the 1970s.

Gaining Ground in the Mobile Market

Google’s leadership role was put into question by the emergence of powerful mobile phones. As
people increasingly relied on phones instead of PCs to access the Web, their surfing habits were
bound to change. What’s more, online advertising could lose its role as the Web’s primary
economic engine.

Google’s acquisition of the software developer Android in 2005 gave the company stronger
access to the mobile phone market. And the company’s $12.5 billion acquisition of Motorola
Mobility Holdings, which manufactures phones that run on Google’s Android software, gives the
company an even greater foothold, as global smartphone adoption accelerates.

The Motorola deal amounted to a huge bet that its future — and the future of big Internet
companies — lies in mobile computing, and an opportunity to aggressively to take on its
archrival Apple in the mobile market.
The acquisition, Google’s largest to date and an all-cash deal, would also put the company in
head-to-head competition with its own business partners, the many phone makers that use
Android software, as well as with Apple.

The deal, which requires regulatory approval, would also give Google a valuable war chest of
more than 17,000 patents that would help it defend Android from a barrage of patent lawsuits.

Google has already shaken up the mobile industry by pushing cellphone carriers to open up their
networks, and by licensing its Android system at no charge, increasing competition. With the
Motorola deal, analysts said, Google may be able to accelerate innovation in smartphones and

Phones running the Android system have become increasingly popular, accounting for 43.4
percent of smartphones sold in the second quarter of 2011, according to Gartner research. But
many customers have complained that the phones — made by 39 separate companies — can be
confusing to use. Apple, by contrast, controls its entire product — device and software. With the
Motorola acquisition, Google, too, could exert greater control over its products.

European Antitrust Inquiry

Google’s powerful position on the Internet has been a particularly sore point in Europe, where
the company controls more than 80 percent of the online search market, compared with about
66 percent in the United States, according to ComScore, a research firm.

In November 2010, Google was the subject of an European antitrust investigation into whether
it has shortchanged its competitors. The European Commission, which oversaw the inquiry,
looked into whether Google may have given its own services “preferential placement” in search
results. In addition to its search engine, Google has a growing number of other online
businesses, including mapping, translation, video and electronic commerce services, many of
which, like the search engine, are supported by advertising.
Google also faced separate antitrust inquiries in Italy, Germany and France. It received criticism
on other matters, including privacy and copyright protection, in a number of European

Censorship in China

As a global force online, Google has been increasingly drawn into global disputes, particularly in

In 2006, the company reached an agreement with the Chinese government that gave it access to
the enormous Chinese market if the company purged its Chinese search results of banned

But in January 2010, Google announced that it would stop cooperating with China’s Internet
censorship and consider shutting down its operations in the country altogether. It cited China-
based cyber attacks on its databases and the e-mail accounts of some users, and China’s
attempts to “limit free speech on the Web,” as the reasons for its decision.

Google’s accusations became a significant source of tension between the United States and
China, leading Secretary of State Hillary Clinton to urge China to conduct a “transparent” inquiry
into the attack. In March 2010, after difficult discussions with the Chinese government, Google
said it would move its mainland Chinese-language Web site and begin rerouting search queries
to its Hong Kong-based site.

The stunning move represented a risky ploy in which Google would have turned its back on the
world’s largest Internet market, with nearly 400 million Web users. But in June 2010, the Beijing
government renewed Google’s license to operate a Web site in mainland China.

The license renewal was a sign that Google, while uncomfortable with censoring its search
results on Beijing’s behalf, was determined to keep a foothold in China.

Google is the world’s most popular Internet search engine. It is a position that has earned
Google huge profits and given it outsize influence over the online world.

As a company, Google aims high. But its ambition far exceeds the confines of Internet search
and advertising. The company sees its mission as the organization of the world’s information,
making it universally accessible and useful.

It has built a powerful network of data centers around the globe in hopes of, among other
things, connecting users instantly with high-resolution satellite pictures of every corner of the
earth and sky; making the entire text of books, in and out of print, available online; and
becoming the leading distributor of online video through YouTube, which it acquired in 2006.

At the same time, Google has taken its advertising system offline, as it tries to capture portions
of large ad markets in television, radio and newspapers. It is investing heavily in mobile phone
technology to replicate its online success in the wireless world.

And it has built an array of online software programs, including e-mail, word processing and
spreadsheets, that it hopes will become the building blocks of a new paradigm of web-based
“cloud’' computing — one that, unlike the Microsoft-dominated PC world, will have Google at its

Google’s unbounded ambition, as well as what many critics say is a cavalier approach to
copyrights, has put the it at odds with a growing list of companies in industries ranging from
Hollywood to book publishing and from telecommunications to e-commerce. And the
company’s appetite for collecting vast amounts of data about its users and their online habits
has prompted increasing fears that Google could become a threat to consumer privacy.

The company continues to dominate in its core business, search advertising. But Google faces
fierce competition from social media sites like Facebook and Twitter. What’s troubling for
Google about Facebook’s growth is that the information exchanged over the social network is
walled off from search engines — and increasingly lucrative territory for ads.
Google also faces competition from Microsoft’s Bing, which handles a small slice of Web
searches in the United States, 12.7 percent, compared with Google’s 62.6 percent. But Bing’s
share has been growing, as has Yahoo’s, while Google’s has been shrinking.

Shared By:
Tags: Google
Description: Google Inc