The great Google wipeout.

Media criticism.
Nov. 21 2005 7:35 PM

The Great Google Wipeout

Chronicle of a corporate death foretold.

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It wasn't like it had never happened before in the tech world. At the beginning of the 1980s, an Apple computer was the only box a self-respecting user would own. Lotus 1-2-3, WordPerfect, IBM PCs, CompuServe, Nintendo, Netscape, AltaVista, AOL, Dell, the iPod, and Microsoft all held, at one time, what seemed like impregnable positions in their markets. In late 2005, as the price of a share of Google broke $400 and every software, advertising, print, broadband, and entertainment CEO in the country cowered in his executive bathroom sobbing about what the creative destruction crew from Google was doing to his business, the popular search engine seemed invincible.

Oh, some commentators, such as Adam L. Penenberg in Slate, had gone out on a ledge to speculate that the company had peaked. But they were dismissed as deadline johnnies who had to write something contrarian to satisfy their editors. But it wasn't until Knight Ridder Inc.'s largest stockholder, Private Capital Management LP, called for the newspaper chain's breakup that the creative destruction of market forces turned on Google and began its rout. The young company that arrogantly thought it owned the Internet soon learned that its only assets were tens of thousands of computers, terabytes of hard-disk storage, a terrific page-rank algorithm that coughed up pretty accurate searches, billions in the bank, and a dandy logo.

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Private Capital's proposal didn't kill Google, but it signaled the newspaper industry's vulnerability, which in turn set off a chain reaction that did slay the firm. By forcing a sale of the Knight Ridder 32-newspaper chain (Philadelphia Inquirer, San Jose Mercury News, Miami Herald, Kansas City Star, et al.), just as Google had slithered in with Google Base, Private Capital created a panic. Classified ads were a $15-billion-a-year business for daily newspapers, and the conventional wisdom held that the newspaper industry had no way to fight back against Google, let alone earlier interlopers eBay and craigslist.

But then the recently re-Webified Rupert Murdoch of News Corp.—a media revolutionary always a step ahead of his peers—arrived to buy Knight Ridder and the newspaper properties of the stagnating Tribune Company (Los Angeles Times, the Chicago Tribune, Newsday, et al.) and built the national classified database to end all national classified databases. He allowed customers to have classified ads their way: They could get them free or paid and sell the goods or services at set prices or by auction; they could have them displayed in a News Corp. paper, on the News Corp. Web site, on cell phones, and in podcasts, or any combination of the above. He could also send data from his DirecTV platform in space or by using slivers of his conventional TV stations on earth. Pricing was determined by who the customer was, what they were selling, how much they were willing to pay for placement, and whether they wanted to upload a video of the thing they were selling. Google Base stumbled, and eBay acquired the rest of craigslist in a fluster to catch up.

Next, Rupe fused MySpace.com, another savvy acquisition, into the network to expand its reach to the young people who refuse to read the newspaper. Then he rescued the Washington Post, New York Times, Boston Globe, and the Gannett and Hearst chains by inviting their classified pages to join his combine—for free. He hadn't turned altruist in his old age but was acting on the theory that the larger his network, the more valuable the individual pieces. (Murdoch could always come back and buy out the demoralized and starving Grahams, Sulzbergers, and Hearsts with his fabulous profits. He had time. He was a young 77.) He took his classified network international by integrating his London Timesesand his U.K. tabloids as well as his BSkyB satellite TV system, adding his Australian media properties and continental newspapers, too.

Like the Apple iTunes operation only bigger, RupeWeb was a sort of "Club Web." Its content was for members only and invisible to the Web spiders of Google, Yahoo!, MSN, etc. (Some people call this kind of Web the "invisible" or "deep" Web.) Many RupeWeb users started helping themselves to the new search engine he had purchased in his acquisition of Lycos. Capitalizing on plummeting hard-disk prices, faster processors, growing bandwidth, and sleek new algorithms, the RupeGrab search engine ran loops around Google. People didn't even seem to mind that RupeGrab billed its search results as "Fair and Balanced."

RupeWeb immediately put a bite into Google's billions-of-dollars-a-quarter AdSense and AdWords advertising platforms. So did Microsoft and Yahoo! search, which had reached parity with Google. Google had also lost its "don't be evil" cachet ever since founders Sergey and Larry had purchased a Boeing 767-200 and crashed it into Coit Tower while doing barrel rolls over the San Francisco Bay. They survived, but their reputations and that of their company did not.

Then Amazon threw Google a curve it couldn't hit. Google had alienated the entire book-publishing business with its universal book-scanning project, one that paid the publishers in lip service rather than cash. Amazon leveraged this alienation to convince the major New York publishers—including Murdoch's HarperCollins, of course—to make nearly every book in print available via its "Search Inside" feature, which could already be searched in tandem with Amazon's A9 search engine. Giving publishers a cut of the book sales and book rentals obtained through search was an essential part of the deal. The book feature of the A9 search engine made it another Club Web, almost as useful as Murdoch's. Amazon added music lyrics, composers, titles, and artists and extended its IMDb.com database of film and TV artists and film dialogue. It became the dominant online seller of CDs, DVDs, books, and downloadable music, movies, and TV. Information didn't want to be free, Amazon figured out. It just wanted to be sold at a variety of price points, just like feature films were—at the theater, on pay-per-view, on DVD, or free thanks to the largesse of advertisers. The only ones who mourned the passing of iTunes were the deranged iPod people.

Having plunged into too many businesses at once, Google had become distracted. Regulators throttled its local Wi-Fi initiative. Its plan to build out ad-supported computer services—word processors, spreadsheets, databases—for end users had died when Microsoft jumped in first with a superior polished suite. Google, as users of its desktop search had learned, wasn't good at writing client applications. Microsoft, now run by Scott Moore, who had defected back to the company from Yahoo!, continued to trump Google on the desktop and used its know-how and market muscle to write lingua franca search and communications software for all the smart devices, services, and nano-gizmos that people were plugging into the Web: phones, media players, medical monitors, life recorders, cars, houses, ships at sea, personal satellites, and USB-ready newborns as well as the Club Webs belonging to individuals and institutions.

The wheels really came off Google not when it got thrown out of China for accidentally offending the regime, and not when it purchased Time Warner and then sold it for a huge loss, and not when Google TV and Google Phone flamed out. The problem wasn't that the Web wasn't growing. It was growing like a hothouse fungus! Google just couldn't keep up with the zigzagging beast. The final reckoning came when a Wall Street calamity of the highest order struck: Google failed to deliver increased quarterly earnings for the first time in memory. The stock buckled and the firm retreated into Chapter 11.

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