Google Inc.’s (NASDAQ: GOOG) decision to change CEOs, announced on the same day it reported yet another blockbuster quarter, begs the question of whether the company is trying to fix something that isn’t broken.
Google announced Thursday that Eric Schmidt, who was recruited as CEO in 2001, will hand over that role to co-founder Larry Page in early April.
In addition to running day-to-day operations, Page will continue to lead Google’s product development. Schmidt, as executive chairman, will focus on external initiatives such as visiting customers, meeting with government regulators and negotiating with partners. Google’s other co-founder, Sergey Brin, will focus on “strategic projects,” and especially new products.
The goal is to streamline decision-making, the trio said during a conference call. They stressed that Page is ready to be CEO and that they are happy with their roles in the reorganization, which they said will improve Google’s already solid financial performance, technical innovation and business growth.
They had better be right, or the move could go down as a management blunder of historic proportions.
When Schmidt took over as CEO almost a decade ago, Google was a promising but small, privately held company focused exclusively on Web search and without much of a business model to speak of. It was led by Page and Brin, two brilliant Stanford computer-science graduate students with little executive management experience.
Over the years Schmidt has helped turn Google, which was founded in 1998, into one of the largest, most successful and influential publicly traded companies in the world. His role has often been described as providing “adult supervision” at a company whose young co-founders like to do things in unconventional ways.
“Schmidt has a great track record and has really steered Google to great success,” said Gartner analyst Ray Valdes.
Schmidt, who previously had been Novell CEO and Sun CTO, has been the public face of Google with his calm, relaxed demeanor, while running the company as a “triumvirate” with Page and Brin.
“Having Eric as the front of Google has been tremendous for Google, and there is no doubt that bringing his perspective has been critical for good decision-making at the company,” IDC analyst Al Hilwa said via e-mail.
Some wondered if Page is up to the mammoth task of running such a large, powerful and increasingly diverse company.
“I guess the question is whether being Google CEO is the place to start your executive training. I can say with some assurance that if [Page] went to apply for the CEO job somewhere he wouldn’t get it,” said Allen Weiner, another Gartner analyst.
Valdes wondered if the behind-the-scenes scenario involves Schmidt stepping down voluntarily as a result of fatigue after an intense decade at the helm, and Page taking over on an interim basis until a new, more permanent leader is found.
Analyst and publisher Danny Sullivan at SearchEngineLand.com had a similar thought. “The two cofounders are notoriously difficult to pin down for any event, such as doing major press interviews or conference appearances. Part of Schmidt’s role has been to be the ‘dependable face’ of Google for such things. But being that face can take a toll,” he wrote.
But Google was also overdue for a management change, Sullivan wrote, noting that a decade “may as well be 100 years of Internet time.”
Steve Arnold, an analyst who heads the firm ArnoldIT, faulted Schmidt for leaving Google too dependent on search advertising. “It has not diversified its revenue streams in a meaningful way,” Arnold said. The financial success that Google has enjoyed has been largely due to ad sales, and was probably little influenced by Schmidt, he said.
Arnold also finds fault with Schmidt’s public comments, which have sometimes fuelled existing controversies. And he notes that Google has had problems retaining talented employees, who sometimes leave to go to Facebook and more promising startups.
Consumer Watchdog, an organization that has been critical of Google’s privacy policies and missteps, said it welcomes the CEO change.
“Eric Schmidt has put his foot in his mouth so far on key issues like privacy that he’s kicked himself out of the CEO’s office,” said John M. Simpson, director of Consumer Watchdog’s Inside Google Project, in a statement.
But while Google continues to generate most of its revenue from ads on its search result pages and partner websites, the company has spread its wings during Schmidt’s tenure. It started by complementing its search service with other consumer online services, often rocking established markets, as it did with webmail when it launched Gmail in 2004.
It has also become a key mobile player with its Android platform and with mobile versions of its various services and applications. The company has entered the enterprise software market with Google Apps, and its Chrome browser and operating system could leave it poised to become a provider of a new personal computing platform.
But Schmidt was also at the helm for some controversies Google found itself in over the past decade, including a number of privacy-related fiascos and thorny copyright-ingringement lawsuits from book publishers, media conglomerates and major companies.
A big challenge for Page will be tackling the influence of social media and social-networking sites, namely Facebook and Twitter, which have encroached on Google’s territory both in advertising and distributing online content.
“One of the things missing from Google’s strategy has been the social component,” Gartner’s Weiner said. “I think the ability to move on a major social-networking strategy may come more easily from a younger CEO.” In fact, Google’s struggles with the social Web may have played a part in the CEO switch, he said.
Google also faces tests internationally, especially in high-growth areas like China, India and Russia, where the company’s track record has been mixed, Valdes said.
“Google’s challenges are visible on the horizon and it’s likely that new blood, a new perspective, is needed,” he said.
Whatever happens, IDC’s Hilwa said he hopes Schmidt will continue to participate in major decisions at the company.
“Eric, Larry and Sergey have always effectively acted as a co-CEOs,” he said. “Being able to put their heads together on important decisions has served them well in the past. One would hope that they keep this consultative management style.”
(Additional reporting by Joab Jackson, Marc Ferranti and Robert McMillan.)