Is Google facing the beginning of the end?

I recently read an interesting post evidently written by a Microsoft employee who had left that company to join Google (NASDAQ: GOOG) and then returned after finding the grass wasn’t so green on the other side of the fence. Google is well-recognized for providing one of the best working environments in the world, but like many companies that have been similarly revered, they appear to be systematically killing it, according to this post. This all sounded very familiar, and in Google I see the repeat of catastrophic mistakes made by IBM, Apple, Microsoft, Netscape, Sun and Yahoo.

Of this group, Microsoft survived, IBM has nearly recovered, and Apple actually eventually became greater than it had ever been, suggesting the pattern need not be terminal. But Sun, Netscape and likely Yahoo illustrate that it certainly can be the end of a once successful firm. Let’s look back on how Google’s inability to learn from the mistakes of others is setting the stage for its failure.

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I could have written a blog entry similar to the post describing how Google lost its way several times in my own career. It tells the very sad story of a company that started out founded on fairy dust and dreams that has suddenly had to face the twin realities of losing its focus and being rendered obsolete by Facebook. What is interesting is the writer, James Whittaker, left and then returned to Microsoft. I imagine this was because Microsoft is in a steady state, while Google is in transition and transitions, particularly when they come at the expense of cherished entitlements, are incredibly painful and demotivating.

Whittaker also tells the story of a company that has lost its way in a desperate need to be seen as successful, one that misinterpreted Steve Jobs’ advice about focus and simplicity. Google is simplifying and focusing on people, which is consistent with the Jobs’ counsel, but the company appears to have skipped the part about deciding what they are good at and focusing on that. Google still seems to be chasing Microsoft, Apple, or in this post, Facebook. This last elusive target has been a recurring theme and one that has contributed to the crippling of a lot of great companies.

IBM Now Is Focused

When I first ran into this problem it was as an internal analyst at IBM. The company owned the tech market and was actually operating under what we now know as a SaaS model. In fact, it was arguably even more advanced, in that everything was pretty much a service. Corporate leaders saw the personal computer emerge and viewed Apple as a threat. They responded by creating the IBM PC and partnering with Microsoft as a block to Apple, and then they saw Sun come up and decided to sacrifice the mainframe on the altar of client-server computing. Next, they identified Microsoft as a threat and decided to do outsourced software with OS/2.

Each attempt to become another company further weakened IBM to a point where the firm almost failed. Now that IBM has shifted gears and is focusing on being the best IBM it can be, the company doesn’t appear to be trying to be Google or Facebook and shared are trading higher than they have ever traded.

Microsoft Still Faces Challenges

Next on the list is Microsoft, whose success was tied to outsourcing software. Hardware engineers have never really understood software, and Microsoft’s big idea was to provide an outsourced service. They first did this with Apple and then IBM, and Office and Windows eventually resulted. However, IBM became concerned that it was being eclipsed by Microsoft, and the two companies went to war. Microsoft began to sell to corporations directly.

Next, Microsoft saw AOL as a threat and created MSN but missed the Web and Netscape ambushed them. In the process, Microsoft lost focus on OEMs and users. They began to worry that Sony was planning to turn the PlayStation into a PC and built the Xbox, which further alienated OEMs and pretty much killed the PC gaming business.

Finally, Google arrived and Microsoft spent billions trying to be a better Google. But Microsoft didn’t seem to get Google’s core model and the once-unstoppable outsourced software model is no longer unstoppable. Microsoft continues but the OEMs that initially made the company unbeatable are now also using Google, and Microsoft has been eclipsed in cellphones and tablets.

Apple, Once Near Death, Stronger Than Ever

Apple, which started as the consumer PC company, was initially eclipsed by Commodore, which better focused on the consumer early on, but then died trying to be a better business computer provider. After losing Jobs, Apple seemed to get lost in first trying to be Compaq, Sony/HP, and then Microsoft. The company massively expanded its hardware lines, jumped into cameras, printers and hand-held computers, and then ventured into outsourced software by licensing the MacOS.

Apple was months away from going under when Jobs came back. He refocused the company on the consumer PC business and then, anticipating that PC growth was slowing and recognizing that catching Microsoft from behind wasn’t going to work, moved into entertainment. The renewed narrow focus on consumers and excellence allowed this company to recreate itself in its own image. Apple is the only firm that actually emerged stronger than its prior peak after losing its way.

Netscape Mistakenly Blamed Microsoft

Netscape was the first poster child for forgetting what it was about. Netscape was the Internet, and when people initially went to the Web virtually all of them used a Netscape product. But Netscape couldn’t figure out how to do what Google would eventually do and properly monetize the Web, and instead the company decided to focus on displacing Microsoft.

This effort to upend Microsoft has been at the core of billions of dollars in wasted spending by more companies in the last three decades than any other failed strategy and it cuts across virtually all of these vendors. What is fascinating is that when you talk to an ex-Netscape executive he will often argue they were put out of business by Microsoft, which, in a similar fight with Google, has been fairly unsuccessful. I reviewed the evidence out of the Justice Department trial, and while Microsoft clearly mis-acted, the company was hapless in its fight with Netscape. Each major failure tracked back to a decision made by a Netscape executive largely connected to something that had nothing to do with its Internet dominance.

Sun Set on Sun as It Tried to Be Microsoft

Sun had a similar effect on IBM as Google has had on Microsoft. The company was largely responsible for causing IBM to forget its successful model and break the formula. But Sun got fixated on Microsoft, so much so that it crafted a strategy that commoditized the industry even though Sun couldn’t survive in a commoditized market. Sun caused Microsoft a significant amount of damage but, in the process, effectively went out of business.

Sun’s was one of the most catastrophic examples of a company forgetting what it was and excessively focusing on another company’s model. In reality, Sun should have realized that it wasn’t a direct competitor for Microsoft and identified its primary rivals as companies like IBM, HP and, increasingly, Dell. Sun was at war with the outsourced model that Microsoft represented, but rather than following the path of Apple and tightly focusing on complete solutions and owning the solution, Sun tried to become Microsoft and stalled mid-transition.

Yahoo – The Saddest Story of Them All

Perhaps the saddest company in this group is Yahoo. Yahoo owned social networking before we knew to call it social networking. Even sadder was that AOL and Compuserve (which merged) owned it before Yahoo. Yahoo became entranced by Google, in which the company held a massive investment. But instead of leveraging the partnership and recognizing that Yahoo was actually closer to the goal of providing high-value advertising information than Google was (given a tighter customer engagement), company executives went after the shiny object apart from Google and chased search.

It is ironic that Facebook is now the greatest threat to Google, and neither Microsoft nor Yahoo has been much more than a prod that kept Google focused on search. In fact, I’ll argue that if both had avoided search, Google would have both become regulated as an obvious monopoly and vulnerable to technology advancements it would have missed. In fact, taking a lesson from Netscape’s mistakes, it is likely that if Yahoo and Microsoft had both stayed within their respective areas of competence, Google would have broken on both companies — Yahoo on ad revenue and Microsoft on platforms and software. Now Yahoo has fully lost its way and is forced to sue Facebook for technology that it no longer actually uses. Now, instead of being the dominant social networking vendor, the company is kind of a pathetic example of what happens when you forget who you are.

Google In Denial, Edging Towards Evil

Google is in the ad business, yet it seems to be in some kind of extended denial. All of its focus should be on finding ways to make ads on the Internet more valuable and being the primary source for managing ad revenue for everyone. Its winning formula was monetizing the Web, which is actually a super set of ads, but it is clear, institutionally, that Google is in denial about the real source of its success.

Google should have worked to line up Microsoft and Facebook as partners, not competitors. Judging by the blog by the former Google employee that started us out, Google seems to be shifting from trying to be Microsoft to trying to be Facebook, and failing just as badly. What is particularly sad is that Google appeared to come to market with the idea of being an anti-Microsoft, with the implied perception that the software giant was evil. Today, if you search on both companies, you’ll likely find more references over the last five years to Google doing evil than Microsoft. It suggests that in the best universities (and Google hires from the best) they simply don’t teach much history and appear instead to focus on badmouthing whoever is in power, which indicates that the next generation is likely to come out of school wanting to kill Google, much like Google’s generation, came out wanting to kill Microsoft, and Microsoft’s generation entered the job market wanting to displace IBM.

Can Facebook Avoid Mistakes?

Given this trend, Facebook would seem in line as the next company to make the mistake of forgetting who it is and focusing excessively on another company. Pinterest has begun to emerge as a challenger to the crown, and while Pinterest is in Facebook’s space, it would be foolish to try to be a better Pinterest if it meant abandoning anything that Facebook is acknowledged as doing well. For now, there is no indication that Facebook is making this mistake, but given the history of other firms, it is easy to imagine that it eventually will, whether it goes after Pinterest or some other company.

The 3 Easy Steps to Kill a Company

There appears to be a well-defined path to kill a successful company. It starts from inside with either forgetting or not understanding the formula that created the success in the first place. It follows with an excessive focus on a competitor, which causes the company to compete with that new competitor on its home turf. And it concludes with a series of poorly executed and increasingly panicked efforts to become the company that so frightens them.

Conversely, there are three easy steps to assure success. Know your formula for success and protect it. Focus on the goal — the customer — not the competitor. And look where the market is going and get there first, which typically means you need to drive the market to that goal because psychic CEOs don’t seem to exist. IBM and Apple represent both what can happen when executives lose their way and, more recently, they are the benchmark for how to compete in a changing market. It would be wise for current executives, particularly those at Google, to step back and decide if they want to be the next IBM or Apple, or the next Netscape or Yahoo. I know which side of this I’d rather be, yet I continue to be surprised at the number of executives who are executing strategies that put them on the unsuccessful path.

What is the old saying? Those who fail to learn from history are doomed to repeat it? It would seem that, unless something changes, this could become Google’s epitaph. At the core of this pattern are the concepts of confirmation bias, the notion that we favor reasoning that confirms our beliefs, and argumentative theory, a framework for explaining why reasoning so often results in irrational decisions. Once you understand these, you can explain why executives make these same mistakes, over and over again.

Rob is president and principal analyst of the Enderle Group. Previously, he was the Senior Research Fellow for Forrester Research and the Giga Information Group. Prior to that he worked for IBM and held positions in Internal Audit, Competitive Analysis, Marketing, Finance, and Security. Currently, Rob writes on emerging technology, security, and Linux for a wide variety of publications and appears on national news TV shows that include CNBC, FOX, Bloomberg and NPR.

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