Google depends on economic principles to hone what has become the search engine of choice for more than 60 percent of all Internet surfers, and the company uses auction theory to grease the skids of its own operations. All these calculations require an army of math geeks, algorithms of Ramanujanian complexity, and a sales force more comfortable with whiteboard markers than fairway irons.
Varian tried to understand the process better by applying game theory. “I think I was the first person to do that,” he says. After just a few weeks at Google, he went back to Schmidt. “It’s amazing!” Varian said. “You’ve managed to design an auction perfectly.” To Schmidt, who had been at Google barely a year, this was an incredible relief. “Remember, this was when the company had 200 employees and no cash,” he says. “All of a sudden we realized we were in the auction business.”
Google even uses auctions for internal operations, like allocating servers among its various business units. Since moving a product’s storage and computation to a new data center is disruptive, engineers often put it off. “I suggested we run an auction similar to what the airlines do when they oversell a flight. They keep offering bigger vouchers until enough customers give up their seats,” Varian says. “In our case, we offer more machines in exchange for moving to new servers. One group might do it for 50 new ones, another for 100, and another won’t move unless we give them 300. So we give them to the lowest bidder—they get their extra capacity, and we get computation shifted to the new data center.”
Google continues to make bold moves putting faith in their ability to find innovative solutions that others reject as impossible. It is a challenging but interesting path to success, for them, at least.
Each year Warren Buffett and Charlie Munger answer questions in front of crowds of tens of thousands of Berkshire Hathaway shareholders in Omaha, Nebraska. The question and answer sessions provide great wisdom on economics, investing and management. Here are some of the highlights I have found from the meeting (see more on the Curious Cat Investing and Economic Blog review of the answers)
“Google has a huge new moat,” Munger said. “In fact I’ve probably never seen such a wide moat.” Google’s main business of charging companies when people click on their ads after running an Internet search is “incredible,” the Berkshire chairman said. “I don’t know how to take it away from them,” he added. “Their moat is filled with sharks,” Munger said.
Google hopes the anti-trust regulators don’t see it the same way. And I believe Google sees their moat as easy to loose (and I think they are right). At the same time Buffett and Munger are right. The moat is huge but if Google looses focus they can drain the moat in no time.
2:58 pm: Buffett says his hope for Berkshire Hathaway 20 years from now is that its culture will be maintained, that it will be seen as a place where good managers want to work for the rest of their lives. That and to have the world’s “oldest living managers.” The audience rises for a standing ovation. That concludes the Q&A session.
3:10 pm: After taking a break, Buffett is now conducting the formal business session of the annual meeting. It is totally routine.
3:15: Buffett, Munger and the other directors have been re-elected to the Board and the meeting has been adjourned.
I believe in Google’s past, present and future. They have shown a great ability to ignore the short term focus that dominates (and kills success) of so many companies today. I am happy to invest in Google for the long term.
This current reaction to the economic crisis, is one of many times Google can be seen to be making significant changes to adapt based on market conditions and the results of their experiments and experiences. Google’s management in general and the 3 leaders continue to practice a management style based on an engineering perspective while so many others practice the style Scott Adams has pilloried in the pointy haired boss.
The thought and execution of Page, Brin and Schmidt (and others: Marissa Mayer) is at a different level than that of most other executives. Skepticism is wise. But I believe Google continues to have exceptional execution and focus on long term innovation.
The biggest risk I see, for them, is they become too focused on the short term and lose their ability to take advantage of the great opportunities available by focusing on long term success. Google is in a position where they are not forced to abandon long term plans due to cash flow problems. The only decision for Google should be whether something makes long term sense or not. If they are recalibrating and deciding they were being too lax in certain areas (without long term justification) then I am fine with changes. If though they are reacting to short term market conditions that is a big mistake.
He says the company is “not going to give” an engineer 20 people to work with on certain experimental projects anymore. “When the cycle comes back,” he says, “we will be able to fund his brilliant vision.”
Bad idea, short term thinking. Don’t drive business practices based on short term earning releases. If the idea is not worth 20 people long term fine, don’t do it. If it is, do it. The lack of cash that would force many companies to abandon promising efforts is not an issue for Google. They have plenty of cash and are generating much more every day.
To better predict revenue, the company implemented quotas for ad-sales representatives and tied the pay of more employees to performance
Eric Schmidt speaks at the Management Lab Summit on May 29, 2008 in Half Moon Bay, California. Conversation with Professor Gary Hamel.
“The culture can be thought of as a ship and iterate culture with transparency for what people are doing. And that model scales pretty well.”
“I have two jobs, two roles. The first is to make sure every issue that is important is really debated to find, not the common outcome, but the best decision… second thing is to put pressure to make it happen quick.”
“it [managing better] starts with listening, it has to do with curiosity“
“What is the number 1 goal of the company? It is end user happiness with search. What is the number 2 goal? It’s end user happiness with advertising. What is the number 3 goal? The construction of the Google network of partners to effectuate the first two. What is the number 4 goal? To grow and scale the business… You will eventually get extraordinary returns for your shareholders and maximize advertiser happiness if all those things happen… There are a lot of business executives that get confused on what the goal is and they think that shareholder value is the goal. Shareholder value is a consequence of the goal.”
Google does great things and makes good decisions most often. However a recent move on their part has ended very lamely. As part of what their 10th anniversary celebration they provided a search of the 2001 index (the oldest index they could find to search now). This was extremely cool.
Now if you go to find it so you can try it out you will be disappointed. Search for it on Google you will find a link to Google Search 2001 which gives you a page that says: “The page – www.google.com/search2001.html – does not exist.” Is it amazingly lame that Google took the search down, has it has the first result on searches, and has no explanation on that page of what it was about.
It would be cool for them to leave it up (it was interesting). And I would think they could make a great deal of money showing ads (I can’t remember if they did show ads). But not leaving a page at that address (which was linked to over 95,000 times) explaining what the page did and that it is now offline is very lame. Breaking 95,000 links is bad enough for some pointy haired boss that believes the internet is made up of tubes but for a well run internet company to do that is pitiful.
But really they should explore if it is better to just make it live – maybe it doesn’t but I would certainly want to look into that option. If not, I would put up some interesting results from the experiment (though if the choice is just a 1 hour solution or nothing then just put up a page in 1 hour) and link to commentary about the search and interesting things people found. This would be an interesting task for an intern, or someone else, and could provide an interesting and popular page. but most importantly at least not breaking 95,000 links (plus all those who go to the page from search results pages) is the minimum Google should do.
So proclaimed statistician George Box 30 years ago, and he was right. But what choice did we have? Only models, from cosmological equations to theories of human behavior, seemed to be able to consistently, if imperfectly, explain the world around us. Until now. Today companies like Google, which have grown up in an era of massively abundant data, don’t have to settle for wrong models. Indeed, they don’t have to settle for models at all.
Speaking at the O’Reilly Emerging Technology Conference this past March, Peter Norvig, Google’s research director, offered an update to George Box’s maxim: “All models are wrong, and increasingly you can succeed without them.”
There is now a better way. Petabytes allow us to say: “Correlation is enough.” We can stop looking for models. We can analyze the data without hypotheses about what it might show. We can throw the numbers into the biggest computing clusters the world has ever seen and let statistical algorithms find patterns where science cannot.
see update, below. Norvig was misquoted, he agrees with Box’s maxim
I must say I am not at all convinced that a new method without theory ready to supplant the existing scientific method. Now I can’t find peter Norvig’s exact words online (come on Google – organize all the world’s information for me please). If he said that using massive stores of data to make discoveries in new ways radically changing how we can learn and create useful systems, that I believe. I do enjoy the idea of trying radical new ways of viewing what is possible.
In this talk we will see that a computer might not learn in the same way that a person does, but it can use massive amounts of data to perform selected tasks very well. We will see that a computer can correct spelling mistakes, translate from Arabic to English, and recognize celebrity faces about as well as an average human—and can do it all by learning from examples rather than by relying on programming.
I did not really expect it, but the next day I got a call from Jeffrey Korn at Google California. He explained that he was the one responsible for building the Google Bookmarks and Google Web History tools. The problem with my extension was something I hadn’t imagined: a scaling problem. Hehe, Google had scaling problems :-).
The gBrain extension creates a lot of bookmarks. Several thousands a month. And the Google bookmarks system was never made with this amount in mind. What made things worse (and I didn’t knew that), the bookmarks are connected to the normal web search. Whenever you use the web search, it checks it against your Google bookmarks. You can easily imagine what problems can come up when you have a several 10 or even 100 thousands of bookmarks…
Jeffery also made a few suggestions how the extension could be changed to make use of their Web history service instead of the bookmarks system. This would avoid the scaling problems. I may consider it some day.
But why am I telling this? Because I’m amazed how Google handled this. Instead of just blocking my extension at their side, or sending me a cease and desist letter they contacted me and asked.
Good for Google. I do find it a bit funny they had a lawyer contact the guy but still Google’s reaction was much better than most companies would be. Companies like Google, Amazon, Lego, New York Times are taking advantage of technology to leverage community efforts to improve the value of their service to customers. This is an important innovation management needs to acknowledge and manage. Or you can be like the poorly managed journal publishers or music industry that are destroying their organizations futures.
W. Edwards Deming’s work on quality, while widely misinterpreted and misapplied in the USA, was nonetheless a watershed that Japanese companies, especially Toyota, took to heart…
Below are Deming’s 14 points accompanied by commentary related to software development.
Design quality in, don’t use inspection to find errors. Mistake proof the system.
… In a fearful environment, workers do not operate in the organization’s best interest; instead their energies are by necessity focused on self-protection.
Mistakes typically come from bad systems not bad workers. Don’t exhort people to work harder or smarter; instead create a more intelligent workflow and system tailored tot he essential nature of software development as human collaboration (not just coordination) such that people can excel.
A good read. Also a good blog on management improvement ideas and software development (though not very active). See my Deming on Management resource where I try to explain what Dr. Deming actually said and meant and dispel some misconceptions.
An interesting series of posts on Google NYC, Top Google engineer talks to NYC software industry [the broken link was removed]:
Google NYC is not a specialized engineering operation, its 300 engineers work in teams of three on the full gamut of Google products and services. Currently, Google NYC engineers are working on about 100 different projects.
Of Google’s 8000 employees worldwide, approximately half are engineers. Warren stressed that Google pro-actively seeks to keep an engineering-centric culture and does all in its power to avoid undue influences from the likes of biz dev, VC and marketing folks.
Google Engineering: The REAL story [the broken link was removed]
The Google agile development process begins with “upfront ideation,” Rechis said, and “story creation” follows. Once “stories are in place,” a highly managed “weekly sprint” development cycle is set in motion, with multi-functional teams working to meet supervised deadlines. Development teams typically are comprised of a Project Manager, a User Experience Engineer and a Technology Lead prioritizing workflow. Project schedules are set and reviewed for compliance in regular and frequent team meetings:
Engineer finishes task, Produces build for User Experience approval, Engineer releases into build, Build QA’d. Build stage for release…
The Google “weekly sprint” methodology enables flexible iteration integrating user feedback during the development process, Rechis indicated. As is the Google rule, he concluded, “focus on the user and all else will follow.”
Computer Science 101: A Case Study In Google Applications [the broken link was removed]:
Sannier plans to shut down the university’s own e-mail servers later this spring. When that happens, thousands more will move over. The portal provides access to other functions of Google Apps, including calendar (which users can now share online, something they couldn’t do before), instant messaging, and search. Within the next two months, Sannier expects to offer personalized home pages and Google’s Docs & Spreadsheets applications combo.
The cost to ASU: zero. The university had been spending a half-million dollars a year on servers and storage for its open source e-mail system, including administrative support costs. More important is the faster pace of innovation. “Now we’re on Google’s development curve, not ours,” Sannier says.
Google’s efforts with Google Apps have fairly quietly become quite significant. I find gmail excellent (and Google talk and Google calendar are good but hopefully will be improved significantly). I must say I find Open Office very good and so don’t quite see the value in Google docs but maybe I am missing something (for those few documents that benefit from collaboration Google’s model sounds interesting – though a wiki seem like the best option in that case). Seems very possible Google Apps are an example of Clayton Christensen’s concept of disruptive innovation.