Google CEO Larry Page (Image credit: AFP/Getty Images via @daylife)
Google's earnings have provoked mixed reactions in the major news media - Google’s core search business is under threat, said the New York Times, blow-out sales increase CNET told its readers - but one inescapable conclusion is that times are tougher when users switch from desktop to mobile.
Google's revenues were slightly off expectations. And one of the reasons is the declining value of a mobile ad.
But the analyst and market reaction has been positive, in part because Google CEO Larry Page played up the company's innovations in the earnings' call:
As C.E.O., it’s also superimportant to keep focused on the future. Companies can tend to get comfortable doing what they’ve always done, with a few minor tweaks. It’s only natural to want to work on things you know. But incremental improvement is guaranteed to make you obsolete over time, especially in tech.”
And those innovations are the radical adjacencies that Google shares in common with Amazon.com. Both companies are powering ahead with what I would call a "fluid core". That is, neither allows its initial or current core success to dictate what it does next.
The emphasis yesterday on its innovation projects, Glass and automated vehicles in particular, is new for Google. In the past they have tended to treat these as part of its odd-ball culture and its ability to ride market reaction to what appear to be diversions from the core business.
Now Page is lining them up as a serious part of Google's future. And what is telling about that, is the future looks like hardware.
To be very precise their future has the look of integration - infrastructure, hardware, software, services. But let's stick to hardware for now.
To date, Google, in hardware, has relied on tweaking other people's products - tablets, laptops and phones. But Page made reference to upcoming opportunities in unbreakable displays as well as improved battery life, as opportunities for Motorola Mobility.
However, the new Google Glass is a stand for something distinctly Google (though there are competitor products already on the market).
They need urgently to get momentum behind Glass before the new generation of flexible, unbreakable displays transforms the smartphone sector. And for that reason Glass is going to test Google like nothing before. They have a window of, at best, 18 months.
Analysts reacted to Glass, and the innovation story very positively - contrasting it with Apple's lack of surprises in the locker. But that's because they think Google has a free ride with Glass. It doesn't.
Driverless cars present a different issue. When I talked recently (via email) with ex-BMW chief designer Chris Bangle he was doubtful about driverless vehicles simply because the liability issues it created needed to be resolved before the cars could go on sale.
Rather, he thought, cars that communicate with their environment - for example negotiating with a traffic light or with a parking space - would be as interesting and easier to implement. Google has the wherewithal to do it but seems to be naively pursuing a technology whose time is a decade away when there are gains to be had next year.
A further consideration in hardware is the Google supply chain. In the medium term I believe American companies will have to begin manufacturing again rather than relying on Asian suppliers.
The reason I say this is that manufacturing can now innovate at the speed of software, more or less. There is no longer a 2-5-10 year cycle in product, like there used to be. There is a lot of essential differentiation to be found in the product's design and production process (and in being close to what comes next).
By the way, for all its design glory, the BMW of the 1990s and 2000s had one over-riding advantage. They had access to better metal shaping technology. Without its own investments in manufacturing BMW could not have reaped the design advantage that made it the darling of middle class America (and gave it healthy margins)
In the medium term analysts are going to care about the margins that Google reaps from products and Google is going to care more about how it designs for particular classes of user. To date Google has treated hardware as a gimmick but as it grows its design aesthetic it needs to reap more from these investments.
For all those reasons these are interesting times to watch Google and the testing times ahead for a CEO who has no hardware experience.
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