Google came out with a set of surprisingly good quarterly earnings, accompanied by news of the departure of Eric Schmidt as CEO. The departing CEO did not much impress, if one takes the share price as a guiding factor: the share price rose the day after by a modest 2 percent. What is striking is the parallel with Apple, where the departure of a sick Steve Jobs only caused a small ripple.
And Google is running, just like Apple, at full speed. The sales growth recorded in Q4 2010 was phenomenal, even on a quarterly basis. Now, Q4 is always a strong quarter, but a quarter-on-quarter growth of 16 percent is extremely high. Payments to partner sites showed another positive development, rising a bit less sharply. Other costs did not increase as strongly as sales, as can be seen by the slightly lower margins. On the one hand, this is a pity, because one can hardly see any leverage in the figures; on the other hand, this is understandable because Google launched a number of new activities. The 10 percent salary hike to all staff, to prevent poaching from other internet companies, also played a role.
The strong capex at around USD 2.5 billion was mainly due to the purchase of a huge office building in New York for USD 1.9 billion. Other numbers that stand out: 300,000 smartphones are currently activated with Android; Google has reached 2 million customers with its display ads; and YouTube more than doubled revenues last year. In addition, Google’s cash position, including securities, rose to USD 35.0 billion and the number of employees to 24,400.
The outgoing Eric Schmidt spoke at the last moment with the Harvard Business Review, where he gave his vision of the future. According to him, Google should set three priorities: the development of high speed mobile networks; the development of mobile payments; and the development of low-cost smartphones. The statement may give rise in the near future to speculation. On the fixed market, the company will within a few weeks or months announce concrete plans for connecting up to 500,000 people in the US to FTTH: the Google Fibre project. The company may come out with something similar for the mobile market. It could in this case work with wholesale-only parties such as Allied Fiber (mobile backhaul) and LightSquared (LTE network).
The future mobile plan will have to provide enough of a base for sustained high growth. Google knows indeed how to manage its core business (search and search ads), with the market gains by Microsoft’s Bing taken at the expense of Yahoo! Meanwhile, Google Instant, where search results appear instantly, has proved an effective innovation. Mobile and display also provide for "billion dollar businesses”. The only hiccup remain Google’s “social web”: Facebook and Groupon dominate in areas where Google is hardly present. After the failure, more or less, of many initiatives (Buzz, Wave, Orkut) one could ask whether Google Offers (a kind of Groupon, with daily new offers) will really take off.
And so we come back to Schmidt’s departure. As an explanation, he noted the strategy around China (he wanted to stay, founders Larry Page and Sergey Brin wanted to leave) and the departure of employees to Facebook, as factors that robbed him of energy and focus. And who knows, perhaps other disappointments (the flop of smartphone Nexus One, the setbacks for software product Google TV) pushed him a bit further. But the appointment of Larry Page as CEO also reminds us when co-founder Jerry Yang took over when CEO Terry Semel left at Yahoo! in June 2007. Michael Dell made his entrance at Dell in a similar fashion. Let us hope for Google's sake that Larry does a better job than Jerry and Michael did.
