Google deals sow confusion

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October 11, 2006|By New York Times News Service

SAN FRANCISCO -- Google has made it a point to promote a culture of small engineering teams given free time to create new products - a strategy that it has argued will make the company more innovative than other top-down organizations.

But beginning well before its initial public offering in 2004, Google has not shied away from buying rather than building. It has made more than 15 major acquisitions in areas as diverse as blogging, personalized search, satellite imagery, image management, and cellular phone technology.

And, having pieced together a rapidly multiplying set of products, Google's leaders have a new concern. Call it Google sprawl.

Only last week, the founders, Sergey Brin and Larry Page, and the chairman and chief executive, Eric E. Schmidt, spoke of their concern that the growing collection was confusing users.

They noted that new products not found on Google's famously spare home page, but one level down, draw far less attention and traffic than they would like.

The answer, they stated, will increasingly be to fold new services and products into existing applications as additional features. But that approach will be put to the test - indeed, may even conflict - with its largest deal yet, the $1.65 billion acquisition of YouTube.

The deal presented Google with a dilemma: integrate YouTube into Google, and risk losing one of the hottest brands on the Internet - or leave YouTube independent, and risk diluting its own powerful brand.

For now, anyway, Google says YouTube will remain independent, retaining a "distinct brand identity" and complementing its own existing video business, Google Video.

But while the company described Google Video on Monday as "fast growing," it has had trouble getting traction among Web video services, trailing far behind YouTube and MySpace. And one reason may be that it is just one of many offerings housed underneath the Google roof.

At a briefing for journalists Thursday, Google's executives said the biggest risk to the company is the loss of the simplicity that was crucial to building the company's brand.

"One of the things that is going to have to happen is simplicity," Brin said. "It's one of the reasons that people gravitated to Google initially."

For all of Google's innovations and additions - such as Google Earth, the satellite-mapping service that grew out of an acquisition, or Google Finance, its home-grown financial news site - it is still its search engine that drives the overwhelming share of its use.

According to Alexa, a Web information company, 72 percent of those who use do so to search from its home page. An additional 10 percent use it for e-mail and 8 percent for its Web-based image search. Video has been a straggler, at 3 percent.

That helps explain the motivation for a YouTube deal. But with the stable of talent that Google has built, why not develop its own YouTube?

Its engineering teams have, after all, created services, including Google Calendar, Mail and Spreadsheet as well as language translation technology built into Google's search engine. More than a dozen services - including Google Video, Google Maps and Google Desktop Search - have come from the company's advanced research arm, Google Labs.

But those creations are complemented, if not overshadowed, by its acquisitions. Still, with the exception of Google Earth, none have become an unqualified success or market leader.

Moreover, with the exception of advertising-related technology acquisitions, Google has yet to develop significant revenue streams from its acquisitions.

Its Picasa image-management program allows users to purchase photo prints, and the company sells a commercial version of Google Earth for $400, but neither of those are particularly successful businesses yet.

YouTube is different from Google's previous acquisitions not because it has a proven business model - it does not - but because it comes with an established audience.

Google executives generally answer questions about acquisitions by saying that the company is still experimenting with business plans, or by arguing that a program like Sketch-Up - a simple computer-aided design program - will have an indirect revenue impact by making the entire Google service more valuable.

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