The Google Business Model

NPR's Mary Louise Kelly talks to Ken Auletta, the author of Googled, for a look at the business of how Google plans and funds its ambitious new initiatives.

MARY LOUISE KELLY, host:

For more now on Google and its efforts to branch out beyond its core search engine business, we're joined by Ken Auletta. He's author of the book "Googled."

And Ken Auletta, we just heard about Google's investment in wind energy there. We heard last week about their work in artificial intelligence - allowing a car to drive itself. They're developing Google.tv - all kinds of projects. Why is Google so eager to jump into areas far beyond its core business of Web search?

Mr. KEN AULETTA (Writer, New Yorker Magazine; Author, "Googled: The End of the World As We Know It"): Because they've done that for many years now. They began when they were Stanford students in the mid-'90s saying that their aim was to change the world.

They started in 1998 as a search engine, and within three or four years, they were calling themselves a media company. And now they're back to really emphasizing changing the world. And they start with an attitude that engineers can figure out more efficient ways of doing things and better ways of doing things. So it applied to search - there were search engines before Google, but they figured they'd do a better search. And then it applied to YouTube, it applied to advertising, it applied to phones, and now it's applying to the environment.

KELLY: So let's take this case we're talking about today with wind energy off the coast of the mid-Atlantic. They talk about how they want to do something good for the environment. I'm sure that there's a calculation that this could provide a solid financial return.

Mr. AULETTA: Oh, no - they're trying to make money. And they do very well at making money. So far, however, they've not figured out how to make money on more than Google search, so they're desperately searching for those other engines of growth, and this is just one of many.

KELLY: Is Google motivated in this particular case at least a tiny bit by the fact that Google uses massive amounts of energy powering its servers? It's certainly in their interests to find new sources to meet its own demand for energy.

Mr. AULETTA: No question. And they, by the way, long before the wind, they've been working at trying to figure out how to do energy more cheaply.

KELLY: How profitable have any of these, I don't know what to call them, side ventures - have all of these projects been that are outside of their core business?

Mr. AULETTA: You see, one of the things that's intriguing about Google, they are long term players. When they went public in 2004, they announced to the public in the letter from the founders that we will invent in things that may not pay off, in fact that may lose many hundreds of millions of dollars or more. But we're playing for long term, and if you don't want to invest in our company, don't do it. But that's what we're going to do with your shareholder money.

And they've been doing that. So they're betting that wind and the environmental investments, or the robotic cars - which are also an environmental investment, I might add - that those things - or YouTube or Android telephones, all those things will pay off at some point. And by the way, there's a good chance they will. But they will not be judged by short term, Wall-Street-like quarterly considerations.

KELLY: And are they able to afford to do that because the core business is still immensely profitable?

Mr. AULETTA: Well, they make about $5 billion a year in profits, so yes, they can. They can do that. Their profit margins are very high. And they are noted for pouring back resources into investment. The kind of things, actually, we criticize the American government - state and local and federal - for not doing.

KELLY: For not doing enough of. I read and was interested to learn, actually, that Google actually pays its engineers to spend something like 20 percent of their time working on project that are apart from their core tasks.

Mr. AULETTA: Every engineer - and 50 percent of the 20,000 employees are engineers at Google - gets a day a week, or 20 percent of their time, to work on any project of their choice. And many of the innovations that Google has done and created come out of that 20 percent time. It's actually a way to incubate entrepreneurship into the company, and I think they've been pretty successful at it.

KELLY: We're talking about obviously a very ambitious company. What is their weakness, as you look ahead and they try to position themselves in the market?

Mr. AULETTA: They have a number of problems, potentially. One: engineers tend to be very good at things they can measure. They're not very good at things they can't measure, like fear, why people might fear Google. What would you fear them for? You fear them for their size. You'd fear them for what are they going to do with that private information they collect on individuals, and you fear them because what are they going to do without copyrights? Well, who gave them the right to say you can digitize my book, or any book ever published without permission of the authors and the publishers?

And in fact, Google did that, and they were slapped with a lawsuit by the publishers and the Authors Guild, and they wound up relenting and agreeing to pay $125 million to support copyright. But they - so those are problems they have. They are not very sophisticated in understanding why people would fear them, or why what they view as efficient may to someone else be an arrogant exercise of power.

KELLY: Okay. Thanks very much.

Mr. AULETTA: My pleasure.

KELLY: That's Ken Auletta. He's media writer at the New Yorker and author of the book "Googled."

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