January 21, 2011 1:16 am

Google restructures to face new challengers

When Google first announced its plans to sell stock to the public in 2004, it promised to be a “different kind of company”.

Now, nearly seven years on, it has taken a big step towards a more conventional management structure, as it prepares for its biggest challenge of the next decade: keeping its position at the forefront of the web’s development as it tries to counter the rise of Facebook and a new generation of Chinese internet groups.

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Eric Schmidt, who will hand over the title of chief executive in April to Larry Page, a co-founder, after a decade at the helm, was clear on Thursday evening about the reason for the management shake-up. Google needed a simpler management structure in order to “speed up decision making”, he said. That could only come with clearer individual roles for its ruling triumvirate, which would bring “clearer responsibility and accountability” to the company.

While resolving a leadership issue that has long been questioned outside the company, the change appeared to have been prompted as much by personal as by corporate considerations, some analysts said.

“It may simply be the founders’ desire to run the company,” said Sandeep Aggarwal, an analyst at Caris – bringing an end to the period when it needed a more experienced manager at the top to instil confidence among investors. There have also been questions about Mr Schmidt’s own longer-term plans, though he has until now always scotched suggestions that he is planning to pursue a political career.

Equally likely, analysts said, was that Google’s leadership shake-up was a response to new pressures it is facing. For instance, with antitrust regulators starting to take a closer look at the company, which accounts for nearly half of all advertising on the internet, Mr Schmidt would be able to devote more time to defending the company in Washington, said Mr Aggarwal.

Google has faced increasing criticism in Silicon Valley for its failure to devise a social networking strategy capable of countering Facebook, prompting increasing questioning of whether it has lost the fast-moving management style and disruptive approach to addressing new markets that characterised its early development.

“I don’t know if it had anything to do with the changes, but there is no question that Facebook represents a threat that they have never faced before,” said Whit Andrews, an analyst at Gartner. While other companies, such as Microsoft and Yahoo, tried to attack Google head-on in the search business, Facebook has found a way to challenge its advertising business while devising a new way to engage its audience, he added.

Along with its abandonment of the domestic Chinese internet market last year, with the shift of its local search service to Hong Kong, the failure to break into social networking has been a “black eye for the company,” said Youssef Squali, an analyst at Jefferies in New York.

Among other issues raised by the management shake-up, the appointment of Mr Page could reopen the question of Google’s role in China, since it was Sergey Brin’s personal lobbying that led the company last year to back out of its local search service there. Mr Brin, who started the company with Mr Page, is to step back, giving up his title of co-president to take on responsibility for “special projects” when the changes take effect in April.

In an interview with the Financial Times, Google’s three top executives flatly denied that the moves had been forced by growing competitive pressures – though Mr Schmidt said that it was designed to prepare the company for challenges ahead, “streamlining decision-making in a complex set of opportunities”.

Google had been through a broader examination of its decision-making processes to see if it could speed up its management, and that had prompted the triumvirate at the top to re-examine their own roles over the recent holiday period, he added.

While a well-known figure in internet circles, Mr Page has in the past been the least outspoken of Google’s leaders. “We know him as a genius of an engineer, but we don’t really know him as a manager,” Mr Squali said.

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