Google-Plex

A couple of days ago I visited the Google-plex, aka Google's head office. It is based in a place called Mountain View, a quiet little town about an hour south of San Francisco. The impression I got was that there wasn't really much to draw you to the place apart from Google.

It wasn't a business trip. A good friend of mine works for Google-India and she happened to be over visiting colleagues for a few days. It was her first time at the Google-plex too - although she was officially my guide, she seemed to be equally as astounded by much of what we saw as I was.

Upon entering the "campus", as it is affectionately referred to by the "Googlers", the first thing I saw was a 6-a-side game of beach volleyball taking place in the sand pit within the main courtyard. As we walked past and entered one of the main buildings, my guide asked me if I was hungry. Observing the gourmet food on offer, I rapidly began to regret the large fish and chips I had eaten before getting on the train. Never mind, I went for some non-alcoholic wine and a tub of B&J ice cream instead.

As we left the restaurant and began strolling around the buildings, I couldn't help but be struck by how little work was being done. Admittedly it was after six, but it definitely seemed like there were at least 10 people involved in recreational activities - eating, playing volleyball, chess, Go, pool, designing train sets etc. - for every person sitting in front of a terminal.

After having a go on one the Google-peds (blue push bikes with orange flags that Googlers use to get around campus), I decided that I was very impressed by it all, but it was time to try and understand what the actual point of it all is. I asked my guide whether she thought that the success of Google had anything to do with the fantastically generous manner in which the company appears to treat its employees. The purpose of my question was to explore what I saw as the intriguing cause-effect dynamic that was playing itself out in front of my eyes.

Google operates in a "winner-takes-all" industry. In these industries, there are what economists call "increasing returns" and "network effects". The more people who use Google, the more valuable it becomes to advertisers - and they will pay more for the targeted advertising the Google can offer. Meanwhile, as Google's network of advertisers expands, the product potentially becomes more valuable for the users as they will get a more extensive and relevant set of paid advertising links. Therefore, it is only natural that this be a winner-takes-all industry, and one has to ask the question of how much was this down to pure chance, rather than some brilliantly predefined business model. Indeed numerous commentators have pointed out that Google's "pure search" model was very much a case of "right place, right time", with predecessors, such as Alta Vista, failing due to unfortunate events (in the case of Alta Vista it was a parent company that did not see the benefit of pure search - back then everyone was only interested in "portals")

My guide did not take too kindly to my probing and she lodged three objections to my position. The first point was that the founders had not changed philosophy from the day they founded the company - i.e. they had always spent a lot on their employees. Unfortunately this does not really prove anything because it could still just be a coincidence. The second perfectly reasonable point was that the founders do not give a toss anyway about the shareholders. They would rather spend the profits on the employees than on the owners. While there may well be a sizable element of truth to this, it merely confirms the fact that Google is a monopolist because in any other competitive industry such a business model would not survive. A competitor would simply enter the industry and generate superior returns on capital by cutting down cost. The third and final objection was the only one that stands up: according to my guide, Google pays its staff less than major competitors do. The perks are simply a way of making up for this, while at the same time encouraging employees to be happy staying at the office because they have everything they need there. It would be interesting to see if this is actually true, but I am not familiar enough with the relative cost structures for the major players in the US internet-tech industry to know for sure.

Having said all that, criticisms aside, I use Google multiple times a day and I even used Google-map to find directions to the Google-plex. So they must be doing something right...