Happy Birthday - Google Versus the Bears - Googled: The End of the World as We Know It (2010)

Googled: The End of the World as We Know It

PART THREE Google Versus the Bears

CHAPTER FOURTEEN Happy Birthday

(2008-2009)

In September 2008, Google was ten years old, which in Internet years virtually qualifies it for senior citizenship. Yet the company did not slow down and move on “little cat feet.” Announcements of fresh initiatives kept rolling out.

In the second half of the year, it was announced that the Google Content Network would employ its AdSense program to identify video-hosting Web sites and sell syndicated programs to them. The first show was a new animation series, Cartoon Cavalcade of Comedy, created by Seth MacFarlane, whose credits include Family Guy, a hit comedy show on Fox. There was Google Ad Planner, which provides advertisers with digital data free of charge to identify the Web sites their desired audience visits. There was the exchange of employees between Google and Procter & Gamble, with P&G saying it hoped to better understand how its present and future customers use the Internet and Google not saying that it hoped to snare a bigger slice of P&G’s $8.7 billion ad budget.

There was Google Maps for transit, an online navigation tool to allow riders to figure out subway routes in New York City and other metropolitan areas, and an announcement that Google News would pay to digitize newspaper archives, place ads next to the search results, and share any revenues with the publications. There was a new partnership with General Electric to improve the efficiency of the electric grid; new investments were made in renewable energy that would be cheaper, and cleaner, than coal.

Larry Page, usually parsimonious with his public appearances, mounted a campaign of speeches to persuade the FCC to set aside an unused block of the radio spectrum (known as white space) for wireless devices, including Wi-Fi and other high-speed wireless connections to the Internet. Broadcasters and Broadway theater owners protested that the use of that spectrum by these devices might interfere with broadcast signals and wireless microphones in theaters. The FCC voted 5 to 0 to open the spectrum. Google launched Knol, a searchable user-edited encyclopedia, to compete with Wikipedia; Google strayed still deeper into content by signing up Michael Davies, creator of Who Wants to Be a Millionaire, to produce an entertainment-news show called Poptub, to be distributed on YouTube and the Google Content Network.

David Calhoun of Nielsen said Google could no longer claim to be a digital Switzerland. “YouTube crossed the line by a mile. YouTube’s audience competes with other content.” If Google hopes to sell display advertising, as it does on YouTube, Terry Semel believes it will have to own content. User-generated content on YouTube “does not feel safe” to advertisers, he reasoned, and to lure ads Google will need to own attractive content in order to attract advertisers.

Eric Schmidt, when asked if Google had gone into the content business, split hairs, saying that YouTube and the Google Content Network were merely “hosts” of the content, “not authors.” This is akin to saying that ABC merely “hosts” the programs it chooses to pay for and air. Schmidt’s distinction ignores another salient fact: the more traffic his sites generate, the more data Google gets, and the more dollars it receives for its ads.

And what about Knol?

“Knol is an example of something right on the edge,” he conceded. (Not that Knol, which debuted in July 2008, posed a serious threat to Wikipedia. By the following January, it had just a hundred thousand entries and had relatively few page views.)

With all these new initiatives, the opportunity Schmidt was most excited about in late 2008 was cloud computing. It was an idea that had animated him since his days at Sun, when he promoted what was called “the network is the computer.” Now, he said, the shift from the PC to the Web was “the defining technological shift of our generation.” The excess capacity of Google’s data centers, and the variety of applications the company had developed—Gmail; Google Earth; Google Maps; Google Scholar; Google Finance; Google Product Search; Google Calendar; Google Desktop to search all text on a personal computer; Google Docs to do all word processing, spreadsheets, and presentations—offered Google enormous growth opportunities. “Eventually, this will be a very large source of revenue for our company,” he said, citing a professor in Africa who had told him his schools had no textbooks but as a substitute they used Google search. He was aware that South Korea, which has the world’s highest broadband penetration, was already eliminating textbooks and downloading books to laptops.

A Google-invented browser, dubbed Chrome, would provide access to all the applications. Because Google is not in the packaged software business, all of its applications live in the browser. With billions of people around the world on the Internet, increasingly a browser will become their operating system, the host for all applications. “Everything we do is running on the Web platform,” Page told reporters on the day Chrome was announced. “It’s very important to us that that works well.” When Brin, who arrived at the press conference wearing bright red Crocs, was asked whether Chrome was aimed at Microsoft, he said: “We don’t spend our time thinking about Microsoft.” In truth, Google couldn’t abide being dependent on Microsoft’s Internet Explorer, which then had a 72 percent browser market share. Schmidt described Chrome as “the most important product” Google launched in 2008. “The reason is that the browser, like our proposed Yahoo deal, has a defensive as well as an offensive component.” Defensively, he said Internet Explorer’s dominant position “allows Microsoft to make arbitrary extensions to the browser and close off the Internet”; Chrome would help Google defend against such a move. The offense comes from speed and flexibility. Schmidt maintains that Chrome is faster and, as an open-source browser, will encourage developers to compete to produce innovative applications. Chrome also grants Google “a platform on which to build better apps” and “to collect more data.” The data is important, for browsers produce the cookies that track what users do online. Despite its importance to Schmidt, by mid- 2009, the Chrome browser was still not available to Mac or Linux users.

Google introduced another major product—Android—in 2008. First announced in late 2007, Android was Google’s free, open-source operating system for smart phones. It promised new profits, and new conflicts. With three times as many mobile devices in the world as PCs, Google had ample incentive to jump into this market. They did not fail to notice when Steve Jobs stood up at Macworld in January 2008 and said that four million iPhones had been sold in the United States in the first six months, giving Apple a market share of 19 percent. Since the first 3G phones were sold in July 2008, over the next five months a total of nearly ten thousand applications—among them games and travel and book and finance and social network sites—had appeared for the phone, three quarters of them available to users only for a fee. Every day, Americans send 1.6 billion text messages on their mobile phones, and 10 percent of Verizon’s customers have replaced their wired telephone with a mobile phone, a number that CEO Ivan Seidenberg predicted would soon double. Because his customers use so many more services on a mobile device, including text messages and Internet access, the average monthly Verizon wireless bill is fifty-two dollars, about fifteen dollars more than the average landline bill. In the United States, AT&T and Verizon were each ringing up revenues of more than a hundred billion dollars in 2008.

If the Android phone (as with Microsoft’s Cashback, geeks are not always deft with names) sells well, Google will have some leverage over the telephone companies that sell the hardware and control distribution. And it would ensure that Google’s applications, including text and voice search, would be featured. The Android also opens up new frontiers for search; as Brin noted in the spring of 2009, “almost a third of all Google searches in Japan are coming from mobile devices.” Smart phones will yield more data for Google. And they will allow Google to explore ads or services on these devices to generate revenues.

Schmidt, however, was dubious about how Google would monetize Android: “I would love to argue that mobile is the next business for us. I’m not sure it is.” Among the reasons for his caution were that neither of the dominant phone companies was eager to jump into bed with Google. AT&T already had a deal with Apple, and Verizon was standoffish. “We’re watching it,” said Verizon’s Ivan Seidenberg, who added, “We said we’d be willing to consider something like that”—an open-source Android—but he said he was worried more about maintaining the quality of the Verizon system. “We want an open network where we can ensure quality,” he said.

“Google’s vision of Android is Microsoft’s vision of owning the operating system in every PC,” Seidenberg said. “Guys like me want to make sure that there is a distribution of platforms and devices. Is it in Google’s interest to disintermediate us? Yeah.” He let his voice trail off, not wanting to engage in verbal warfare. But he said his job is to “make sure we are never out-positioned,” never a “captive.” Neither Seidenberg’s power nor Schmidt’s skepticism deterred Google from plunging ahead. (In late 2008, T-Mobile ordered two million units in the hope that its Google-powered smart phone could rival iPhone.)

If mobile’s growth prospects are clear, the data questions are not. Do companies have the right to own, or share, data about their users? Who would own the data, the phone company or Google? Is there a privacy line they cannot cross? Many digital companies and advertisers agree with IAC/ InterActiveCorp CEO Barry Diller that privacy is overrated. “Privacy is a much noisier issue than it is for people,” he said. Of course, when it suited Diller’s interests to position his Ask.com search engine as superior to Google‘s, his company took out full-page advertisements declaring that its AskEraser would purge cookies of data and Google would not. But surveys suggest that the public disagrees with Diller. A March 2008 poll of one thousand Americans by TRUSTe, an organization that monitors privacy practices on the Web, found that 90 percent thought online privacy was a “really” or “somewhat” important issue, and only 28 percent said they were comfortable with behavioral targeting techniques. Even if the survey was flawed—surely the organization that conducted it had a rooting interest in the outcome—in this instance, Google seemed more attuned to the public’s feelings; in March 2009 the company announced that it would allow users to preview and edit the data it had gathered on them and would, as Yahoo has done, allow them to opt out. Because users are automatically opted in, and opting out requires that the user go through an esoteric process of clicks, Google’s announcement did not represent a major policy switch. Google demonstrated this when it was among the first major companies to announce that it would employ behavioral targeting, showing ads to users based on their prior activities online. The fact that Google would couple such a new transparency policy with its new behavioral targeting efforts is another reminder that privacy questions will continue to hover like a Predator drone, capable of firing a missile that can destroy the trust companies require to serve as trustees for personal data.

Alternatively, if the public is truly less concerned with privacy questions and more interested in trading data for, say, a subsidized service, or is more interested in the trivial, as the late scholar Neil Postman believed, then privacy will be the least of our issues. A former student of Marshall McLuhan‘s, Postman taught at NYU for more than four decades and authored a variety of important books, the best-known of which was Amusing Ourselves to Death. In that book he argued that the real threat was not the one described in 1984 but one contained in an earlier book, Aldous Huxley’s Brave New World.

Contrary to common belief even among the educated, Huxley and Orwell did not prophesy the same thing. Orwell warns that we will be overcome by an externally imposed oppression. But in Huxley’s vision, no Big Brother is required to deprive people of their autonomy, maturity and history. As he saw it, people will come to love their oppression, to adore the technologies that undo their capacities to think.... Orwell feared those who would deprive us of information. Huxley feared those who would give us so much that we would be reduced to passivity and egoism.

This much is certain: neither concerns over privacy nor the issues raised by Postman have slowed the ascendance of smart phones. The attraction is undeniable. They are portable and perform varied functions, including playing movies, music, and games. They enable employees to work from more than one location. They can function just as a desktop or laptop does. They can serve as a key to unlock a car or as an ID at an airport or bank, or become a universal remote for a TV Third World countries that cannot afford a fiber infrastructure can build a low-cost wireless infrastructure that connects classrooms to libraries, individuals or health care facilities to medical expertise.

The question, of course, is how to monetize not just the hardware but also the services and applications. That’s where advertising comes in. Smart phones provide advertisers with precision targeting, reaching individuals they know are ready to purchase a car and are close to an auto dealer. Irwin Gotlieb, whose demeanor is normally subdued and steady, could barely contain his excitement as he sat in his office in the Garment District and described the Brave New World he envisioned. “It’s a totally different kind of advertising,” he said. “You’re in Tokyo. It’s noon. The population density is scary. You have forty-five minutes for lunch, and you go rushing out of your building and already there’s limited restaurant space. So you flip your phone open and up come six restaurants that have seating availability in the next ten minutes. You click on the restaurant you want to go to, telling them you need three seats, and the table is held for you. Is that advertising? Not the way you and I think of a thirty-second spot. But you better believe that restaurant is paying for it. Or it’s going to be built into the bill.”

He took a sip from his second cup of tea. “Let’s take another example,” he continued. “I’m standing on Fifth Avenue and I point my phone at a building and on my screen up comes the directory for that building, all the businesses in the building. Some of them are retailers. If I click on a retailer, I may get promotional offers. That’s an ad? There are revenue opportunities there. It’s a service.” He paused again, this time to talk about the power of the tiny handheld device: “The average phone today has more computing capacity, and more storage capacity, than the average set-top box does. They are powerful computers.”

The consumer has the power to make choices, but Irwin Gotlieb envisions that he will help steer the consumer to those choices and cash in on them. And if Gotlieb were to deliver the services, Google and Verizon would be excited by the prospect of serving as his facilitator. And maybe one day taking over the delivery of those services themselves.

THERE WAS, HOWEVER, a more pressing concern for the media: the colossal economic recession that struck in the second half of 2008. With advertising and other revenues plummeting, traditional media businesses accelerated their cost cutting. With less revenue and sinking market values, debt obligations became ticking bombs. For the Tribune Company and other newspapers, that bomb exploded. Faced with end-of-year debt obligations, Sumner Redstone was compelled to frantically sell Viacom and CBS shares and to propose the sale of National Amusements, his movie theater chain. He has since vowed not to cede control of his media empire, and renegotiated one of his debt obligations, but by the summer of 2009 it was still not certain he would eventually succeed. The recession pinned down most traditional media companies, hampering their ability to write the next chapter. Their core businesses were declining. It was tough for them to sell assets. They lacked resources to acquire new media ventures, and debt obligations loomed.

The gloom extended to Silicon Valley; at the November 2008 Web 2.0 Summit in San Francisco, there was clearly a dark cloud overhead. Welcoming the thousand attendees, the popular Tim O‘Reilly, whose O’Reilly Media cosponsors this annual event, appealed to the evangelical heart that beats in the Valley. Borrowing a campaign slogan from Barack Obama, he began his presentation by chanting, “Yes we can! Yes we can!” He paused, then continued, “It’s true in the campaign! And it’s true in Silicon Valley!” But even this enthusiasm couldn’t appreciably lighten the mood. O‘Reilly conceded that “these are tough times.” A number of other speakers agreed, including John Doerr. In his radio announcer’s voice, Doerr bellowed that venture capital funding would fall from thirty-seven billion dollars in 2007 to ten billion or even as little as five billion in 2009. “Google is not going to buy these Internet start-ups now,” he said, and no one else would either. He advised the executives in the hall to make cuts, to make sure they have eighteen months of cash on hand (and the rest in Treasury bills), to renegotiate contracts, and to be honest with employees but “keep up their hope.”

There were some at this conference, like Mary Meeker, whose optimism about the Web was unwavering. Although Meeker gave an unremittingly bleak analysis of the American economy at large, she offered a euphoric analysis of the tech world’s “opportunities,” expressing her faith that YouTube would be able to make the abundant ad sales that had so far eluded them.

To Doerr and others in the Valley, Meeker’s optimism seemed at odds with the facts on the ground. Layoffs spread even here, fueling talk of another dot-com bust. Intel and Cisco would report that their sales were heading south. Nokia predicted that global mobile phone sales would fall 10 precent in 2009, reversing a long trend. With PC sales slumping, Microsoft would cut five thousand jobs, 5 percent of its work force. Twitter, which attracts users but not yet profits, pared employees and installed a new CEO. Sequoia Capital, the venture capital firm that backed Google and Yahoo, convened a fall meeting of the Valley companies it was supporting and began its presentation with a slide that read, “RIP good times.” Unless the start-ups had a pool of venture capital and other monies, as Facebook, Linkedin, and Twitter did, investors had become less enamored of the Google mantra: The rise of Google had contributed to another article of faith in the Valley: Information wants to be free, and advertising would pay for it. The recession would, slowly, teach that the new media had fallen into an old trap of relying on a single source of revenue, advertising.

Where once optimism had ruled, rancor and incivility began to rear their ugly heads. Michael Arrington, the editor of TechCrunch.com, an influential arbiter of technology, began to feel firsthand the desperation of tech employees or investors who felt their companies had been victimized by bad press. He wrote a blog in January 2009 about an encounter he had had in Munich. As he was leaving a conference, a stranger “walked up to me and quite deliberately spat in my face.” He did not know why. All he knew was that the environment had become rancid: “I can’t say my job is much fun anymore. Start-ups that don’t get the coverage they want, and competing journalists and bloggers tend to accuse us of the most ridiculous things.... On any given day, when I care to look, dozens of highly negative comments are made about me, TechCrunch, or one of our employees in our comments, on Twitter, or on blogs or other sites. Some of these are appropriately critical comments on things we can be doing better. But the majority of comments are among the more horrible things I can imagine a human being to say.”

Worse, he told of how “an off-balance individual threatened to kill me and my family” Because the individual had a felony record and carried a gun, Arrington hired a personal security team at a daily cost of two thousand dollars. He hid out at his parents’ house. “I write about technology start-ups and news,” Arrington wrote. “In any sane world that shouldn’t make me someone who has to deal with death threats and being spat on. It shouldn’t require me to absorb more verbal abuse than a human being can realistically deal with.” To “get a better perspective on what I’m spending my life doing,” Arrington said he would take a month off.

GOOGLE WAS NOT IMMUNE to the downturn. Signs of the downturn were apparent on Google search. During the fall, travel was no longer among the most popular search words or phrases, but home safes was; by early 2009, searches for bankruptcy had jumped 52 percent. The “most significant thing that happened at Google” in the past six months, Bill Campbell said in November 2008, “was the realization that there was a flattening of the business.” This realization, he said, was driven by Schmidt, who began reviewing “expenses relative to revenue every Monday.” Another senior executive at Google credited not Schmidt but the new senior vice president and chief financial officer, Patrick Pichette, “for forcing, for the first time, the company to focus on priorities” and to “allocate capital based on whether there are returns.” The founders’ push to expand into a multitude of businesses was, for the first time, subjected to a budget analysis and scaled back, this executive said. “While Google’s success is hard to dispute, I don’t think they are a particularly well-managed company,” Mary Meeker said. “Part of the problem was that Larry and Sergey didn’t need to care about the numbers because growth was so steady and the company’s competitive position was so strong they didn’t feel they had to. The downturn in the economy gave the new CFO help in imposing some cost discipline.”

Pichette had come over from Canada’s foremost telephone company, Bell Canada, where he was credited with slashing two billion dollars from its operating costs. A thin man of modest height, he comes to work lugging a backpack and wearing jeans, a button-down shirt with sleeves rolled up, and a ready smile. Told that he has come to Google at a bad time, he quickly disagrees. “You can argue that I came at a good time,” he said. “When everything runs well and works perfectly, at least according to financial results, you don’t take the time to ask tougher questions because you don’t have to. When you’re growing so fast that you’re running out of desks, if you talked to people about waste and inefficiencies they wouldn’t have listened to you. It would have been the wrong question to ask at that time.”

In a March 2009 Morgan Stanley conference interview with Mary Meeker, Eric Schmidt said, “Patrick is particularly good at business reviews, so we’ve been going through systematically business after business. In our hypergrowth period, we did not have the necessary systems in place...” Pichette was well rewarded; he received a bonus for 2008 of $1.2 million, though he had only worked six months; it was the highest bonus granted by Google. (Schmidt and the founders, as is their custom, take no bonus.) For the first time, Google was contracting. It slowed its hiring, adding only 99 employees in the fourth quarter of 2008, fewer than it added in a week at the start of the year, bringing its employment total at the end of 2008 to 20,222. It laid off some of its 10,000 outside contract workers, sliced 300 jobs at DoubleClick, reduced by one-quarter its 400 job recruiters, and scaled back some of its engineering teams. Taking a closer look at management, Google decided that management was not Dr. Larry Brilliant’s forte, and gave him a new title as chief philanthropic evangelist, replacing him with Megan Smith, who would retain her position as vice president for new business development. It delayed the opening of its Oklahoma data center by eighteen months, and closed its office outside Phoenix, which had two dozen full-time employees. After Pichette discovered that in some cafeterias—most buildings have one—a third of the food was thrown out at the end of each day, cafeteria hours were reduced and menus pared. Google also curbed some free services and, according to a longtime executive, engaged in a “hot debate” over whether to continue to offer water in plastic bottles or switch to less expensive filtered tap water. (By 2009, Google was serving filtered water out of plastic cups, which were soon to be replaced by reusable and renewable cups.)

Google also eliminated a few sites, including Lively, its virtual world, and began to welcome ads on such formerly ad-free sites as Google Finance and Google News. Although Tim Armstrong boasted in September that Google Print Ads had “70 percent of newspapers in the U.S. as clients,” the program had been encountering resistance from newspapers reluctant to cede control of big clients or sales staffs; as a result, it wound up selling mostly remnant ads, and often for below-market rates. Just months after Armstrong’s announcement, the program was terminated. In its day-care program, Google jacked up both the level of services and the cost—from $1,425 per month to $2,500, reported Joe Nocera of the New York Times. This elite offering—and its elitist price—seemed at variance with Google’s egalitarian ideals, and many employees were irate.

These cuts probably displeased two Google audiences, one external, the other internal. For talented young engineers, who look to join companies that are rockets, Google’s actions might suggest a company that had reached cruising speed and might be descending. And as Google coped for the first time with saying no, there was frustration among Google employees accustomed to hearing yes. The founders had sold Google’s mission as making the world a better place, not just making money. While the Google rocket soared, hard choices could be avoided; now they would have to be made.

Soon after Google shuttered its office outside Phoenix, the closing was raised at the September 19, 2008, TGIF session. The complaint came in a text message from an employee in London, which Brin read aloud to the assembled Googlers. It said, “What of people in Phoenix who can’t relocate? If we don’t take care of them, shame on us as a company!” Brin allowed Alan Eustace, senior vice president, engineering and research, to answer. Google, he said, would strive to find openings for those wishing to relocate; for the others, Phoenix was “a robust area for jobs.” Brin and Page said nothing, but associates said they were increasingly distressed by Google employees’ sense of entitlement. This was a company, not a socialist paradise, and the Phoenix question—like the grumbling when Google pared cafeteria hours and no longer allowed employees to cart home dinners for the entire family—troubled them.

With a cash hoard of $14 billion, Google was better positioned than most companies to withstand the economic shocks, but this did not stop its stock from plunging from nearly $700 per share at the start of 2008 to $307 at the end. The value of Brin’s and Page’s stock holdings reduced their net worth to about $12 billion each, which they said did not faze them. Although the downturn hit most media companies hard, online advertising continued to rise. Google now claimed 40 percent of all online ads. Revenues and profits climbed more slowly, though, and the company warned in its year-end 2008 filing to the FCC, “We believe our revenue growth rate will generally decline” as the search market matures.

Despite the downturn and its own difficulties, in many ways Google remained a company apart. It did not slash its investment spending on research and development or its data centers, investing a total of $2.8 billion on these in 2008. Its fourth-quarter profit margin grew to a fat 37.6 percent. While much of the Valley was contracting, Google decided to set aside $100 million to start a venture capital fund, Google Ventures, to invest in start-ups. Yes, it pared free snack choices from about one hundred to fifty, but that was still fifty more choices than most companies offer.

YouTube was not contracting. “Display advertising and YouTube will be big in the next twelve months,” Schmidt predicted. He was encouraged that a combination of cost cutting and new advertising formats would slash YouTube’s 2009 losses from a projected $500 million to $100 to $200 million, according to a knowledgeable Google executive. He believed the unusual traffic YouTube generates will become a magnet for advertising. In March 2009, according to Nielsen Media Research, two-thirds of all Web videos were watched on YouTube, and that month ninety million viewers came to the site, streaming a total of 5.5 billion videos.

Schmidt also believed that Google’s Android investment would produce many more Google searches and provide opportunities to play a dominant role in all portable devices. He remained bullish that cloud computing would take off, particularly with the advent of four-hundred-dollar (and dropping) netbook laptops that could be powered by Android and store their data in a Google server rather than Windows. Between YouTube, Android, and cloud computing and its Chrome browser, Schmidt remained hopeful that Google was still on its way to becoming the first hundred-billion-dollar media company.

For its employees, Google did something else that defied the bleak economic times. The company had awarded a total of $1.1 billion in stock-based compensation in 2008; by the end of the year, those stock options had declined below the current Google stock price. So Google announced that any employee whose stock options were “underwater”—priced above the value of Google’s stock price as of March 6, 2009—was eligible to exchange this stock for new options pegged to the March 6 price. Although the founders and Schmidt declined to partake, this generous bailout cost the company $400 million. Google reported that 93 percent of employees exchanged their old options for new ones priced at $308.57. It was a magnanimous gesture, and also a way for Google to keep valued members of its team from fleeing to a start-up. Many on Wall Street saw Google’s repricing—Google was not the only company to do this—through another prism, as if Google were unfairly granting employees a benefit denied other shareholders.

Asked in April 2009 what he considered Google’s biggest accomplishment of the past six months, Eric Schmidt said: “Our safe landing. We want to be the least affected by the recession.” There was evidence that Google succeeded. Although it experienced its first quarter-to-quarter revenue decline since going public in 2004, its net income rose 8 percent in the first quarter of 2009; new cost controls sliced expenses by more than two hundred million dollars, and its profit margin swelled to 39.2 percent. Its 2009 revenues were projected to drop by 31 percent over the prior year, but were still projected to grow by 4 percent.

What gave Schmidt more angst was the management upheaval that loomed ahead. With a number of relatively young senior executives blocking the upward path of the next tier, what happened with Sheryl Sandberg was happening with others. In February, Tim Armstrong, thirty-eight, announced that he was leaving to become CEO of AOL. A popular figure at Google,with salesmanship and people skills that are uncommon at engineering companies, Armstrong’s departure was widely mourned. Soon after, Singh Cassidy, who also reported to Omid Kordestani and supervised business in Latin America and the Asia-Pacific region, also left. In April, Kordestani, the company’s longtime sales chief, stepped aside to become a senior adviser to Schmidt and the founders. He was succeeded by the president of international operations, Nikesh Arora.

Google was not accustomed to such management turnovers. But Schmidt knew he was sitting atop a bigger management powder keg. With the development of Android, and the ambition to expand to provide the operating system for not just mobile phones but also the new generation of lightweight, low-cost netbook laptops, Google was on a collision course with Apple. This risked turmoil at the most senior levels of Google. “Because it is open source, Android is a horizontal system,” explained a senior Google official. “It is not devoted to any one hardware supplier. Apple is a vertical system that serves one supplier”—Apple. Already, as we’ve seen, Schmidt awkwardly left the Apple boardroom during iPhone discussions. By the summer of 2009, Schmidt and Jobs agreed the situation was untenable because, as Jobs said in a statement released to the press, “he will have to recuse himself from even larger portions of our meetings due to potential conflicts of interest.” Schmidt resigned. Arthur Levinson, who is on both boards, will probably have to choose between them, as will Al Gore. Most disruptive of all, Coach Campbell, the colead director at Apple and almost a brother to Steve Jobs, has told friends he would regretfully choose to sever his ties to Google. Tensions between Apple and Google were simmering. By the end of 2009, it was likely they would come to a boil.