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How Decisions Made by Twitter Founders in 2006 Led to Anthony Weiner’s Dickish Demise

Monday, June 13th, 2011

Now that the Anthony Weiner Twitter Meltdown has pretty much played out, I’m surprised that there hasn’t been much discussion of the butterfly wingflap that brought him down: Twitter’s rules of engagement when it comes to “following.”

The success of a social network is largely determined by its settings. In 2006, an engineer named Jack Dorsey had an idea for a way for people to share short updates on their lives with friends and family. Working with a small team, Dorsey and his colleagues began developing and testing the product. This included determining the built-in boundaries of the service, a process which would determine the breadth and purpose of the entire project. Twitter was a simple idea but settings had to be just right, like the proper temperature for a soufflé. Should the rules be very restrictive, to preserve privacy and intimacy? (Too restrictive would make the service less useful.) Or should they be expansive, and invite a wide circle to share one’s status reports? (Too broad a channel would mean a depersonalized cohort.)

The breakthrough that enabled Twitter to become the wildly successful service it is now, came from a twist that was much more significant than even its founders knew: they made it possible to “follow” someone’s messages without requiring permission. Essentially you would take out a subscription to someone’s Twitter stream. You would follow your best friend or your brother in the same way you would follow Barack Obama, DeSean Jackson, or the New York Times. This was a break from the traditional two-way agreement that ruled communications in previous social systems. This changed Twitter from an asynchronous instant messaging system into a hybrid of a social network and broadcast medium.

“The relationship model was something that we debated a lot,” says Evan Williams, who headed the company (Odeo) that created Twitter. “In the first version, by default you were private.” (This quote is from a conversation I had with Williams in 2009, when I was working on a story for Wired.) But then Dorsey’s team came up with the idea that you could follow someone without them following you. “That was really important,” says Williams. “From my perspective, I wanted something like a blog relationship model. What I thought was beautiful about blogs as opposed to email or anything else is it’s completely up to the recipient of the information whether or not they consume it.”

But Twitter was much more intimate than blogs. Following someone on Twitter was not exactly like setting up a blog feed or subscribing to a magazine. You became part of a visible community. In order to make this happen, Twitter made public the list of people you followed, as well as the list of people who followed you. You would notice when your friends followed the same people you did. You could make connections with other people who followed the same Tweeters you followed.

To further encourage the community aspect of Twitter, the founders determined that by default, all messages would be public. Weirdly, one of the questions that came up during this discussion was the question whether people would be creeped out when it came to flirting and other personal issues. “This openness was the result of a lot of thought around the way we had started recognizing that people were communicating online,” says Noah Glass, who was part of the original team. (I interviewed Glass for the aforementioned story.) “We were on MySpace, and I got into a lot of trouble from various girls posting things on that thing out in the open, and I started thinking about openness–we all started thinking about openness. We come from a world where privacy is important. But we realized that not everyone shared this feeling about privacy in that same kind of way. People were having really intimate discussions out for everyone else to read. I realized that that the level of privacy we thought was important, was not necessarily important to a certain group of people for a certain type of communication. And so making any conversation open and followable was something based on those systems that were becoming popular.”

This thinking influenced the settings when Twitter, because of user demand, implemented a “reply” feature. The replies, just like any other tweets, were public.

But what if you wanted to have a truly private conversation, as with SMS or email, with someone on Twitter? This presented a problem to those with a huge following. One way to do this would be to allow users to send a private message to any other user, just as they can with email. But celebrities and others with large followings didn’t want to open a private channel to just anyone. So Twitter decided that for “direct” messages there should be some limits. Direct, private messages could only be sent to someone who followed you. The fact that you followed someone meant that you’d probably be happy to hear from him or her. To have a back-and-forth conversation, then, both parties would have to be following each other.

Otherwise, once you hit a few keystrokes to specify that something is a direct message, sending a private tweet is not all that different from sending a public tweet. The service has never really figured a way to foolproof the process. It is a rare Twitter user—even an experienced one—who has not mistakenly sent something intended as a direct message out into the public Twittersphere. Happens all the time.

These settings helped make Twitter catnip for loquacious politicians like Anthony Weiner, who used it to establish his feisty personality with a nationwide community. But it also proved his undoing when he misused Twitter for sordid sexual contact with women.

Twitter’s regimen of rules tanked Anthony Weiner in several ways. First of all, it provided a public record of the initial contacts that Weiner made with the women. Here was the apparent pattern of Weiner’s inappropriate communications: a woman would tweet an encouraging public messages to the legislator—which would be public, the only way she could communicate to him. (By and large, since the women were political supporters and not thinking of themselves as material for his sexual fantasies, this wasn’t a problem for them.) Then Weiner would respond to them—but his responses were constrained by the knowledge that his replies were public.

Weiner needed a more private channel of communication for flirtations up to and including pictures of his package. Since the women followed him already, he could send them direct messages. But to receive their replies, he had to follow them in return. Only then could he engage in flirting or sexual repartee.

Weiner seemed not to realize the extent to which Twitter’s rules still made him vulnerable. The women were publicly listed among those accounts he followed. Since he only followed around 200 people, these new followers seemed out of place among the politicians, journalists, and celebrities on his list. It was all too easy for a political foe to notice that Weiner was adding young women (and in at least one case, a porn star) to his followers soon after a public exchange.

And that is exactly what happened. A right-wing activist noticed Weiner’s pattern and then harassed the young women the Congressman followed. But even then, Weiner did not curtail his behavior. He simply unfollowed those women and found new ones to flirt with. His Twitter use was a train wreck waiting to happen.

The train wreck occurred when Weiner confronted the confusing rail yard that Twitter’s founders never truly fixed: the inadequately drawn distinction between a public message and a direct one. When Weiner decided to send a young woman a picture of his crotch—wearing grey boxers that barely contained his tumescence—he had already taken the step of following her. But he made a common mistake between a direct private message and a public reply, and sent the picture out to the thousands of people who followed him.

That was so crazily egregious that Weiner’s initial lies that his account had been hacked seemed plausible. But the evidence of his deeper misbehavior was already out in the open: the thumbnails of the young women he followed, publicly available on his Twitter account. Journalists, political rivals, and right-wing muckrakers had no problem finding multiple women who had flirted and even received more graphic photos via “private” Twitter messages. When asked about what happened, the women talked, and Weiner’s original “I was hacked” story fell apart.

Weiner was caught in the social net, undone by a bunch of conversations several years earlier between some San Francisco geeks trying to figure out the settings of a cool new product. The details of Web product design had led to the pants being pulled down on a promising political career.

Jobs to PC: “You’re busted!” And other notes from the OS Wars

Tuesday, June 7th, 2011

Steve Jobs’s return to the stage yesterday at Apple’s World Wide Developer’s Conference focused on software. Hardware provides Apple’s brains and sinew, he told us, while software is its soul. Though there were three chapters to the story he spun, the narrative was coherent. Apple was staking its claim in the great Operating System wars in the second decade of this century. Passing through the flak smoke of competitive visions—from Google and Microsoft, natch—Jobs was like a deft bombardier tweaking the flight path before releasing his payload, the Apple Way of modern computing.

(Excuse the horn-blowing, but this pretty much conforms to the outline of the near feature in my Wired cover story that came on the heels of the original iPad announcement in early 2010. Consider this blog post as an update.)

Chapter one is Lion, the latest version of OS X. The mane point (sorry) of this chapter is that the Macintosh is adopting more traits of its iOS cousins. Lion supports more multi-touch gestures. Lion has the app store built in. And so on.

Chapter two is the iOS 5, the system upgrade for iPad, iPhone and the iPod Touch. The features Apple unveiled yesterday imbue these devices with capabilities previously available only on PC’s. With iOS 5, you can edit photos, create more complex mail documents, etc. This accelerates the trend of amazingly powerful apps (Garage Band being the best example) on the iPad.

So while the Mac is morphing into the iPad, the iPad is stepping up to perform tasks that you once reserved for your Mac or PC.

The most telling feature in this transformation is the revelation (greeted with huge applause from the developers in the crowd) that Apple was untethering the iOS devices from the PC. In my Wired article, I had joked that Apple envisioned the day when the main use for your PC is syncing with your iPad. But now Jobs has topped that. Beginning with iOS 5 users won’t need a PC to set up, synch, or update their iPads or iPhones. Jobs even said that he was “demoting” the PC to “just another device.” Talk about a comedown. It’s like busting Jack Welch to a middle manager!

Chapter three is the new iCloud. In this initial rev, iCloud is focused less on full-scale “cloud computing” (moving the performance of the apps themselves to the Web) than on synching a number of devices with one’s personal corpus of data—which resides in Apple’s data center. Apple, he claimed, would achieve success in this model where others have failed. (The most striking example is Microsoft’s Live Mesh system, which you probably never heard of. In that light, a lot of iCloud’s concepts look straight outta Redmond.) Why will Apple triumph? Because, says Mr. Jobs, “it just works.”

Jobs himself took pains to underline the significance of iCloud in the ascension of the new, pad-and-phone-oriented Post PC paradigm. iCloud, he said, marks the completion of a long quest to liberate the computer from local files and all the desktop mishigas involved. (In case you missed it, In the press release he called this the release’s “paramount feature.”) The iPad does away with folders and file icons, but has not offered an alternative means of organizing documents. With the ability to store documents in then cloud, he crowed, the missing piece of the iPad will finally be filled in. (Of course, until now Jobs had never admitted that the piece had been missing. Classic Steve.)

So where does this leave Apple’s competitors, particularly Google? Google’s cloud embrace is still more radical than Apple’s. As of now, Apple regards the cloud as a hub; Google’s Chrome OS treats the cloud as the computer itself. The Chromebooks coming out later this year basically run a superfast browser, with the assumption that Web-based apps and services will provide all you need. (As I noted in my test of the Chrome OS, Google is designing a platform for a high-speed connected infrastructure that’s not here yet.) By comparison, Apple’s cloud is timid: it’s about storage and synching as opposed to a streaming, real-time, extension to your actual machine. At Apple, the action is not on the Web, but in the apps.

Complicating Google’s plans, though, is the fact that it has a second operating system, its Android mobile system. Android is more like iOS is that it runs client apps—and this approach puts it at odds with its corporate, pure-Web stablemate. At the recent Google i/o conference, the dissonance between the two systems was apparent. Each day of the event featured a keynote devoted to one system followed by a press briefing where each team leader (Android’s Andy Rubin and Chrome’s Sundar Pichai) unconvincingly tried to explain why the systems weren’t competitive. Co-founder Sergey Brin addressed the question by saying that owning two promising OS’s was a problem that most companies would love to face.

And what about Microsoft? Last week at the D9 conference, Windows czar Steven Sinofsky allowed us a glimpse of Windows 8. Just as the Mac OS borrows from the iPhone and iPad, Win 8 adopts the flashy interface of Microsoft’s praiseworthy (but not yet commercially proven) Win 7 phone OS. It looks like a bold break from the past. But Sinofsky also explained that the interface will sit on top of a full version of old-style Windows. (I wonder how long the Windows 8 tablet will take to boot up.) “Post PC” is apparently still a taboo concept at Microsoft.

But whether Microsoft admits it or not, we’ve been Post PC for years now. Our problem has been that these new devices haven’t yet morphed into tools that are every bit as capable as the one they’re replacing. At WWDC, Steve Jobs moved us closer to filling that gap. Considering Apple’s unbelievable momentum, you have to believe that that his users will follow.

Facebook’s stealth attack on Google exposes its own privacy problem

Thursday, May 12th, 2011

OK, here’s the deal. A big corporate PR firm, Burson-Marsteller, tried to entice USA Today to lambaste a Google feature called Social Circle, on privacy grounds. It also encouraged a security blogger to write an op-ed attacking Google on the product. Burson would not say the name of its client. But instead of taking the bait, USA Today did due diligence and consulted experts who said that Social Circle was small potatoes compared to more pressing privacy stories. Instead it published a story about the Burston “whisper campaign” against Google on behalf of a secret client.

Meanwhile the blogger released a damning transcript of his exchange with the sleazy folks from Burson.

Most people would have assumed that the client was Microsoft or AT&T, Google rivals already actively involved in seizing every possible opportunity to take its foe down a notch. But last night we learned that the cowardly accuser was Facebook. Thus exposed, Facebook has ‘fessed up.

This is a stunning story for a number of reasons.

But here’s what makes the least sense—if there were privacy problems about Facebook information in Google Social Circle (which has now been transformed into a different product called Social Search), they may well have been a result of Facebook’s own practices.

Facebook was griping that Google is getting information about its users without permission. But some information that users share with Facebook is available publicly, even to people who aren’t their friends in in their social networks–or even are members of Facebook. It’s not because outsiders raided the service and exposed that information. It’s because Facebook chose to expose it.

Facebook used to have an implicit promise with its users. Basically the deal was what goes on Facebook stays on Facebook. But over the past couple of years Facebook has chosen to alter the deal. Certain profile information became available outside of Facebook, easily searchable via Google and other means. (Users can opt out of showing this but relatively few do.) Some of that profile information includes a few of the people on the user’s friend list. By repeatedly pinging public profiles, it’s possible for Google or anyone else to figure out pretty much all your friends.

This information is a lot easier to unearth from inside Facebook, but actually logging into Facebook to purloin information would indeed be troublesome. For one thing, it would violate the terms of service agreement. Is Google doing this? One of the Burson operatives implied that it is. But Google says the company does not go inside Facebook to scrape information, and I find this credible. (If Facebook has logs to prove this serious charge, let’s see them.)

When Google launched Social Search, it also said specifically that it was not going to learn about Facebook connections by mining the Web as described above. Just how Google does get Facebook information is complicated, but as Danny Sullivan of Search Engine Land concluded after an extensive look, much of it seems to be by permission. Things should be more clear when Google prepares a more detailed briefing on this, which I assume it is preparing at this moment. Or maybe Facebook will directly spell out its charges now that it’s been outed.

But even if Google did scrape information from the public web, would that be so bad? You can argue whether or not Google would be crossing a privacy line by doing this. (And, remember, Google says it is not mining that public information.) But it’s an argument with a pro and con. What you cannot argue is that is not Google but Facebook that puts some Facebook information into the open Web.

That is why Facebook’s campaign is so weird. If outsiders are going to examine how third-party companies get information about Facebook’s users, you can’t help but question why some Facebook information, by default, shows up on the open web.

Also, consider this excerpt from the letter Burson’s operative named John Mercurio wrote to gin up an attack without Facebook’s fingerprints on it. “Google’s latest plan,” he wrote, “totally disregards the intimate and potentially damaging details that could be revealed, including sexual orientation, political affiliation, personal connections, etc…” This is ironic since, in my experience, Facebook user profiles with such information are much easier to view that they were in the early days of the service. Unless people actively take steps to opt out, it’s possible for “friends of friends” (i.e., strangers) to view someone’s personal information on Facebook.

And it was also remarkable that the Burson operative wailed about the privacy implications of letting millions of people examine a Facebook user’s friend list. In my experience the vast majority of Facebook users do not take the steps to hide their connections, a list which is open by default to half a billion Facebook users.

Any responsible journalistic (or congressional) examination of the Burson charges would wind up asking questions about these Facebook privacy issues.

Given this, I conclude that Facebook was running a smear campaign against itself

Over the next couple of years, the privacy practices of many companies—especially Google and Facebook—will come under severe scrutiny. Essentially it is neither company that is the cause of our privacy dilemma. It is the Internet itself. The Internet makes a broadcast of what once was a whisper. The Internet raises to the top of our attention embarrassing items that once would have faded into obscurity. The Internet allows strangers and the ill-intentioned to aggregate innocuous personal data into a devastatingly revealing dossier.

The Internet also allows companies to monetize our private information without our full knowledge. (Burying snoop tactics in the dense text of a privacy policy is not a justification.) And that gives profit-making firms a powerful incentive to abuse our privacy.

These companies want our trust. They even want us to hold off strong legislation and allow them to self-regulate. And now here comes Facebook, doing one of the dumbest things imaginable. It tried to beam attention on a privacy problem of a rival, but exposed itself as a sneaky maligner. Furthermore, the sorts of privacy fears Facebook evokes are exactly the sort that makes people worried about Facebook.

Not the greatest way to win our trust.

Why Google Does Not Own Skype

Tuesday, May 10th, 2011

So Microsoft is buying Skype for $8.5 billion, its biggest deal ever. It’s too soon to make a pronouncement on whether the purchase is an idiot move, a brilliant one, or just something in between – all the geniuses who ripped the investors who bought Skype from eBay in 2009 don’t look so smart now. But I will recount a bit of history that readers if IN THE PLEX already know: it was almost Google who owned Skype.

Here’s more detail on the story:

In 2009 a brilliant product manager named Wesley Chan was in charge of Google Voice, which was still in development. It was Google’s revamp of Grand Central, which Chan had snared in an acquisition the year before. When some Google executives heard that eBay was selling Skype, they jumped on the opportunity and began negotiating.

As Chan helped with due diligence, even going to Europe to see Skype firsthand, he became convinced that the purchase was a bad idea for Google. He concluded that one of Skype’s key assets – its peer-to-peer technology — was a mismatch for Google, which worked on the newer paradigm of cloud computing. “The worst thing about peer-to-peer is that it doesn’t work well with Google,” Chan told me during an amazing interview for IN THE PLEX in February 2010. “Peer-to-peer just eats up your bandwidth, right, it’s like the old technology.” So if Google bought Skype, Chan concluded, it would have to rewrite the entire Skype platform. Worse, buying Skype would have involved an extensive review process by the government, involving the DOJ or FCC or both. Chan figured that it would take 18-24 months to get through that process, during which Google would be at a standstill in the space. “It would’ve been disastrous,” he said.

But Google was well along on its hunt. “Everybody wanted to do it,” Chan said, “Eric [Schmidt] was bullish on it. And I said, ‘Uh-uh.’”

It was then that Wesley Chan began his plan to derail the deal. Chan happened to be close to a number of people who are unheralded powers at Google, mainly early Googlers close to Larry and Sergey whose opinions are highly regarded. One of those was Salar Kamangar, one of Google’s first ten employees and the co-creator of AdWords. (He is now the CEO of YouTube.) After Chan explained his objections, Kamanger was on board to scuttle the deal.

“Salar and I laid the grenades,” Chan told me. According to Chan, the pair went to Sergey Brin and convinced him it was a terrible deal. Then, Chan says, they brainstormed a plan to sabotage the deal in a key meeting of top executives, a gather that presumably would wind up blessing the purchase.

The idea was bait and switch—the executives in favor of the deal would assume that everything was on brack, and Chan and his allies would use shock and awe to turn things around. Chan says that he began the meeting by praising the deal. “I even had a deck that was super supportive of it,” he says.

But, according to Chan, halfway through the deck, Sergey Brin seized the floor “and started getting really negative.” He asked a series of questions that he knew would get unsatisfactory answers. Is this purchase data-driven? Who is going to spend all those months commuting to Europe? (No one stepped up.) How long is the government review expected to take? As Chan had figured, the advocates of the deal were unprepared to respond to these last-minute objections.

Chan then described the climatic moment. “[Sergey] looks at me and says, ‘Why would I want this risk? We have a team capable of building the carrier, we have the users, we have hundreds of millions of Gmail users, why do we need to have Skype?’ And at that point, Sergey gets up and says, ‘This is the dumbest shit I’ve ever seen.’ And Eric gets up and walks out of the room, and I’m like, okay, the deal’s off.” And it was.

What was Larry doing in all this? I asked Chan after he described this to me.

“Larry was kind of, oh, whatever,” Chan said. “He was checking his laptop. I don’t think he was the one that really cared about this as much [as Eric].”

Now of course, Larry is in charge of Google and fully engaged. I wonder what he’s thinking about Microsoft’s Skype deal, which is grabbing headlines just as Google’s I/O conference gets underway.

At least it wasn’t Facebook making the buy.

The Little Red (Face)Book

Saturday, April 30th, 2011

When I spoke at Facebook about In The Plex recently, rumors were swirling that the social networking giant was about to enter China, supposedly in a partnership with the search engine Baidu. So I made sure that my talk to a dining hall full of FB’ers included the cautionary tale of what happened when Google met China. (An excerpt of the saga as detailed in my book appeared in Fortune.)

Though similar in some ways—focus on engineering, full-on embrace of Internet values–Facebook and Google are quite different companies. Their China efforts will also undoubtedly vary. But some of the challenges that Facebook will encounter will be just as tricky as the ones Google faced. Those problems ultimately led to Google’s reconsideration of the enterprise.

So I suggest to Facebook that its leaders think hard before taking the leap

.

Here’s some areas where Facebook must find good answers to tough questions before it makes that China leap.

Censorship. In order to do business in China, Google had to make a horrendous compromise: agreeing to filter its search results according to the demands of an oppressive government striving to deny vital information to its citizens. Facebook will have to make a different kind of compromise: somehow preventing free discourse when it comes to speech that threatens the authoritarians in charge of China. This may not affect the core of Facebook’s activities, most of which are prosaic. But how will the lines be drawn? Will there be an agreement in principle of verboten content, or will Facebook have to remove offending posts and pages every time China demands it? What happens when an international friend of a Chinese Facebook user posts something—or sends a message—with content that the Government doesn’t like? Will Chinese censors monitor Facebook friend feeds?

Privacy. One of the most shameful corporate episodes in Internet history was Yahoo’s decision to turn over to the Chinese government the identity of a dissident who assumed anonymity. The user got a ten-year jail sentence, and Yahoo is still scorned. What will happen to Facebook’s users when they come under scrutiny from the government? Will Baidu/Facebook turn over private information with a single phone call from an official? What about the connections between Chinese citizens and Facebook users on other countries. If I, as a US citizen using Facebook in the United States, is a “friend” of a Chinese user and that user has access to my private information, what assurances will I have that the Chinese government doesn’t have that access too? Conversely, will Chinese Facebook users be walled off from the rest of the world?

Baidiu as partner. When I spoke to Baidu CEO Robin Li about censorship, he told me that his problem was not political, but that it was a technical annoyance that slowed things down. In other words, Baidu wants to stay clear of issues of free speech, period. Is Facebook comfortable with such a stance? Also, a partnership with Baidu may affect Facebook’s efforts to ally with content-holders like Hollywood studios. Though it has recently attempted to become a better copyright citizen, Baidu has a reputation as a powerful enabler of copyright infringement.

Global image. Facebook’s prominence in recent Middle East democratic uprisings has put it in an awkward situation. Facebook executives never planned for the service to become a rallying point for dissidents, and they take pains to note that the phenomenon is simply a function of its users making use of a powerful tool. Yet all of this also is a source of pride for Facebook, and the company seems happy to accept the bounties of the subsequent halo effect. But what would happen if Chinese activists made efforts to create a Jasmine Revolution page—and Baidu/Facebook was asked to take it down? (Or institute censorship rules to make sure it never appears in the first place.) Ask Google about tarnished halos.

Whether it goes to China or not, Facebook is staring down the gun barrel of regulation. Its M.O. when it comes to privacy issues– recklessness followed by apologies and amends—has already worn thin. Being seen as a tool of the dictatorship in China would hobble Facebook’s efforts to convince legislators and regulators that its overall mission is positive, and its efforts to balance sharing and privacy should be seen in a favorable light. There’s also a possibility that the Chinese experience may tarnish the brand with its users, though after its painless survival of the Zuckerberg portrayal in The Social Network, one has to conclude that Facebook is covered by some pretty mighty Teflon.

Nonetheless, before Facebook leaps into China, I’d advise its executives to step carefully. The last time a company heady with hubris tried this, it stumbled into a world of pain.

Rosenberg Speaks

Saturday, April 16th, 2011

Mike Swift, who does a great job covering Google for the San Jose Mercury News, sits down with departing Sr. VP Jonathan Rosenberg for an interview. (I’m pleased that IN THE PLEX found its way into the conversation, about a story involving something Larry’s mom said to Rosenberg.)

Swift got Rosenberg to discuss the book he’s writing with Eric Schmidt.

The truth is it’s really my notes of all the management meetings I’ve been in with Eric, Larry and Sergey (Brin, co-founder of Google). So the proper title for that book really is, sort of, Jonathan Rosenberg playing Alexis de Tocqueville in Google internal management meetings. Somewhere, each of those rules is either my rule, Eric’s rule, Larry’s rule, Sergey’s rule or some other leader on the Google management team. Eric and I have been doing some internal seminars where we have been teaching this set of rules to Google employees, mostly managers. We are harvesting narratives and stories from them, so that we can build more narratives and stories into the book. What we would like to do is produce our version of the rules of management that we developed out of working at Google.

And here I thought I did the de Tocqueville thing at Google! Plenty of room for more! I’m especially eager to hear the kind of stuff that goes on at the meetings they wouldn’t let me get near.

Paging Larry: Wall Street Freaks Out After Google Earnings

Friday, April 15th, 2011

Wall Street has had a little freakout out over Google’s results. Not its revenues—Google had a 27 percent increase, quite impressive for a company its size. The problem, in lucre-geek-speak, was opex: operating expenses. In addition to taking in and making a lot of money (well over $2 billion), Google spent a lot of money.

A lot of the spending was due to Google’s aggressive—some say desperate—employee compensation and hiring strategy. Keeping Googlers on board is expensive when so many are tempted to go to places like Facebook and Twitter, or start their own companies. Google bumped up everyone’s salaries, from chefs to Android-ers, ten percent. Google also is smack in the middle of a hiring binge, having brought in about a third of the 6000 Nooglers it plans to hire this year. And certain employees who apparently got offers from competitors reaped huge stock deals that figured in yesterday’s high operating expenses.

In Wall Street World, not hitting every single numerical mark is a sign to panic. So Google stock took a hit—over eight percent. Woah.

But Google had warned investors from the beginning that it would not play the quarterly expectations game, regarding as noise the fluctuations from Wall Street reactions to earnings. To Google, it’s all about the long term, and in this case the company clearly figured that Google would be better positioned if it kept its talent, even if it had to pay a king’s ransom. Long term benefits are also the justification for another big expense: fortifying Google’s already-impressive infrastructure.

The person who first outlined that warning about blowing off short-term results, by the way, was Larry Page, the main author of the essay that led off Google’s prospectus when the company went public. Back then he was eloquent in explaining why Google would look towards the horizon, even if was subject to consequences like the Wall Street spanking that following its earnings announcement yesterday. So it was disappointing that Page’s appearance on the earnings call yesterday was merely a cameo appearance—more like Alfred Hitchcock quickly spotted in a scene of his movie than a meaty, Michael Shannon-esque supporting role. After giving a few upbeat, unenlightening comments, he ducked out. So it was up to Patrick Pichette, Google’s CFO, to answer the analyst who asked the following question: What does Larry think?

Too bad, the CEO couldn’t answer for himself. I suspect that Larry would have made a passionate, compelling case for Google’s course of action. It’s not like he isn’t thinking about it.

Kremlinology

Monday, April 11th, 2011

In 1999, when Google had its first press conference—to announce its $25 million VC financing and generally introduce itself to the world as a company– Larry and Sergey prepared some slides. One slide focused on the Google team. But it did not provide the full names of Google’s early brainiacs. They were identified by first name only.

One might assume that in 2011, now that Google is a big public corporation, that there would be more transparency. But last week—or sometime in the recent past—Google had one of the biggest management shifts in its history and the news came via a leak to the Los Angeles Times. That was Thursday, and while Google officially confirmed that something like that shift took place, we have yet to get a statement or a blog item that actually explains what happened, why, and what it may mean.

The re-org does confirm what we already know about Larry. He’s already making big changes in his super-energized stint as CEO, and he doesn’t care much about keeping the press (and by extension, Google’s shareholders) informed about what he’s up to.

Now for the shift. Basically, Larry has organized Google by product category, with a senior vice president in charge of each group The actual personnel aren’t surprising—if you read IN THE PLEX you would know that Susan Wojcicki, Salar Kamanager, Alan Eustace, Jeff Huber and Sundar Pichai are powerful and dynamic heads of their divisions. You’d also know that Vic Gundotra has risen to a strong position within the company and has been heading Google’s crucial efforts in the social space. (With Bradley Horowitz as a strong partner in those efforts.)

But there are a couple of surprises. Eustace (who was already a Senior VP) has moved from head of engineering to search, and I’m not sure whether this means anything to Udi Manber, who formerly held the role of search czar, but is not a senior VP. And Huber’s domain now apparently extends to the local-geo area. When Marissa Mayer moved out of her search products world and into geo, Google made a big deal of that. It would be nice to see this clarified.

For those who need more evidence that pursuing a social strategy is high on the stack, here it is—recognition of social products as a full division, even though it’s a work in progress. Furthering this is another alleged innovation by Larry, of tying a quarter of next years bonus for every Google employee to its success in social. (I say alleged because, once again, this news was leaked out to the press, and on this one Google wouldn’t confirm or deny. But the non-denial seems to be a stealth confirmation.)

Surely, there’s a lot that begs explaining in this, and I really hope that someone—ideally, Larry Page—explains the philosophy behind the shuffling and where the non-product areas fit into the organization. How about a blog item from the CEO? It’s to everyone’s benefit to know where people stand at Google. The Kremlinology of determining the company’s priorities and structures from leaked press items is a destructive process.

Another point. There’s been a lot written about Google’s brain drain, and employee retention is indeed a big issue. But the composition of this list says a lot about Google’s stability. Of the six executives involved in this product cabal, two of them were among Google’s first tiny group of employees (Wojcicki, Kamanger), and almost all the others arrived pre-IPO. (That was in 2004.) The most recent arrival is Gundotra, the rare Google executive who thrived after leaving a high position at Microsoft. And he’s been at Google for five years. Another executive who was around early enough to be identified only by first name in that 1999 slide is, Urs Höltzle, whose memo a year ago urging a focus on social was the spur of its current push (It was dubbed the Urs-quake.) He’s still the top guy in infrastructure.

Larry has made all his key executives commit to several years of intense work, so presumably all of the people in the announcement. You have to figure that his earliest employees are now so fantastically wealthy that if they didn’t believe in what he was doing they would not reenlist: they’d go off to start other companies, devote themselves to philanthropy, or just veg out in luxury. Instead, they’re reenergized members of Team Larry.