Pearlstein: The Future of Google

Steven Pearlstein
Washington Post Columnist
Wednesday, October 24, 2007; 12:00 PM

Washington Post business columnist Steven Pearlstein was online Wednesday, Oct. 24 at Noon ET to discuss Google and whether the company is the next Microsoft.

The transcript follows.

About Pearlstein: Steven Pearlstein writes about business and the economy for The Washington Post. His journalism career includes editing roles at The Post and Inc. magazine. He was founding publisher and editor of The Boston Observer, a monthly journal of liberal opinion. He got his start in journalism reporting for two New Hampshire newspapers -- the Concord Monitor and the Foster's Daily Democrat. Pearlstein has also worked as a television news reporter and a congressional staffer.

His column archive is online here.


Danvers, Mass.: How does the Google of today compare with what you thought about as the IPO approached in 2004?

Steven Pearlstein: While the Wall Street Journal was making fun of the Google Guys for their unorthodox IPO, I thought it just great. And I still think the company to be spectacular in just about every way. I wish I could have invested. They were hot then; now they are on the verge of dominant, and spreading out into whole new areas, like telephony. They are clearly approaching the point where they are going to have a runin with the antitrust authorities, either here or in Europe. It is only a matter of time.


Washington, D.C.: I find the title of this session curious. I think Google's technical originality and competitors are obvious. With Microsoft, their originality seems to have been in how they pirated Apple's concepts, yet they definitely won an unregulated monopoly position. What is the insight you hoped to make with the question about whether Google is the next MS? Thanks

Steven Pearlstein: Your view is very common among techie types, particularly in the Valley: Microsoft is closed system and thuggish and has lousy technology; Google is open and about choice and has great technology; therefore, there is no valid comparison. I think you're probably too close to it, and too judgmental. Microsoft developed a legal monopoly and then, in its efforts to grow and maximize profits, ran up against the antitrust law. Google will probably do the same. They are about to obtain an important monopoly, earn lots of money, and try to invest to make their product better and their profits higher. That's what good businesses do. And at some point, the government is going to have to step in. Sure, there are lots of differences and you don't want to push the comparison too far. But at the 30,000 foot level, I think there are parallels, as there are to IBM and AT&T, which were also great companies in their day.


Newark, N.J.: What's going on with Google Health? I saw some newsflow on it a while ago and then on and off. What is this product?

Steven Pearlstein: Like Microsoft, they are clearly targeting the market of medical IT, automated medical records, etc. It is a service that can keep people within the Google compound. And it is a rich target for advertising possibilities. That's about what I know.


Detroit, Mich.: Is there any search engine contender that may end up competing with Google? I would hope so, as I do not find everything I need with Google.

Steven Pearlstein: Google exec. admit that there will be lots of specialized search engines that are better than theirs in very specific areas. So like most markets with a dominant firm, there will be niches to be mined by smaller companies. But as to your larger question, can any of the other search engines "catch" Google at this point. The answer I got almost universally during my recent trip to the Valley is: No way.


Washington, D.C.: Isn't privacy a major concern with the merger? You will centralize two far-reaching datasets: Google's search, online video, blog, etc. profiles with the largest distributor of cookies and tracking technologies for the largest commercial companies online.

Shouldn't the FTC impose merger specific safeguards protecting consumers/users? Jeff

Steven Pearlstein: I don't pretend to be able to parse the privacy question. Obviously, Google knows lots about users, who it identifies as a number. They are aware of the possible bad things that could be done with this information, and have taken some steps to prevent themselves and other people from doing those bad things. I just didn't explore whether those safeguards are adequate or not. Not my thing. The Doubleclick merger obviously gives the FTC a chance to use its consumer protection powers to set down some rules in this area, and make them enforceable conditions of the merger approval (in effect, wearing its two hats all at once). That might be a good idea. Or it might not. I'd rather think that the FTC should figure out what kind of safeguards it wants, put them out for comment, and then require them of all companies, including Google's competitors, many of whom are farther behind in privacy protections than Google.


Potomac, Md.: Google's ability to dominate the online advertising market, and its attempts to extend that into television and mobile phone advertising, rely on their leadership in two areas. More so than any of their competitors, Google can target advertising to specific users (based on search history, etc.) and it can measure response to those advertisements (e.g. click through rates). Perfecting those two areas would represent the "Holy Grail" for the advertising industry.

Do you think the challenges to Google's dominance may come, not from a near-term competitor, but from regulatory or consumer backlash against its data collection policies? If there is no such privacy backlash, wouldn't a competitive challenge likely come from someone who can better track consumer behavior?

Steven Pearlstein: I should say that Google says it doesn't use its information about the particular searching habits of individual users to target ads. Rather, it uses the entire database to determine common patterns (guys who search for baldness don't search for hair products) and then apply those patterns in targeting ads. There is an important difference there.

Obviously, however, if they wanted to, they could use the individual information to target ads to that user. And that would probably improve the targeting even more. But please understand that there are companies out there that are already doing this based on other information that is available about individuals -- what catalogues they order, what magazines they read, what organizations they belong to, etc. And this works pretty well too. So whether the search information is really the holy grail that you say, I'm not sure. It might be just another incremental improvement to the targeting. Facebook, on the other hands, knows lots of other stuff about its members that may be even more interesting.


Atlanta, Ga.: It really irks me when people talk about competition sometimes. I mean, really, is the world going to explode if we have only one search engine? If someone can do it better, then more power to them, but does any govt REALLY need to be involved? It's so crazy.

I read that several years ago the FTC had a problem with two BREWERIES merging. That there wouldn't be enough competition in BEER. How ludicrous is that? Does the govt really need to be involved with that? As if another beer couldn't enter the marketplace? And what if it didn't? Would my quality of life suffer? If I didn't like it, I could try to buy another beer (the horror!) - or make it myself, or brew it myself or have wine. I think things are a little out of hand out there with regards to competition.

Steven Pearlstein: I wish I had found the space to include a comment from Paul Romer, the very distinguished economist, who I spoke with last week. Paul made the point that one reason the United States became the richest country in the world is because it was a leader in innovating and adopting new technologies. And he credits the antitrust law, which is an American invention, with contributing significantly to that. The point is, it does matter. I can assure you that if the government had not gone after Microsoft, there is a good chance there never would have been a Google. Even if the Google Guys had come up with a better search engine, they would never have been able to succeed as an independent company if they had to get around Microsoft's operating systems and browsers.


Rockville, Md.: The experts were all in a chorus before the IPO. "Don't buy Google." Well my retirement funds were in the Thrift Savings plan and I was not all that confident - but had I put my retirement money in Google, my choice would be the Cadillac or the BMW. Every year. But Google is no Microsoft and I don't even see why it would want to be one. Microsoft is a large "utility" and will never do that much in innovations. They just copy others. Better to be the next Apple or even IBM.

Steven Pearlstein: I guess this is a common belief, that Microsoft just copies everything or buys it. I think that's a bit harsh, although it is certainly true that they haven't exactly been a font of innovation in recent years.


James, Arlington, Va.: Apple - Google.

Apple has visible products that sell.

Google is a search engine that sells ad space and web hit space. Sooner or later someone will come along that does it better and cheaper and what Google does is not innovative at all.

Steven Pearlstein: They have a good search engine. And they match consumers, advertisers and publishers better than anyone in the business. They didn't get those systems by picking them off a tree. I think you underestimate them.


Los Angeles, Calif.: Was YouTube a good investment for Google?

Steven Pearlstein: Not yet, but I'm sure it will be. They realize they paid a very steep premium, and caused the price of every other startup in the valley to rise as a result. But as I said, getting the early lead in these markets is important, and they probably felt they didn't have the leisure to build a competitive video product on their own.


Garrett Park, Md.: Your article in today's Post lists libraries among those who regard Google with respect and fear. The front page of Monday's New York Times has an article about libraries growing disenchantment with Google due to the restrictions Google puts on what a library can do with its copy of texts digitized by Google. Any comments?

Your article also says Google is the "gold standard" for corporate transparency. Libraries have found it hard to get answers about text digitization from Google. When asked about quality control of its digitized texts Google said it wasn't discussed much. Doesn't this suggests that the quality is no better than it should be?

Steven Pearlstein: Can't say I know much about all that, other than that libraries are threatened by Google. Google is trying to turn itself, among other things, into the world's library, which rather begs the question of whether so many other libraries will be needed. So its understandable.

As for transparency, I was referring to transparency for investors.


Dupont Circle: I'm 24 and most of my friends and I hold the belief that the Google product/service is always better than the alternative (and this includes people who are CompSci majors and IT professionals). How will this sort of brand loyalty effect things?

Steven Pearlstein: It makes it real hard for anyone to compete. Why would anyone chose the second best search engine, if the cost is the same.


Arlington, Va.: How much will Google be competing for ownership of companies that may not be directly related to its services -- such as these reports of vying with Microsoft for part of Facebook.

Steven Pearlstein: It is eying Facebook, as I mentioned this morning, and that is worrisome.


Princeton, N.J.: I'm not sure what you mean when you say Google doesn't use individual information. When I search for info on a particular lamp, I get a bunch of ads selling that lamp at the top and lamps in general on the side.

Steven Pearlstein: They use the keywords you put in for a search to give you the relevant ads, yes. But if they keep a record of all your searches, which they do for a time, they could develop a more sophisticated profile of you that would be very useful to advertisers in targeting ads to you when you aren't searching, but are on any number of other web pages. And in that area, they tell me, they don't use the detailed personal information, but rather rely on probabilities based on aggregate information.


MD: Is Google into federal searching? Vivisimo and Webfeat are growing.

Steven Pearlstein: Don't know anything about that. Sorry.


Washington, D.C.: What is the possibility of a "Googlezon" -- Google merging with or making a deal with Amazon?

Steven Pearlstein: Probably not very likely. Google wants to be a small part of every retail transaction on the web, so I doubt they want to get too tight with any one retailer.


Washington, D.C.: Is it just me or has Youtube turned into a vast wasteland?

Steven Pearlstein: Admission: I'm not sure I've ever been on YouTube.


DC: MD is talking about federated searching. Like you go to your public library and all their electronic databases subscription is merged all into a search engine called Webfeat or Google Search Appliance or Vivisimo. Sort of like a one-stop site.

Steven Pearlstein: Thanks.


Garrett Park, Md.: Are there any new developments in the conflict between publishers and Google about digitization of texts still under copyright?

Google digitizes the full text and only allows searchers access to "snippets" but some publishers object to this.

Steven Pearlstein: We're going to be hearing about this struggle for years now.


Steven Pearlstein: That's about it for today, folks. "See" you next week.


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