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Bringing the Innovation Back

On the outside all is fine. Financially the company continues to make great strides. Fourth quarter revenues leapt to $8.44bn, up 26 per cent on the same period last year. Operating income hit $2.98bn a very healthy 35 per cent of revenue and a $500m rise on Google's previous Q4. Look a little closer though and income as a percentage is actually down - it was 37 per cent of revenue in the last Q4. Negligible percentage points aside, where the real concern for the company lies, however, is ideas.
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Google has long been known as an ideas company. Staff famously get 20 per cent time - 20 per cent of their working week is given to developing their own ideas - but recently too much from Google has been me-too services. There is nothing wrong with this in principle. Gmail was not the first web based email, Google Search far from the first search engine and Google Maps... well, you get the idea. The difference is they performed better than their rivals and deservedly grabbed huge chunks of market share. They were game changers without really changing the game.

By contrast what has Google Buzz achieved other than notoriety? Google Wave was an abject failure, Wikipedia rival Google Knol is likely to be cancelled at any minute and two of our four picks for the Biggest Losers of 2011 were Google products: Chrome OS and Google TV. The ongoing success of Google Search, Android and - to a lesser extent - Chrome continue to mask these failings, but the cracks are starting to show. Has there been a Google service you were genuinely excited about in the last two years, I suspect not.


It would be unfair to say Google has become directionless, but it is no coincidence that its lack of incisiveness has long been mirrored at the top of the company. The fluid nature of Schmidt, Page and Brin's leadership has been admired for many years: Google continued to grow at a phenomenal rate while few could actually pinpoint who was actually in charge or who did what. Yet Google has now reached such a size - at $200bn it is just $40bn behind Microsoft - that greater clarity is required. Investors need to know who calls the shots and it also inspires confidence to see the founders finally graduate to lead their own company in clearly defined roles. As much as Page becoming CEO, putting Brin back at the coalface in charge of innovation speaks volumes.

Initial market reaction to the moves has been positive. Shares jumped 1.1 per cent (nearly $7 per share) on the news and Standard & Poor's gave the stock a four star (out of five) buy ranking. It is now up to Page and Brin to prove the changes are more than superficial. With their father figure stepping aside It's time for the boy wonders to become men.

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