It's almost impossible to find anything worrisome about Google's 2006 results. Profits were stellar, international expansion shows promise because monetization rates can improve dramatically and Google Checkout and YouTube are making progress. Pick a number and it was impressive.
There is one challenge Google faces though--scaling up its infrastructure and people to take advantage of all the opportunities ahead while maintaining its culture. Can a company realistically grow this quickly without a few missteps?
The company's secret sauce thus far has been managing its growth and investing heavily while maintaining its culture. While search algorithms and new products get the headlines, the business processes--human resources, financial systems and the ranking of projects--underpinning Google's growth is the real asset.
Nevertheless, these processes will be put to the test. Listening to the Google earnings call, you get the impression that the company is busting at the seams and running as fast as it can.
- Google had $1.9 billion in capital expenditures, most of it due to increased IT spending on data centers and the like.
- The company is hiring people by the thousands. And Google's human resources team now has to scour the globe for international talent.
- Google has a lot on its plate--search can be improved, executives talked up mobile technology and YouTube needs to make money.
CEO Eric Schmidt noted that "big priority for the company over the next while is the issue of growing the company."
Specifically, Google has to find an organizational structure that'll scale as it adds thousands of employees. At some point, Google could find itself downright bloated. "The long-term organizational structure, the human resource that we have managed to build, has tremendous potential, needs management focus, needs growth and training and so forth, and all of that is in place," said Schmidt, who added that Google is taking its U.S. practices and exporting them to new markets.
Meanwhile, Google is investing heavily in its business.
CFO George Reyes noted:
"Capital expenditures for the quarter totaled $367 million, bringing total capital expenditures for 2006 to $1.9 billion. The majority of our CapEx is related to IT infrastructure investments, including data centers, servers and networking equipment. Our leadership in search and ads is a direct result of our relentless focus on building the most robust platforms for our users. As we scale, our business increasingly requires substantial computational power. In 2007, we expect to make significant capital expenditure investments. It is important to point out that the strategy of aggressively investing in our infrastructure has paid off handsomely and remains critical to our success, and we intend to follow this strategy for the foreseeable future."
Simply put, Google's biggest challenge isn't competition, new search algorithms or even building its technology infrastructure. The challenge for Google is growing the company at a rapid clip while maintaining its startup vibe and culture. When Google history is revisited, the company's structure and processes to manage growth may be its biggest accomplishment.
Sergey Brin summed it up:
"What is not apparent from the outside is the set of rigorous systems and processes that we use to manage our growth while maintaining this entrepreneurial zeal."
Those processes are Google's secret sauce. And they better work. Managing growth poorly may be the only thing that could trip up Google.