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For the biggest internet phenomenon of all times, growing does not suffice. There is the need to continue to grow astronomically. And for Google, this will only be possible by attacking the territories of Apple, Microsoft and Facebook. Get ready to see blood

Tiago Lethbridge, from Mountain View

In the beginning of the year, amidst the euphoria caused by the launching of the iPad, Steve Jobs decided it was time to attack an old ally. For years, Jobs' Apple and Google were the protagonists of one of the most famous partnerships in Silicon Valley. Eric Schmidt, Google's president, sat at the management board of Apple. Jobs, in turn, was one of the mentors of Google's founders, Larry Page and Sergey Brin. However, since last year, all this brotherhood gave rise to a battle that has been nicknamed the "third world war" and the "biggest ego fight in history". The bone of contention is the mobile computation market, in which both companies intend to reign - Apple with its iPhone and Google with its Android operating system. Last year, Schmidt was kicked out of the Apple board. In January, he launched the first cell phone created by Google. And the atmosphere, which was already bad, got worse. Jobs, like a general talking to his troops, attacked the new rivals in a speech to Apple employees in January. "We did not enter the search market", he said, referring to the traditional domain of Google and, of course, blaming the other side for the start of the hostilities. "Do not be misled. They want to kill the iPhone. But we will not allow it". An employee then asked what he thought of the Google mantra - "Don't be evil". Jobs answered: "Bullshit". Steve Jobs is not the first tycoon to become angry in reaction to Google's ambitions. In its trajectory of almost 12 years - from the small room at Stanford University to the supremacy of the world internet, Brin's, Page's and Schmidt's company amassed a reasonable list of enemies (Rupert Murdoch, the almighty controller of the media group News Corp., seems to have found a special pleasure in calling them "robbers" of the content of his newspapers). However, Jobs war rhetoric reflects a change in the behavior of Google, which is today experiencing a particularly expansionist phase. The fight with the former friend Apple is a manifestation of this new stance. Google is preparing, up to the end of the year, another series of attacks on old and new rivals.  The company will launch its first operating system for computers, in a bomb directed at Microsoft and its omnipresent Windows. It will inconvenience Amazon in the e-book market with inauguration of the Google Editions site. In addition, it will extend its tentacles to television with the launching of Google TV. The last target on the list is the social network Facebook. According to the specialized media, Google is preparing what will be its boldest investment in the growing market of social networks. "They are in 'war mode'", says Colin, Gillis, technology analyst of the stock broker BGC Partners. So much aggressiveness is the result of a paradox. Evaluated by the standards used to measure the performance of normal companies, Google is experiencing a spectacular phase. Its incomes should increase by 24% in the second quarter of the year, the profit was almost 2 billion dollars and the company has a cash flow of over 30 billion dollars. The problem is that normal standards are not valid for Google. Between 2001 and 2009, its turnover has been multiplied 273 times. It is thus inevitable for the current figures to be viewed as disappointing. To make matters worse, its growth rate has only dropped in the last seven years. The company's stocks, previously a guarantee of spectacular returns, dropped by 20% in 2010. From its foundation until today, Google has only invented one way of making money: the sale of adverts, displayed on the pages on which the results of each search appear. It was a great finding and made Google the highly profitable company it is up until today. However, this market is undergoing a natural deceleration, mainly in the rich countries - and the model that guaranteed Google its incredible expansion in the last decade will hardly do the same in the next. "Investors are becoming impatient", says Scott Kessler, analyst from Standard & Poor's. "They are unable to find a new source of growth, and this is cause for concern."

The moment experienced by Google is typical of the technology sector, in which everything comes faster, whether success or ostracism. In no other market has the old cliché of the management gurus - the need for constant "reinvention" been so valid. Apple and Microsoft are good examples of this. Microsoft is still the most profitable technology company in the world. However, since it has not invented any product of impact since the 90s, its stocks have been a blooper for over a decade. Apple, on the other hand, originally a computer manufacturer, launched the iPod nine years ago, the iPhone three years ago and the iPad in the beginning of 2010 - and has been making a lot of money with each one of them. The market returns all this success with an unconditional love. Therefore, although Microsoft still has a profit higher than that of Apple, today, Steve Jobs' company is worth more in the stock exchange. Simplifying as much as possible, the fear that is beginning to rise in relation to Google's future - that the company is starting to look more like Microsoft, and less like Apple. It is exactly what Eric Schmidt, the fifty-something year-old who heads Google together with the two founders, is trying to prevent on putting the company in "war mode". The success of Google's formula in the last decade made Schmidt one of the richest executives in American history. His fortune was estimated at 6.3 billion dollars in the beginning of the year - the recent fall in stocks, therefore, has cost him over 1 billion dollars. "I have never been so happy", he told EXAME in his minuscule meeting room at the Google headquarters, in Mountain View, in California. "We are investing in the company's future, and it takes time for all these initiatives to become significant businesses". In the first seven months of 2010, 15 companies were bought by Google, a record. Amidst the anemic recovery of the American economy, Schmidt is hiring - over 1,000 employees have been hired since last year. To explain his current strategy, he draws a series of graphs on a board. Each one of them starts with an accelerated growth curve, followed by a period of stability. The aim, he says, is to have several new businesses to make up for the halt of the older ones. "Over the years, companies tend to become more conservative, to risk less. We will up the stakes" With 30 billion dollars in cash and as aggressive as never, Google arms itself to start its much awaited second act.

"We will up the stakes"

In an interview to EXAME magazine, the world president of Google, Eric Schmidt, talks about his plans for expansion

In September, Google will be completing 12 years since its foundation - and Eric Schmidt, a 55-year old engineer, is fighting to prevent the arrival of a midlife crisis in the biggest internet company in the world. Under its command, Google went from an annual turnover of 86 million to the current 23 billion dollars. On the way, it accumulated an equity of more than 6 billion dollars. Schmidt knows, however, that even highly successful companies, like Google, run the risk of becoming too comfortable over the years. With a load of new investments in markets, like mobile computers, social networks and television, Schmidt is trying to prevent this from happening. From his meeting room at the company headquarters, in California, Schmidt talked to EXAME. Below are the main sections of the interview.

You said that Google is fighting to prevent the arrival of a midlife crisis. What does this mean?
Companies tend to become more conservative, and to risk less. However, we have so much money that we will risk more. We want to enter the highest possible number of projects. These new initiatives are necessary to make up for the deceleration in other markets. It's alright if it does not work.

Google's stocks fell by 20% in 2010, and some experts state that the company needs a new source of growth besides the search market - a king of second act. Is it a fair criticism?
What is wrong with the first act? I would love a new source of growth. Do you suggest anything? Speaking seriously, I recognize that the concern exists. It is legit. We are in great shape, but it is clear that we want to have other big businesses. But this takes time. We will not do anything stupid: we will not enter the insurance market, manufacturer refrigerators or make cement. Analysts want companies to increase results in the short term, and we want to invest in our future. We are trying to build new businesses, solve problems in an innovative manner. And this takes time.

Out of all Google's new investments, which one has the greatest potential to become this next great business?
Cell phone computation, which is growing rapidly worldwide. We have several initiatives. The Android system, applications for localization, the search engine. The best people, the biggest investments are concentrated in mobile telephony. In the future, it is the segment in which we want to make more money. How will we make money? I can give an example: We love the iPhone, the first telephone with a powerful internet browser. With it, people can make searches in Google. Apple makes a lot of money, we make a lot of money. If you have an iPhone, we love you!

It is being said that Google is preparing a site to compete with Facebook. What is the strategy?
We do not want to create another Facebook. I cannot speak much on this subject, neither can I comment on the rumors because we have not announced anything. But I recommend that you keep an eye on this area.

Google today competes with several companies and intends to compete with others. Why do you believe you can be better than so many people at the same time?
We try to solve problems differently. If we enter a market, we do not want to copy what others are doing. But we make mistakes. An example is a direct sale of cell phones, which we tried in the beginning of the year and later cancelled. We are willing to try new things. If it does not work, we change our minds. And competition is healthy.

The New York Times defended that the government increase inspection over Google, and European governments have accused it of violating privacy. Has the company become too powerful?
Europe has a history of concern with big companies and privacy. Google needs to dialogue more, invest more in these countries. We are too useful to the Europeans for their governments to want to expel us from there. We have a great incentive to do the right things. If we do something wrong to you, violate your privacy, you will abandon us. And we do not see users complaining of Google, but rather competitors.

Out of all the disputes Google has entered, none has been as important as the one that places Schmidt and Steve Jobs in opposite fields. The growth in the sales of smartphones (cell phones with characteristics similar to computers) is changing the face of the industry. According to estimates by the Morgan Stanley investment bank, in five years, majority of internet access will be through cell phones, no longer from computers. Apple and Google, therefore, are fighting for supremacy in what will be one of the biggest markets for technology companies. In the "third world war", the two companies enter with totally different tactics. Jobs makes money with the sales of devices - it is estimated that the profit margin of each iPhone is greater than 50%. While Google grants its Android operating system to manufacturers like Motorola, HTC or Samsung. The most important thing, however, is to ensure that the highest possible number of cell phones reach the market with their search engines installed - it is with these searches that Google intends to make money. According to Schmidt, Google can make 10 billion dollars per year this way - almost half of its incomes in 2009.
To get there, Schmidt separated over 300 engineers with the mission of creating programs for smartphones. "The best people, the biggest investments are concentrated in mobile telephony", he says. This taskforce tries to extract the most allowed from the current cell phone technology. One of the most impressive products developed up until now is the Google Goggles: with the cell phone camera, it is possible to, among other things, translate a restaurant menu or find out if the painting hanging in the museum is from Monet or from Manet. The engineers are now developing a simultaneous translation system based on user voice recognition. Thus, an American tourist can solve doubts on the Berlin subway without having to talk or understand a single word in German - all he will have to do is speak into the microphone of his cell phone, which will translate the phrase and the, late-, the reply from the Berliner. "This system should hit the markets in less than a year", says Minas Gerais citizen Hugo Barra, director responsible for the project. Up until now, Android has been a success. Almost 5 million devices are enabled per month. Boosted by these figures, Google is developing a competitor of the iPad in alliance with cell phone carrier Verizon.
The war with Apple perfectly illustrates Google's central strategy: to enter new markets, bring down prices, challenge the hegemony of the leaders and increase, at the end of the process, the number of users of its search system. Since the idea is to make money with advertising, Google can have the luxury of not charging for its systems, and the products end up becoming cheaper at the end point. Like Android, Google TV and the Chrome OS operating system will be offered free to manufacturers. Before Christmas, Sony will be selling TV sets with the inbuilt Google TV. Schmidt wants to convert TV sets into computers in which people can browse the internet, make searches and, of course, click on sponsored links. The same thing with Chrome OS. The operating system was designed to work the entire time connected to the internet - no one will need to download programs since they will all be available in the internet. "These fights are a way of making more money from the sales of adverts", says Tim Bajarin, founder of Creative Strategies consulting firm.
However, today, Google has higher ambitions - the company has also been gradually learning to sell products directly to companies and consumers. Google inconveniences Microsoft in one of its foremost markets: the sale of programs to companies. Over 2 million customers have already hired its services. And in July, Google won a victory on obtaining authorization to sell to the American government. Its hope for this business, today still small, is to generate billions of dollars in incomes in the future. The e-book site, Google Editions, is another way that was found to make money outside the advertising market. It is estimated that the new site will have millions of titles available in its launching, foreseen to take place by the end of the year.
While it attacks in many new fronts, however, Google is compelled - perhaps for the first time, to defend itself from a powerful adversary in its vital space, the internet. We are talking about Facebook, social network founded by Mark Zuckerberg. The growth of the company, founded in 2004, is the biggest internet phenomenon since Sergey Brin and Larry Page created their search engine. In 2010, Facebook exceeded the mark of 500 million users, and its share in the American internet market exceeded that of Google (see table on page 24). The rivalry between the two companies has been growing at the same pace. "They do not in any way represent the future of technology", says an executive from Facebook to Wired magazine. "There is no way of comparing both companies". Not satisfied with hiring the rival's executives, Zuckerberg went to Google to look even for its kitchen chef.
Facebook's hypertrophy creates countless difficulties for Google. The most obvious was the birth of a powerful magnet for internet advertisers, since no other company will have a such a deep knowledge of the likes and habits of its users as much as Facebook. Another probably serious problem is the fact that Facebook's expansion creates a large space in the internet that is unreachable by Google. "If the information from the fastest growing site in the world is not within Google's reach, then its capacity to serve as the definitive search engine may be at risk", writes the journalist David Kirkpatrick in the recently launched book The Facebook Effect. In view of this threat, Google is getting ready to launch a competitor to Facebook. Up until now, little is known of the project. According to a recent report from The Wall Street Journal, Schmidt has been negotiating with the electronic games market leaders to produce content for the new site. "We do not want to create another Facebook", says Schmidt to EXAME. "But I recommend that you keep an eye on this area."

Isn't it too much competition for one company? Can Google make better cell phones than Apple's, sell more books than Amazon, produce better programs than Microsoft's, be more popular than Facebook - and at the same time, defend its supremacy in the search market from the constant attack of companies like Microsoft? Schmidt likes to day that Google's differential is its innovative way of entering each market. However, this way does not always result in success. The social network market is already a classical example. The site Orkut has been a huge success in Brazil and in India, but it was a washout in the rest of the world, as well as other attempts to gain space in this segment. Some see arrogance as Google's Achilles heel. In the beginning of the year, on launching its cell phone Nexus One, the company promised to transform the market on selling devices directly to consumers, without the intermediation of carriers. It went so wrong that the direct sales project was suspended a few months later. "We try to do things differently and, when it goes wrong, we give up, without problems", says Schmidt. "But we have so much money that it does not make sense not to take a risk".
As if all these fights were not enough, Google has been facing another type of adversary in its search for growth: governments. The fight with the Chinese Communist Party over the censorship of internet prevents the company's growth in the biggest internet market in the world. In Europe, Google's headaches have a different origin: its expansion is viewed as a constant threat to privacy. The Street View project, in which Google's cameras photograph streets, stores and homes, is being investigated in countries like Germany, Spain and the Czech Republic for violation of privacy. In February, the Italian Court sentenced three Google employees for displaying a video that showed someone with Down Syndrome being molested by teenagers. After this, the Silvio Berlusconi government made a campaign to regulate video sites like YouTube, from Google - which classified the attempt "as a serious threat to the internet".



At the same time that it is being pressed by investors to accelerate its growth, the company must fight against the idea that it is already too powerful - and that the American government should intervene to reduce this power. In July, an editorial from The New York Times defended that regulatory authorities study a way of controlling Google. The newspaper repeats a concern of competitors: does the company, which dominates two-thirds of the market, show the best results for each search or those that reflect your commercial interests? This controversy brings concrete problems. The approval of big purchases will be more and more difficult, for example. Purchase of the mobile advertising company Admob, which cost 750 million dollars, took almost six months to be approved, in May. In response to this fear, Google's executives usually say that the company has a great incentive to do the right things: it is a good business. The competitors, after all, are a click away, and consumers will run away if Google messes things up. The latest assaults are a demonstration that, no matter how loud, the growing opposition will not reduce Google's ambitions. "We want to help the consumer", says Eric Schmidt, echoing the old Google mantra - the one that Steve Jobs sees as bullshit. "There is still a lot to come".