Google, after all, has done an amazing job with its search engine and, thanks to the profits from all the ads it sells, has an enormous war chest to invest in research and development. The company is so keen on innovation that it allows its engineers to spend 20 percent of their working time on projects that aren't necessarily part of their job description. It's that "20 percent time" that helped spawn such projects as Google Suggest, AdSense for Content and Orkut.I realize this is just one commentator’s interpretation of a $20 billion/year company. Still, I find Magid’s final point particularly interesting. Most of the internal innovations are related to search (Orkut is a me-too social networking site that has pockets of success), while the new areas have come from acquisitions.
And what Google can't invent, it can buy. Its Google Voice application, which it acquired when it bought GrandCentral Communications in 2007, is a stellar product, as is YouTube, which Google acquired in 2006.
In other words, to successfully diversify outside its area of expertise, Google has to buy not make those businesses. Google is the most successful high-margin, high R&D, high-growth tech company of our era, just as Microsoft was in the 1990s, Apple and DEC in the 1980s, and IBM in the late 1960s. One way to look at this is if Google doesn’t have the resources to pull off internal diversification, who does?
Another way to look at it is that Google is copying Cisco — diversification through acquisition — because it’s painfully aware of its predecessors’ failures. Yes, IBM created some great businesses through internal R&D, as have Apple and Microsoft (in many cases by hiring key talent from outside). However, the “not invented here” model of internal innovation also brought us such notable flops as the DECmate, DEC Rainbow, IBM PCjr and Apple Newton.
So perhaps we should give Google credit for taking its cash and savvy for buying the best innovations that are available — assuming it spends its money more prudently than the drunken sailors in Washington.
This does come back to a minor academic controversy: is it “open innovation” to buy up innovative companies? It’s open innovation to buy products from such companies, and closed innovation to develop things inhouse. Although others might disagree, I think the integration (or diversification) by acquisition is in the end a form of closed innovation, because it reflects an ongoing desire to control key technologies through administrative hierarchies rather than source them using markets.