Chinese syndrome

Chinese syndrome

In the summer of 2005, Bill Gates and Microsoft were preparing for an offensive. They could not allow Google to continue to grow at the same pace. Gates created a group at Microsoft, whose members were supposed to focus solely on competition with Google. The group presented a secret report entitled “Problem - Google” to company executives. The fact is that the migration of programmers from Microsoft to Google took threatening momentum. Thousands of resumes flowed daily at the Googleplex, and Microsoft struggled to keep its best employees, increasing their salaries and extending privileges. Such brain drain did not know the brainchild of Gates. Google regularly lured talented techies from Microsoft - as if Gates was the director of a recruitment agency serving Larry and Sergey. It had to end - yes,to get media attention all over the world.

China has become the main battlefield for specialists - with its phenomenal economic growth and more than one hundred million Internet users. This country was an excellent base for attracting profits and new talents, and Microsoft has already opened its representative office there, which has about a thousand employees. Now came the turn and Google to enter the market of the Middle Kingdom. For the company, expansion into China was of great importance: the country will sooner or later become the world's largest Internet market, and it already ranks second in the number of computer users, second only to the United States. If Microsoft still manages to prevent Google from mastering China’s online space and attracting new employees, the consequences for the latter can be quite painful.

To succeed, Microsoft will have to change tactics. Whenever the software giant, releasing new products, tried to counteract the international expansion of Google, it did not work. Cases on Wall Street, the company also did not go too well: she could not achieve growth in the stock price, and her every step did not cause the same keen interest as the step of a competitor. It looked like Microsoft struggled along a mechanical treadmill. For the sake of fairness, it should be noted that Microsoft still outnumbered its rival on a scale - its exchange value ($ 275 billion) was more than three times higher than the exchange value of Google. She also received a steady income from sales of PCs with built-in Windows and a set of office programs. In addition, the giant’s bank accounts held billions of dollars,A wide range of products included many software products, including computer games.

But since image plays an important role in the modern world, many programmers considered Microsoft to be the “Soviet Union of the sphere of software”. For them, it was a colossus with feet of clay, which in the era of digital technology and high speeds is not able to keep up with the times. The software giant clearly lacked charm. Gates really wanted to return his former superiority to his company - if not by introducing innovations, then with the help of brute force. Seeing that it’s not possible to retain employees, Microsoft CEO Steve Ballmer said: “Damn it, I will destroy Google!” The large-scale attack on Google in the field of recruiting had every chance of getting wide publicity. And if it affects China, it will be great at all.

Undoubtedly, it was necessary to undertake something. In the spring and summer of 2005, Google increased the rate of recruitment: in three months, the company's staff was enlarged with seven hundred specialists. Under the guidance of Larry over the past year, the number of Google employees has almost doubled and now stands at 4,183 people. The company opened its offices in different parts of the world - in Sweden, Mexico and Brazil - and hired new employees in twenty-four countries. In Europe, South America and Asia, Google was clearly on horseback.

Now the eyes of the company’s leaders were fixed on China. “China is a very promising market in general and for Google in particular,” Paige said. - I am sure we will occupy an impressive niche in the Chinese market. However, the process is still at the initial stage. ” After Google applied for the registration of a representative office in China, and Eric Schmidt personally went there to make sure that everything was all right, Microsoft prepared to bring down the Nemesis sword on the competitor.

Dr. Kai-fu Lee began working for Microsoft in 1998 — the very year Google was founded. A recognized specialist who received a degree from Carnegie Mellon University and maintained close ties with the communities of programmers in China and the United States, Lee founded the Microsoft Research Asia laboratory in Beijing, which quickly established itself from the best side. In 2000, Lee was transferred to Microsoft's US headquarters. His responsibilities in the new position were quite wide: from control over the implementation of the company's strategy in the field of information retrieval to the improvement of Microsoft software products. He participated in meetings of the Redmond-China Advisory Board, whose members monitored the execution of operations and the implementation of Microsoft's strategies in China, and, if necessary, was engaged in the search for suppliers in China.He also met directly with Bill Gates to discuss issues related to Google’s business and search technology. Microsoft did not spare funds for Dr. Lee’s salaries: only in 2004 he received more than a million dollars in wages and bonuses from the company.

And in the spring of next year, Lee heard that Google was going to open a major research center in China, and discussed with the company’s leaders the possibility of appointing him to the position of the head of the center. This will allow him for the first time to create something from scratch. Such a call was to his liking - as was the prospect of joining Google. When the negotiations reached the finish line, Lee, who had once signed an agreement on refusal to compete and was still on the staff of Microsoft, notified its leaders that he wanted to leave. Google, he explained, offers him the position of head of his representative office in China.

If Lea leaves, he will become Microsoft’s highest-ranking employee, lured by Google, and the main target of a full-scale legal attack. In the ensuing legal proceedings, Lee under oath said that Microsoft Senior Vice President Rick Rashid warned him: “You should not leave. If you leave, you will be in big trouble. ”

“After you leave, we have to do something. Please don’t take our actions personally, ”Microsoft CEO Steve Ballmer told him. - We like you. Your contribution to Microsoft is immense. And legally, we will not chase you, but Google. ”

Finally, Lee met Bill Gates himself and tried to persuade him to stay, making clear what would happen if he did leave. “Kaifu,” Gates told him. “Steve will definitely sue you and Google.” He had been waiting for something like that for a long time ... We just need to do this in order to stop Google. ”

Despite all these warnings, in July 2005, Lee followed the example of a number of other experts and moved from Microsoft to Google. The search giant welcomed his arrival, noting that Li would help the company to become a leader in China. Lee himself said that all this will definitely lead to technical breakthroughs that will contribute to the growth of not only the Chinese economy, but also the US economy. The title of his position - President of the Google branch of Greater China - testifies to the high recognition of his professional qualities.

Any war begins with a single shot. This was no exception. In response to a Google ad, Microsoft issued a salvo that had thundered on the high-tech world. In its lawsuit against Google and Dr. Lee, Microsoft said that Google intentionally urged it to violate the terms of the personal hire contract entered into with Microsoft. “Dr. Kai-fu Lee, in the connivance of Google, is in flagrant violation of the non-competition agreement signed by him at Microsoft,” the company stated in its statement of claim. “If he assumes the position offered to him by Google, he will inevitably help Google fight Microsoft’s business strategies in China - strategies that have been developed with his active participation.”

While Microsoft was seeking an injunction against his transition to Google, Lee went to China, where he held a press conference for the media. Google meanwhile made a response lunge. In her counterclaim, she said that Microsoft’s actions were a pure farce that was intended to “scare other Microsoft employees away from the thought of leaving.” However, the preliminary ruling by a judge in the state of Washington was in favor of Microsoft: it forbade Lee to engage in any work related to finding information or Google’s plans for China.

Lee meanwhile published a book on self-improvement and motivation and went on a tour of universities in China, where he lectured and talked about Google. On one of the most popular Chinese computer programmers, Lee put out his arguments in favor of switching to Google, presenting them in the form of mathematical equality: "youth + freedom + transparency + new model + public benefit + trust = a miracle called Google."

In August 2005, when the battle with Microsoft was in full swing, Google celebrated the anniversary of the stock market, once again surprised Wall Street: the company announced that it plans to issue shares worth $ 4 billion. With this money, it can more effectively withstand the increasing competition from Microsoft and Yahoo! both in America and in other countries. The search giant announced that it would release 14,159,265 shares for sale - the number that corresponded to the first eight decimal places in the paragraph. digits of the number e.) For “Google watchers,” this was a sure sign that the company, despite its rapid enrichment, retained its corporate culture. Google also announcedthat he is going to hold a culinary art contest at Googleplex, which will select two chefs to replace Charlie Ayers. “We invite all our employees to participate in this contest as tasters,” said Brin.

Larry and Sergey, the mathematicians who became businessmen, still did everything to turn the ordinary into the extraordinary. A few months after the IPO, the founders of thirty-one became the youngest billionaires of America, and hundreds of other Google employees became millionaires. Forbes magazine included Page and Brin in the list of the four hundred richest Americans, relegating them, the owners of the state to 4 billion dollars, 43rd place. The value of the state was determined based on the price of Google shares, which at that time was $ 110. When the stock price rose to $ 300 at the end of June 2005, each of the founders became the owner of more than eleven billions. True, this state of affairs did not suit Sergey's mother, Eugene Brin: she wanted her son to return to Stanford, wrote his doctoral dissertation and became a professor.

Directors, board members, major investors, and Google employees sold shares worth almost $ 3 billion over the course of the year. At the same time, the sale of shares by Larry, Sergey, and other top managers did not dampen investor enthusiasm. Often, such a move by company executives is perceived negatively on Wall Street, but Google has become an exception. In addition to the shares they sold as part of the IPO, Larry and Sergey each month threw 400 thousand shares onto the market, which brought them more than $ 750 million, and CEO Eric Schmidt sold 113 thousand shares a month, earning over 225 million on this. dollars. John Derr and Ram Srirem, one of the first investors of Google, also turned the company's shares into hard cash, earning $ 45 and $ 313 million, respectively. Stanford University rector John Hennessy also sold the stock,which he received as a member of the board of directors, rescued $ 2.5 million for them. Google’s shares were quoted highly, but all their holders understood that something could happen at any time that would cause a drop in value.

In deciding whether to sell their own shares, Larry and Sergey took into account the advice of financiers and lawyers who have seen many booms and crashes. The founders planned to retain most of the securities, but did not want to repeat the fate of those poor fellows from Silicon Valley who “fell in love” with their company's shares, did not sell them at all, and ended up left with nothing. Therefore, regardless of whether the stock price falls or rises, Larry and Sergey made sense to sell the same number of stocks every month, on the same day. This avoided two problems. Firstly, since the sale is made “on autopilot”, there will be no question, and whether their activity in the market is due to the fact that they have some confidential information “for their own”. Secondly, they will turn part of the shares into money, and thereforewhatever happens, they will have more money than they need for the rest of their lives. Moreover, due to the presence of two classes of shares (one class A share gave one vote to one vote, and one class B share - ten), they could easily sell the shares without fear of losing control over Google.

Many employees of the company, including the founders, bought property for themselves with money from the sale of shares. Sales director Omid Kordestani, who sold shares worth several hundred million dollars, even became the hero of the front page of the Wall Street Journal. For $ 17.8 million, he became the owner of a 1,400 square meter house in Atherton, a suburb of San Francisco, not far from main office google. Other Google employees followed the example of Kordestani, and therefore real estate prices in Atherton rose to such heights that the area became one of the most expensive in the country. Google employees also bought houses in Menlo Park, where Larry and Sergey started working on their search engine, and in Palo Alto, not far from Stanford campus. To attract customers, real estate agents who worked in this area,placed their ads on google.

Having earned billions of dollars in 2005, Google also began to buy. The company has invested several million dollars in Current Communications, a private company that offered Internet access via power lines. Most Internet providers provided high-speed Internet access using cable television antennas or telephone lines. This investment was another confirmation that Google is interested in expanding access to the Internet and reducing the cost of electricity - the main factor in choosing a location for a company. Google also acquired the company Last Software, which developed the graphic program SketchUp, through which Google Earth users could view the views from space, and Upstartle,developed Writely, a free online alternative to Microsoft Word. In addition, Google launched the Google Spreadsheet application, which allowed working with spreadsheets on the Internet, and the Google Calendar service, which enabled users to maintain their own online calendar.

But the company achieved its biggest strategic success in December 2005: bypassing both Microsoft and Yahoo! she entered into a $ 1 billion agreement with America Online that expanded their partnerships. Prior to that, the press had been stating for several weeks that Microsoft was about to replace Google as the official AOL search server. But the talks initiated by Eric Schmidt literally at the last moment (the situation was very similar to the situation a year earlier, when Google sought to partner with AOL Europe) turned everything upside down: Google acquired 5% of AOL shares and gained the support of a solid partner in a promising area online video.

Two days after the company announced a deal with AOL, Google and Microsoft reached an out-of-court agreement on the Kai-fu Lee case. Its details have not been made public, but there is no doubt that such an outcome of litigation - payment by Google of compensation - did not bring satisfaction to Microsoft executives. Gates and Microsoft got a double blow - they lost to Google twice during the week.

For Kai-fu Lee, the settlement of the lawsuit meant that he could now proceed to full-time duties as the head of Google’s science center in China, where the Internet market was becoming more and more competitive. So, Yahoo! recently, for $ 1 billion, acquired a stake in Alibaba, a leading Chinese Internet company. A Baidu honeycomb, the largest Chinese search engine (the word baidu means “a hundred times”), whose logo was very similar to the Google logo, in August 2005 placed its shares on Wall Street. On the first day of trading, its stock price soared from $ 27 to $ 122, which was the biggest increase (in percentage) in the IPO since the collapse of the Internet technology market, which happened five years earlier. Baidu's initial public offering brought billions of dollars to the global Google system, which has grown everywhere.That same week, an English company for $ 43 million acquired Search Engine Watch, the website of Danny Sullivan, a journalist who became an expert on Internet search technology. He still closely followed all the steps of Google and regularly posted on the site messages for his many thousands of readers.

The potential benefits of entering the Chinese market every day were becoming increasingly obvious to Larry, Sergey and Eric. The expected rapid growth of search and advertising activity on the Internet will allow Google to demonstrate high levels of sales and profits for a long time, thanks to which its shares will continue to attract investors. Having a representative office in China also gave Google an advantage: now it could attract young local programmers to work.

At the same time, entry into this market was fraught with a number of difficulties. The country was ruled by an all-powerful communist bureaucracy that actively monitored, restricted, and censored Internet activities. To conduct business here in accordance with the basic principle of the founders - to provide users with free and unrestricted access to information - was difficult. Since 2000, the company has been practicing an approach that provides for “unfiltered” search results in Chinese - that is, the same as in any other part of the globe. Since this site was managed by the Googleplex, the government of China was not able to dictate what can be shown to users and what cannot. The problem, however, was that certain links were blocked within the country. True, users could seeto what information is blocked access. The blacklist contained mostly pornographic and political sites — especially those containing information about human rights, Tibet, Taiwan, and student demonstrations in Tiananmen Square. The blocking was carried out through a set of ultra-modern filters, dubbed the "Great Chinese firewall."

This unpleasant moment became a matter of serious concern for Google when Chinese users reported that Google.com was blocked completely. And although the blocking turned out to be a temporary phenomenon, Larry and Sergey realized that in relation to China they did not control the situation. They were in a very difficult position. The company, in principle, could host its servers in China, where they would not be covered by a “firewall”. However, in this case, she would have to act in accordance with local legislation - in particular, agree to censorship.

The founders for the first time faced such a serious moral dilemma: to resist the censorship of Chinese government agencies and risk market share due to poor quality of services or agree to filter the search results for the sake of further development of the company? Microsoft and Yahoo! We have already opened censored versions of our websites in the Chinese Internet space, where you could search for information, work with e-mail and use all sorts of services. Google, which has repeatedly stated that it intends to adhere to the higher standards declared in the IPO application, is now between two fires.

A hot discussion ensued on this issue in Googleplex that raged for several months. Finally, in January 2006, Larry and Sergey, the judges of the last instance, concluded that the best option would be to host servers in China and create a local version of Google, albeit censored. The background of this decision, Eric Schmidt, explained during his speech to the participants of the World Economic Forum in Davos: “We came to the conclusion that, although we are not enthusiastic about all these restrictions, we should still serve Chinese users. In a sense, we had to step over ourselves. ” Google representatives stressed that the pages with "filtered" search results will be posted a corresponding notice, and Google will not save personal information about usersso that it does not fall into the hands of government agencies. Nevertheless, newspapers and magazines around the world were full of loud headlines, subjecting the company to fierce criticism. The US Congress even decided to hold a hearing on this issue. The fact remains: in the situation with China, the founders retreated from their intransigent position.

At about the same time, a debate broke out in the United States over the demand of the Department of Justice, addressed to Google and other Internet companies, to provide the data they stored about users. Microsoft, Yahoo! and AOL provided the requested information, but Google decisively refused, saying that this could have serious consequences.

Schmidt, who came to Beijing in the spring of 2006 to open the Google Science Center, again stressed that the company had made an “absolutely right decision”, adding that it would be too “arrogant” to try to make changes to the censorship policy. But in July, Bryn, while in Washington, admitted that Google had "renounced" its principles in China, and made it clear that it was not without pressure from local authorities. “Perhaps today a principled approach seems more preferable,” he noted. “But we chose a different path.”

By the beginning of the summer of 2006, Google’s stock price had risen to $ 120 billion. Now the company is worth more than Amazon, eBay and Yahoo! put together. Google, considered an IT company, earned money just like most media outlets — through advertising. It is interesting that the company, whose financial success is based on advertising, practically does not spend money on advertising itself - it simply does not need this. A year after Google’s stock exchange, Google was worth more than the world's largest media company, the venerable Time Warner, which owned Hollywood film studios, cable TV channels, magazines, and the online company America Online. It cost more than Disney, Ford and General Motors combined. The market value of Google is more than 40 times the market value of Dow Jones, a companypublishing the Wall Street Journal, about 30 times - The New York Times Company and about 15 times - The Washington Post Company. In order to earn even more in the future, Google is developing new methods of payment, designed to simplify the process of online shopping, and probes the ground for selling advertisements on the radio. It also improves the mechanisms for tracking sales facts directly related to the cost of advertising on Google. For large corporate advertisers - in particular, well-known retailers Wal-Mart and Costco - it provides new services that allow you to more efficiently manage ad placement on Google. In addition, she reorganized the sales department to improve service to the largest US companies.Google programmers, in close and non-publicized collaboration with Hollywood film studios, are developing ways to protect copyright in digital video: making it easier for films to find, download, and pay online — the company is again competing with Microsoft in this direction. At the same time, it is very important for Larry and Sergey to maintain their leading positions in the field of search, because in many respects thanks to Google’s leadership, most of these operations on the Internet (in the USA - about 60%) are carried out through its search engine. "We will continue to focus on innovation and end-users," said Eric Schmidt. “We can be proud of our specialists, scale, technology and new products.” When Bill Gates announced in June 2006 his intention to retire, the baton passed to a new generation - the generation of the Internet era,the leading representatives of which were Larry and Sergey.