Tragedy in the Rise of Giants

I first worked at Google back in 2012. Thinking back to the way the company was run then, it seems like an entirely different era. It was a place of radical transparency, where any employee could stand up at a weekly TGIF meeting, and have an earnest conversation directly with the founders. It was just a company, but it really felt like a company with heart. This year has been a bombshell for Google and now with Larry and Sergey finally leaving, it inspires the question: what happened? In 2008, both had a plan to work at Google until 2024. What takes a company with everything going for it, and drags it down into a place with employee protests, cut benefits, and secretive government deals?

The most common answer I hear is “greed”, but I think the real answer is a bit more subtle. Normal people don’t wake up in the morning and decide they’d like to take a controversial government contract. All of Google’s businesses are already growing at a breakneck pace. My opinion? Google’s decline is systematic, not intentional. So what happened? The stock market and rapid expansion. Let me explain:

Here’s a fundamental secret to how the stock market works: Stock prices aren’t driven by the current value of the company, they are driven by the company’s future value.

Let’s say Google is poised to grow 25% every year, for the next 10 years. Investors are smart: a long term growth like that is a great stock to purchase! Naturally, as investors buy in, this raises the price of the current shares. That future growth is ‘priced in’ to the stock’s current price. But here’s the odd thing: if Google simply makes good on their promise to grow, the stock price would stay flat! Investors already know that Google stock is good for a 25% return, so the demand for the stock stays flat, and so does the price.

This quirk means that if a company would like their stock price to continue to rise, not only do they have to grow, they have to grow at an increasing rate. At their earnings report it isn’t enough to be successful, they have to continuously be more successful than anyone thought they could be.

Let that point sink in for a moment. It’s a fundamental driving force of the stock market.

So how does this affect Google? If they want their stock price to increase, they must expand exponentially. In 2018, Alphabet added nearly 20,000 employees to the company. In 2011, the entirety of Google was 20,000 employees [1]. Every year, the company adds another Google.

With this kind of insane expansion, it’s no wonder the company is having culture problems. You can’t maintain a culture in that kind of environment. People need time to adapt and assimilate and learn how a company works. Google will be lucky if they can even get these people hired. At 20,000 employees you are running a company — you can be a bit personal with HR and management. At 100,000, you’re running an empire. Your HR department needs to be the size of a small army. Policy becomes a necessity over human interaction — humans are fallible, and at these numbers the chances of failure are too high.

Employee growth by years after incorporation. [source]

This expansion affects their deal-making as well. The ads product might be growing at 10%, but if they don’t push it to 12%, or (god forbid) the grown rate drops to 9%, they’ll be in hot water. It’s in these situations that lucrative government contracts start to become pretty tempting. Sure, those drones might cause harm, but maybe if we’re doing it, we can do it ethically. Better us than someone else, right? “We’ll just take one to ensure the stability of our stock price”.

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At this point, you might say: “well, fuck the stock price”. Here lies the tragedy. When you are the size of Google, your stock price starts to have major affects on the world. The total value of Google’s stock is $900 billion. You stop expanding, your stock price drops 15%, and suddenly you’ve erased $135 billion from the US economy. That money doesn’t just come from the pockets of the wealthy. It comes from the retirement funds of blue collar workers, investment funds of governments, and municipalities. You directly hurt all of the employees and small investors with money tied up in Google stock. It’s not a dip that will recover, like so many stock market crashes. It only recovers if you grow.

That doesn’t mean Google is making ethical choices — they’re not — but I don’t envy being in the shoes of those decisions. Exponential growth is a runaway train. Someone has to figure out how to stop it.