Business, Media, Sci-Tech

Google SA grows up, and about time too

By Mandy De Waal 2 August 2011

The world’s biggest Internet company has the potential to make a real difference in South Africa, but much rests on Google’s ability to transform its local office from a sales-obsessed hub to a development office that wrestles with local issues like unemployment and spawning entrepreneurs. MANDY DE WAAL speaks to Google country manager, Luke McKend.

The problem with scale is, well, scale. The bigger and more powerful you become as a business, the more you are watched with ever-increasing intensity. Activists question your benevolence, journalists automatically assume the role of watchdogs and consumers start to wonder whether big and powerful also means bad. Size matters because massive growth means scaling power which easily translates into opportunities to abuse that power. It is this potential to do harm that causes natural discomfort, particularly when the company in question drives profits from organising the world’s data for use by everyone across the globe.

“Every successful business attracts a lot of attention. By definition the more people that use your products, the more you are watched,” says Luke McKend, who is nearing the end of his first year as country manager for Google South Africa. “We are fortunate in that we’ve got a few products that people like to use. If you take search, for instance, people use it presumably because it works. If it didn’t work, people have other options. The beauty of the Internet is that our competition is just a click away and sometimes you can’t even anticipate what it’s going to be.”

McKend is right. There was a time when Microsoft ruled the world and it was inconceivable that any company could topple Redmond’s giant. That was until Google and cloud computing came along, and the empire Gates and Allen built was humbled.

“We don’t know which new service could rise to compete with the business. Look at how quickly Twitter emerged. In two or three years they have millions and millions of users,” says McKend. “The rate of technology adoption has increased to a point where it is possible to become a viable competitor to any global business within six months, provided you have the right product.”

It’s easy to position Google as a big brother who is watching the world, but the world is watching the monolith even more closely. People study Google not only for abuses of power, but to glean insights into the nature of Google’s culture and understand how the company grew so big, so fast.

It has been 15 years since Stanford graduates Larry Page and Sergey Brin built a search engine called “BackRub”, which was dubbed Google in homage to the maths term googol which is the digit ‘1’ followed by 100 zeros. Today Google has a market capitalisation of $194.9 billion and the company turned some $29.3 billion in revenues in 2010 with just 24,400 full-time employees. Ninety-six percent of its 2010 takings came from advertising. This year is looking good and unaudited results for Q2 show the company brought in $9.03 billion, a 32% increase over first quarter revenues of $8.58 billion.

Lately Google’s share price has been plagued by news of an anti-trust investigation by the US Federal Trade Commission. In June the Wall Street Journal broke the news that the FTC had prepared subpoenas and was poised to launch a wide-scale investigation into Google Inc. to ascertain whether the company had abused its dominance in the online search and advertising markets.

There was talk that the battle could get as bloody as Microsoft’s anti-trust case in the 1990s, but The Economist noted Google’s lawyers hoped the FTC would see the distinction between Redmond’s monopoly type practice of embedding browsers into operating systems, and the freedom of choice consumers have when it comes to using Google products and services.

Google South Africa has had its fair share of scrutiny too. In its early days, Google SA’s local management favoured a hard-core sales approach and driving the numbers was a strong focus. The result was an unpleasant local lawsuit, in-fighting between Google and agencies and an aggressive approach that didn’t serve the global brand or this market very well.

Watch 5 questions with Luke McKend (Fin24 video):

The legal skirmish exposed Google as a company that set up local operations to bypass SA tax structures, a practice it still follows. “As do most companies, we structure our taxes as efficiently as we can. There is an obligation to shareholders and you will find that the Microsofts and the Facebooks of the world pretty much do this,” says McKend. “But I think our commitment to South Africa needs to be measured by how we engage the industry as a whole.”

Google’s locally registered company is staffed by offshore directors which McKend says is a structure that’s practiced by Google elsewhere in the world. He says that until now it has been too early for conversations about local ownership and black empowerment. “If you look at the size of our office we have been a blip on the horizon of South Africa. Now that we have a slightly larger presence, it is certainly something we need to talk about, but this needs to be done in the context of the investments we are making with our ambassador programme, to develop SMEs and to develop advertising as a whole. It is not a trivial investment we are making to the industry and to this economy,” says McKend.

It would be easy to harp on about Google’s bypassing local tax structures, the fact that this global company has a white country manager, the matter of empowerment and the lack of local ownership. Google SA’s directors sit at the company’s headquarters in Mountain View. But cognisance must be taken of the age of the local operation and the office’s gearing to make a solid contribution to the growth of the regional economy.

“If, at the end of 2012, I would hope to be able say to you that 10,000 additional small businesses have gone online as a result of Google initiatives. This is the kind of contribution Google is looking to make to this economy,” says McKend.  Conversations about revenue and ownership should be in this context, he says. “We believe the contribution Google is making is substantial and is in the context of the different things we are doing in South Africa,” says McKend.

Sub-Saharan Africa is an important market for Google because South Africa has a well-developed advertising industry and the rate of Internet growth in this region has been rapid. “It is incredibly important for us to be part of a market that is growing so fast and one of the main reasons we are in SA. The remit for us is to grow, which has been fairly limited until now, and engage with the Internet community in a way that makes sense for this market,” he says.

Up to now Google had a small local sales office which will be expanded under McKend’s watch to help the company manage three strategic themes. The core strategy now focuses on increasing access, developing a vibrant Internet ecosystem and making sure the Internet means good business for local SMEs and start-ups. “There is a role for us not just in South Africa, but in the rest of sub-Saharan Africa when it comes to access. We don’t own the infrastructure so we do this with operators and role players that have a stake in making sure that the Internet ecosystem is vibrant,” he says.

McKend says that in SA there are probably only a few million ADSL subscribers and outside of this people accessing the Internet is through mobile devices. “Given this, making cheaper mobile devices becomes critical to broadening access in South Africa. Recently we launched a phone in Kenya called Ideos, which exploded Internet usage in that country because it was the first smartphone priced at around $100 available.”

Watch Luke McKend speaking at The Economist’s SA summit:

In a country where two out of three people access the Internet by phone, the Ideos is a revolution because it offers high-speed connectivity with a smart mobile device that is, for the first time, affordable. “The big question is how do we make the Internet deliver for everybody in South Africa? This is something we can’t address by ourselves. We don’t have a play in the infrastructure space, we don’t own infrastructure, but working with operators and helping them sustain business models to reach a broader audience is incredibly important,” says McKend.

An issue that bothers him is that the average digital advertising agency in South Africa mostly reflects the legacy of this country. “What we are doing about this is to launch a programme called Engage, where the intention is to reach out to everybody involved in helping other businesses get online. The intention is to broaden the touch beyond traditional advertising agencies and to provide support to people who are helping others get online,” says McKend.

The third leg of Google’s local strategy is building products that are relevant for this market, rather than merely importing existing products and stimulating the growth of an internet ecosystem that is truly local. McKend says Google is doing this by working with the local development community through engagements around Android, the popular open-source software suite for mobile devices.

“We are working with the development community to build skills so that, as the number of smart phones increase, there are apps that are relevant and useful. The intention is to engage the developer community to make sure they have the necessary skills to build this work in South Africa and sub-Saharan Africa. We need people outside of Google who can contribute to this body of work,” says McKend.

Google SA runs “G-Days” which are all about techies speaking to techies. Google flies in developers from all over the world to teach locals how to make apps and about the best use of Google technologies. “It is not just about doing this ourselves, our approach is very much to engage a larger community, show them what is possible and to offer them the help and skills they need,” says McKend.

“It is all good and well talking about development, but if you don’t have people on the ground to run programmes and communicate about what we’re doing it is impossible to be effective. We are now moving from a point where we have been talking about strategy to implementing it, and from now until 2012 we’ll be launching programmes,” he says.

McKend, a South African who cut his teeth on an Internet start-up in the UK during the dot com crash, talks the talk with a maturity that shows he’s the man for the job. If Google can broaden skills and make technology development an entrepreneurial option for youth who aren’t living in luxury, it could be just what SA’s depressing unemployment rates need. Ushahidi has become the case study for innovative African tech, but hopefully Google’s local stimulus strategy can help create another local-to-global epiphany that’s 100% South African. DM


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Photo: Reuters

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