East Coast Google vs. West Coast Google

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In the summer of 1999, I paid a visit to a little startup in downtown Palo Alto. I was working on a Fortune article about Inktomi, then the new power in Internet search, and the startup was a nascent competitor. I sat down with its president–a kid named Sergey–and he questioned Inktomi’s strategy of building its business around big deals with portals AOL, Yahoo!, and MSN. Sergey said he hadn’t figured out yet how his company was going to make money, but he knew he never wanted to be dependent on just a few big customers.

After that, I went ahead and wrote my article about Inktomi. I checked out Sergey’s company’s search engine, and it did seem to find stuff on the Internet better than anything Inktomi had on offer. But I had made a pledge to myself not to write about revenue-free startups. Oh well.

This is not, however, to be a disquisition on the lameness of my editorial judgment. No, it’s that now, almost eight years later, I have finally gotten around to writing a magazine piece about that startup from 1999, Google. And what Sergey told me way back then still has relevance to the quandaries and conflicts faced by Google today.

When Sergey, Larry and friends finally did find a way to make money, it was very much in keeping with Sergey’s early disdain of big deals. Google catered to small advertisers and small publishers and became the one company to strike it truly rich mining Chris Anderson’s long tail–that territory of tiny transactions that were mostly uneconomical before the rise of the Internet.

The tail refers to one end of a statistical distribution, at the other end of which (the head) are the blockbuster hits that defined late-20th century media. But while the long tail has been very, very good to Google, the company is now too big and too ambitious to settle for the nickels to be mined among the Web searchers and bloggers and small businesses of the world. It has been moving its attentions up the curve, along what Google insiders call the “torso”–a territory of professionally-made content geared to niche audiences–toward the hit-filled head long dominated by Big Media.

Google now has a major outpost in New York geared almost entirely toward working with Big Media and Madison Avenue. Their job is to close the very sorts of big deals that the company long avoided, albeit on much different terms than what Google would have had to put up with in 1999. It’s not just YouTube’s deals (and battles) with broadcasters, which have been getting most of the headlines lately. There are also big efforts to extend Google’s automated ad sales model to newspapers and radio, and to get more Big Media web properties enmeshed in Google’s AdSense network.

The result is a corporate split personality. Google’s New Yorkers spend their days trying to make nice with the established powers of the media business. Many of them used to work at said established powers. Most are excruciatingly diplomatic. Here, for example, is what I got (via e-mail) while reporting my column last week out of former Time Warnerite David Eun, Google’s vice president of content partnerships:

We work with thousands of content owners large and small around the world who produce entertainment, news, education and information content. We will continue to respect the rights of content owners and seek mutually beneficial partnerships offering the broadest distribution and the most attractive economics in the market.

We also look forward to developing new learnings with our partners across a growing portfolio of products and initiatives while providing opportunities to promote their content, engage their audiences and build new businesses.

Meanwhile, back in Silicon Valley, Google CEO Eric Schmidt was saying undiplomatic things like:

The growth of YouTube, the growth of online, is so fundamental that these companies are going to be forced to work with and in the Internet.

I’m sure this is partly just a good cop, bad cop act. But I also think the West Coast Googlers are deeply suspicious of Big Media, and of the way it does business. Established media companies are interested in up-front payments and exclusive distribution channels and, well, big deals, which isn’t what Google has been about at all.

So it will be interesting to see if the center can hold–if Google can both work well with Big Media and stay true to the long-tail model that has brought it so much success. If Schmidt is right, it won’t really matter: Big Media will be forced to adjust to Google’s and the Internet’s ways. I’d say things are definitely trending in that direction. But it may take a long time, and there are significant obstacles–like that billion-dollar Viacom lawsuit. How Google handles such adversity, and the potential conflicts between its East and West Coast operations, will tell us a lot about its staying power.