On a recent Motley Fool Radio Show, David Gardner talked Google with Pulitzer Prize-winning Washington Post reporter David Vise, author of the new book The Google Story. In the third of three installments, David Vise talks about China, legal obstacles, and Google's greatest weakness.
David Gardner: . Let's talk a little bit about disruptive innovation. Two questions for you. The first is: Newspapers are a big story these days -- Knight Ridder (NYSE: KRI ) possibly putting itself up for sale, newspaper subscriptions possibly on the decline. Do you think Google (Nasdaq: GOOG ) has anything to do with that?
David Vise: I do in the following way. I think a lot of people are spending less time with newspapers and more time on the Internet. I think that Google is the largest single beneficiary of the additional amount of time that people are spending online because Google has become the gateway to the Internet for millions of people, so it has become the gateway for many people to learning about news and current events.
Google has also done a much better job than any newspaper companies have done in figuring out how to profit from online advertising. So The Washington Post, for example, has declining circulation in our print edition, but we have more readers than ever before because people are reading us online at Washingtonpost.com. But we give that product away for free. We have not yet figured out how to make the most money or even replace the lost amount of money from this. What I really believe is a very, very large trend is occurring, and that trend is a trend toward people spending more and more time on the Internet. So do I think newspapers will disappear? Absolutely not. Do I think that fewer people will read newspapers in print and more people will read them online? Definitely.
David Gardner: David, we've talked a lot about Google. We haven't really used the word "China", which is on a lot of people's minds these days as they think about the Internet and the world at large. For example, Sina (Nasdaq: SINA ) , kind of the Yahoo!, in a way, of China, has 180 million registered users. Baidu.com (Nasdaq: BIDU ) is called by some the so-called Google of China. Have you spent any time looking at Baidu.com or Sina, and how do you think it all plays out with Google and China?
David Vise: I think the Chinese Internet market is very large. It's about 100 million right now, in terms of Internet users, but the amount of commercial activity taking place online is small relative to what we see, say, here in the United States or in Europe. So I think that the Chinese market, over the years, is going to become an increasingly lucrative market and there's going to be room for lots of winners there.
Google hired away from Microsoft (Nasdaq: MSFT ) someone who's revered in China. His name is Dr. Kai-Fu Lee, and he's leading Google's efforts to hire the best and brightest in China, to build up a local operation there. Microsoft has filed a major lawsuit against Google saying that Kai-Fu Lee is stealing secrets from Microsoft, where he once headed its Chinese operations, and that he's violating a non-compete clause in his agreement. Microsoft won the first round in court in the sense of prevailing over Google when a judge ruled that Kai-Fu Lee was in violation of certain provisions of his contract, but at the same time, Kai-Fu Lee is currently on the ground, in Beijing, recruiting and hiring for Google.
So I think what we're looking at is a business that's extremely aggressive and, notwithstanding its whimsical appeal and its wonderful, childlike logo, actually has a voracious appetite for growth, for profit, and for disruptive innovation.
David Gardner: One of the big challenges for Google could be on the legal front as Google becomes so dominant. How does it avoid getting broken up one day?
David Vise: I think that you're raising a very interesting question. Google right now is in a legal battle with publishers over what had been a dream of Larry Page's for many years, and that was to take the millions and millions of books that are in libraries, tear down those walls, and make the books available globally to anybody with an Internet connection.
So Google went out and made deals with Harvard, Stanford, the University of Michigan, the New York Public Library, and Oxford to scan all the library books in their collections, put them online, and make them searchable.
The publishing world is upset with this plan because they believe it violates -- and they allege in court that it violates -- copyright. Google takes a different position and says that copyright laws were meant to protect the public interest, and that making this information globally and widely available regardless of somebody's income, regardless of somebody's location, and regardless of somebody's ability to actually access a physical library, is consistent with copyright law.
My view is that the legal fight over the Google library initiative is going to end up in the Supreme Court, because we're really in new legal terrain here. Copyright laws that are on the books today were not written with cyberspace and a search engine like Google in mind. There are no court cases that really serve as perfect precedents for this one.
David Gardner: We've talked a lot about Google's strengths. What is one thing that Google doesn't do well, in your mind?
David Vise: I think one of the things that Google struggles with is a lack of sensitivity, I would call it, to its weaknesses and an unwillingness to acknowledge that it has weaknesses. The biggest single Achilles' heel in Google's entire system is something called click fraud. Click fraud involves people clicking away on ads on Google, which puts money in Google's coffers and costs advertisers money. But if somebody is clicking away on that and they don't have any intention of buying a product or researching a product, they may be doing it just to harm the competition. Or if they're a website owner or publisher and they're carrying Google ads, they may be clicking on it because they get eighty cents of every dollar and Google gets twenty cents.
So Google approaches this problem from almost a completely technological and engineering vantage point in trying to solve it. It's the biggest threat to its business model.
Currently, Google's ads perform so well that marketers build in the cost of click fraud and just have an understanding that this is going to be an ongoing problem, but they all complain when I talk to them that Google doesn't do enough and Google doesn't do as much as it claims to do in fighting click fraud.
David Gardner: To close, David Vise, according to its founders (and you kind of echoed this too), Google is still in its infancy. Sergey Brin, one of Google's founders, has said that Google just finished the first grade. What what will second grade look like?
David Vise: I think that is a great question. I think second grade is going to involve some new kinds of searches that we've never seen before. By that, I mean that we're going to see the ability to search for old and new television programs, we're going to find the ability to search online things like telephone calls, we're going to find the ability to search online for all kinds of things that are currently in the world but are not currently on the Internet.
I think that at the end of the day, what we're going to find is that search is going to become an increasingly important part of our lives. Google wants to be a central player in all of that, and it's staking almost everything it has on dominating this particular sector.
David Gardner: David Vise is a reporter for The Washington Post and author of the new book, The Google Story. David Vise, thank you for your insights for The Motley Fool Radio Show.
David Vise: You're welcome, and thank you very much.