2 Reasons Eric Schmidt Had to Go

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Eric Schmidt was solid but never great as CEO of Google (Nasdaq: GOOG  ) . We won't mourn his moving into the executive chairman role the way investors swooned over Steve Jobs taking yet another medical leave.

Co-founder Larry Page will be the new CEO. Will it matter? Sure. Page is best known as the driving force behind the PageRank algorithm that made Google the world's most popular search engine.

Together with co-founder Sergey Brin, he did what Alta Vista, Excite, and so many others couldn't. He organized the Web in a meaningful way. Order out of chaos, you might say, allowing the Wild West of the '90s Web to become the Main Street business Web it is today.

And that's a problem ...
But history as a successful software engineer says nothing about Page's ability to manage an organization of 24,000 people. If anything, it raises doubts. All we have is Schmidt's word that all will be well. From his blog post announcing the change:

Larry will now lead product development and technology strategy, his greatest strengths, and starting from April 4 he will take charge of our day-to-day operations as Google's Chief Executive Officer. In this new role I know he will merge Google's technology and business vision brilliantly. I am enormously proud of my last decade as CEO, and I am certain that the next 10 years under Larry will be even better! Larry, in my clear opinion, is ready to lead.

As a shareholder, I hope he's right. Certainly, there's precedent. Like Page, Bill Gates was a technologist forced to become a manager. Few have made the transition better, and today Microsoft (Nasdaq: MSFT  ) is a $240 billion company.

2 reasons Schmidt had to go
Schmidt has the management pedigree Page lacks. As CEO, he was the adult supervising an engineering playground. Now that he's executive chairman, the message is that Page and Brin no longer need a boardroom chaperone. Rather, their active management is what's required for Google to get its innovative mojo back.

This line of thinking presumes that Schmidt was booted upstairs for failing to innovate. Android was just a copy of the iOS, these boo-birds say. Really? Then what is the iOS? A copy of the BlackBerry OS? Or better yet, a copy of the old Palm OS? I'm not buying it.

Schmidt had to go not because the company failed to innovate during this reign as CEO, but because the innovations it did produce during his time at the top failed to solve revenue-generating problems. Let's take two examples: Google TV and Google Apps.

  • Google TV adds search to a medium that badly needs it, but the product is incomplete because it doesn't really remake TV in any way. Advertising isn't better. On-demand services aren't improved. Instead of disrupting TV in the same way Netflix (Nasdaq: NFLX  ) has disrupted movie delivery, Schmidt chose to work through pipe owners such as DISH Network (Nasdaq: DISH  ) and DIRECTV Group (NYSE: DTV  ) . The result is ... bland.
  • Google Apps is interesting and its plug-ins awesome, but there's a badly broken upgrade path for those of us who use the free versions of Google services. Customized environments can't simply be transferred. So long as this remains true, Microsoft's Office productivity suite has little to fear.

Google has yet to make its best ideas into whole products, the way a certain Cupertino company does. More often, it simply partners up and hopes for the best.

A vote for disruptive change
This isn't necessarily an awful strategy. Microsoft has practiced a similar approach to great effect for decades. But with Page taking the reins, I get the sense that the company understands that users and investors want more. We want Google to be brash and disruptive rather than just an ecosystem builder.

Now it's your turn to weigh in. What do you think of having Page as CEO of Google? As an investor, are you more or less confident of market-beating returns with him in the top job? Please vote in the poll below, and then leave a comment to explain your thinking.

What will be this year's top stock? We have a good idea. The Motley Fool has created a brand-new free report called The Motley Fool's Top Stock for 2011. In it, we reveal the little company set to profit from the broadband Internet expansion. Get instant access by clicking here -- it’s free.

Interested in more info on the stocks mentioned in this story? Add Google, Microsoft, Netflix, DISH Network, or DIRECTV Group to your watchlist.

Google and Microsoft are Motley Fool Inside Value picks. Google is also a Motley Fool Rule Breakers recommendation. Netflix is a Motley Fool Stock Advisor selection. Motley Fool Options has recommended that subscribers purchase a diagonal call position in Microsoft. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Rule Breakers stock-picking team. He owned shares of Google at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool owns shares of Google and Microsoft. The Fool is also on Twitter as @TheMotleyFool. Mr. Chairman, the Fool's disclosure policy would like to make a point of order.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 24, 2011, at 12:57 AM, sparkrulez wrote:

    Eric Schmidt frightened me. I cringed every time he spoke about privacy. I know my opinion doesn't really count, but I like Larry Page. He's younger and I can identify with him, for that reason I trust him.

    He could get me excited about Google again.

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Tim Beyers

Tim Beyers first began writing for the Fool in 2003. Today, he's an analyst for Motley Fool Rule Breakers and Motley Fool Supernova. At, he covers disruptive ideas in technology and entertainment, though you'll most often find him writing and talking about the business of comics. Find him online at or send email to For more insights, follow Tim on Google+ and Twitter.

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