Living larger: Google’s challenges

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Hello and welcome to the intelligence on Economist Radio. I'm your host Jason Palmer. Every weekday we provide a fresh perspective on the events shaping your world. With more trade and more urbanization comes more wealth. Lots of humanity's riches have come from interacting more closely. So have all of its epidemics. We take a long trip through the history of hygiene and its connection to economic growth. And a summer holiday in Dubai is a hard sell. It gets so hot you can cook a frozen pizza in a parked car. But now it has a handle on the pandemic. The city is luring visitors for the steamy season. Don't worry, the national carrier will insure you for any COVID 19 related bills. First up, though, big tech companies are under pressure.

Simply put, they have too much power.

This week, the heads of Apple, Facebook, Amazon and Google's parent company Alphabet were summoned to answer questions in Congress.

Each platform is a bottleneck for a key channel of distribution. Whether they control access to information or to a marketplace, these platforms had the incentive and ability to exploit this power.

On this issue, as on few, Republicans and Democrats agree, big tech's influence is too broad. In the five hour hearing, the executives were grilled on everything from hobbling the competition to suppressing free speech. Alphabet's chief executive, Sundar Pichai faced questions from Representative Val Demings on Google steadily shifting its privacy policy.

Practically this decision meant that your company would now combine, for example, all of my data on Google, my search history, my location from Google Maps, information from my email from Gmail, as well as my personal identity with the record of almost all of the websites I visited. That is absolutely staggering.

Mr. Pichai laid out his defense.

We today make it very easy for users to be in control of their data. We have simplified their settings. They can turn ads, personalization on or off.

In terms of users, Google is the biggest of the giants. 4 billion people worldwide probably use at least one of its services from search to Gmail. But yesterday, despite beating expectations, it reported a drop in revenue for the first time since it listed on the stock market down to a mere $38 billion for the quarter. Alphabet and its cash cow Google are facing challenges and not only from Congress. They could be heading toward something of a midlife crisis.

I can clearly remember in the late 90s when I lived in San Francisco, a small company called Google or service called Google came up a search engine, of course.

Ludwig Sigler is our U.S. technology Editor.

And it was so much better than what we had before. You really could find what you were looking for. You didn't have to spend a lot of time searching. And so they had a great product that was step one. And then a few years later they found a great business model, search ads. It's the little ads you find on the search result pages and that turned out to be a gold mine. What also made them very successful is their culture was bottom up. People could spend 20% of their time on their personal projects and it was more like a campus, a university, whole organization was very innovative. And I think that combination made Google success.

So that was then, what about now? What has Google become in the intervening 20 odd years?

This beautiful economic engine they developed, plus the culture allowed them kind of to be very experimental, invest in lots of projects. And so what you have today is basically go Google or Alphabet as the company is today called is less one single company, but many around that advertising business. You have all kinds of services. You have Android, you have Search, of course, you have YouTube and plus dozens of smaller services. And around that an outer belt of other bets, as Google calls them, moonshot companies. So high risk companies investing in very far out projects like health data, self driving cars. So the whole thing is kind of a Google verse that has spread out and actually it's quite impressive if you look at it.

So to your mind, is Google going to continue with this success, even though it sort of branched into so many things.

I recently went down to Mountain View where Google's headquarters are based, and Google is building this new kind of very fancy headquarters there. When that happens often then kind of the company goes downhill. That's called kind of the edifice complex. And it happened with IBM and Sears and a few other companies. But in the case of Google, I don't think that's the case. I mean you're not going to see Google go into kind of steep decline still. I think there's some developments that are more structural which will make life more difficult. Google is an optimized system with the ad engine, but now the environment is changing so it makes it more difficult to grow in their core business. They have to look for other businesses to grow into. But I think the main problem they face is a cultural one.

What is it that's changed about the culture then?

There's several levels to that. The idea of this culture was also to keep the company small in the sense kind of it feels small, keep it agile, avoid the big company syndrome, bureaucracy, all that. And that worked for a long time, but now it has 120,000 full time employees and as many and even more temporary ones. And so the place has become very, very big. The mix of people become much more heterogeneous. And that has led to conflicts, rightly so, kind of people are worried about certain things, for example gender politics. So you had this guy, one young Googler, James Damore, write a memo about why perhaps female engineers are not as good as male engineers. And that caused a huge stir. That thing was leaked and management had to fire them more. And then there were other conflicts. And so it became a maelstrom that then culminated in a walkout of 20,000 Googlers in November when it emerged that Google management had paid some managers accused of sexual harassment millions of dollars to leave the company. I think that was the inflection point where it really became apparent that Google's old culture was breaking down.

So those are the issues, the problems, the concerns internally. But I mean there are also some externally, right? As we certainly saw during the congressional hearings.

Yes, of course, as Google becomes bigger, it becomes more of a target. Antitrust action, regulation in general though I have to say, compared to cultural problems or the business problems, I think the antitrust problems are not as imminent. I mean nobody's going to break up Google tomorrow. If the tacklers continues and there's really either legislative action or lawsuits, it's going to take years.

Well, I mean that's the antitrust question. But I mean, that's not the only one that's being tackled. Right? There are issues, for instance, around data privacy.

That's correct. And that's maybe even more of a problem. So Google has always kind of walk a fine line between protecting people's data because it collects a lot of data. At the same time, people are getting more conscious about their data, want to protect it. There's a movement to get these companies to pay for people's data. So these things will change. Right now, the default is if you collect personal data, you kind of own it, Facebook, Google and whatever. And I think that default is going to change somewhat and kind of ownership will move back to users and that will make things more expensive.

And thinking more generally to Alphabet, the giant umbrella company that includes Google and everything else you mention, what are the prescriptions? What should it do to tackle these cultural problems, to deal with the concerns that are coming from inside and outside?

Alphabet has to find companies a new balance between different constituencies, the workers, the customers, regulators, and has to do all that in a way that avoids what the founders of Google, Sergey Brin and Larry Page, always wanted to avoid. That Google becomes a conventional company, a big company, a boring company, a company with lots of bureaucracy and not innovative. So that's a huge challenge. I think, in a way, if you look at what Microsoft has done, of course, different company, different problems, different, much older, more than 40 years old. Satya Nadella there, the CEO, has just managed to give this company a new raison d' etre in the sense let's no longer protect Windows at any price, kind of move into the cloud, be a more open company, be politically responsible. And I think that that's the model for Alphabet to replicate. I know that you can't replicate that one to one, but you have to give Google at some point or Alphabet in the near future, a kind of a new instance duration. And I think data, personal data is maybe one possibility. Why not offer services that don't collect a lot of data or don't target you with ads? Why don't you charge a subscription for that? Or why don't you try to become a data bank, quote unquote, like a bank keeps your money. Google would, or Alphabet would manage your data and perhaps sell it to other people. I know that suggestion may make analysts at Wall street or even critics of Google cringe. Why should the devil be in charge of the data? But I think that's the type of thing Google has to or Alphabet has to think about.

Thanks very much for your time, Ludwig.

Thanks, Jason.

The COVID 19 pandemic gives us an opportunity to reflect on our history and the way in which human progress, and economic progress in particular, has always been inextricably interlinked with our battle against contagious pathogens.

Ryan Avent writes Free Exchange, our column on economics.

If you look back over the last few thousand years, what we see is that we've become much, much richer, and we've been able to do that because of economic growth. And that's occurred because of increased trade, because of increased urbanization, basically because people have found more and better ways to get together and to interact. But whenever that happens, we exchange germs as well. And so there's always been this close relationship between progress and pandemic, which is something humans have had to learn to manage. I think it's fair to say that the story of economic growth is in large part a tale of the evolution of hygiene. So if you look back at the Roman Empire, which was for thousands of years the greatest example of an integrated global economy and large urban populations, it was in the first millennium, just repeatedly battered by these terrible pandemics, which undercut the political stability and economic stability of the empire and sort of eventually contributed to its downturn. One of the things that hampered people in societies as they struggled to deal with these pandemics was the fact that they didn't really know anything about what caused them. Now, as the Middle Ages sort of proceeded, people began to kind of understand that it was contagious in some way, that it progressed from city to city, and that arrivals from other towns carried it with them. And that led to kind of the first systematic efforts to control pandemics by quarantining new arrivals from different locations. And then, actually, the word quarantine comes from the Venetian word quarantine, which meant 40 days, which was the amount of time that traveling ships had to sit offshore in isolation. So as the Middle Ages drew to a close, and we begin to get into the 17th and 18th centuries, you see the first stirrings of a broader commercial and then industrial revolution. And as this occurred, you had really rapid growth in urban centers. And this completely changes the dynamics of hygiene and the dynamics of the spread of epidemic disease. As these cities grew, the public health consequences were devastating. You had tons of houses crammed together, all with coal fires that made the air unbreathable. You had horses and people contributing to just massive amounts of waste. You had accumulated refuse. It was all just a massive petri dish which allowed the Spread of epidemic disease. Because of these problems of filth and disease, early industrial cities were what you might call a demographic sink, which basically means they only kept growing because people continued to migrate into cities from the countryside. Death rates in cities were so high that without that constant flow of new people, the cities would eventually shrink. It was important that people come to the cities because that's where the factories were, that's where markets were. But the high death rates in cities basically put a cap on how urbanized a population could become. Had that cap remained in place, we simply wouldn't have been able to unlock the growth potential that came from industrialization, that came from an increased trade. And so solving this problem was critical to advancing the progress of economic growth. The 19th century was really the moment when this became a crisis. It became something that the public understood had to be addressed. What you began to see was the emergence of these broad reform movements that sort of became what scholars call the great sanitary awakening, where reformers were arguing that there was no individual level solution to these problems, that it had to be a society wide project. It really becomes kind of an important social moment because the rich realize that they can no longer ignore the standard of living of the poor, that bad things in poor communities inevitably spill over and affect the rich and make them sick and kill them. And so you begin to see the underpinnings of a social safety net which emerges simply because it's going to be very bad for the rich if they don't make these concessions to public health. So what you increasingly saw were the setting up of bodies at the local level, initially at the neighborhood level, but then covering entire cities to take care of a lot of these sanitary problems, to remove waste from households, to connect household toilets to sewer systems, which then went to treatment plants. And it was this progress that really struck the biggest blow against high urban mortality rates. And it's kind of remarkable that it all occurred before we had a well developed germ theory, that we just understood that if we cleaned up enough, it would make a difference, and it did. Now, a lot of the hard work of improving health in cities and bringing down mortality rates really had taken place in the 19th century. Again before there was any inkling of why disease spread and what caused it. By the end of the 19th century, you had scientists who were beginning to isolate bacteria, increasing understanding of what they were and how they did their work. And so it became much more about figuring out what diseases were and developing treatments for them, like antibiotics, like vaccines. What's interesting is as this trend developed. We sort of began, I think, to take for granted that public health was something that was going to be secure, that if problems arose, the guys in the labs would take care of us, that we didn't need to worry so much about how we conducted ourselves in a hygienic way. And I think in the second half of the 20th century we began to see some of that complacency come back to bite us. You can think of the HIV AIDS epidemic, and of course, in the early 21st century we've seen these epidemics like SARS, like H1N1, and I think that has sort of taken us to a point where we're realizing that actually we're not done in our battle as a society against these diseases, and that it may be necessary to make some large scale behavioral changes if we want to continue to unlock the benefits of urbanization, of global trade, but also safe and healthy populations.

Ryan Avent on the history of hygiene. At a resort called Atlantis the Palm in Dubai, you can have cryotherapy, swim with dolphins, even eat in an underwater restaurant. It's been built to be a paradise for tourists, at least in the high season. In winter. Visiting Dubai in the summer, though, is a different experience.

In a normal year, there's not much tourism in Dubai in July and August because of the weather, it almost never drops below 40 degrees. It sometimes gets as high as 50 degrees Celsius.

Greg Karlstrom is the Economist's Middle east correspondent.

There's a whole genre of YouTube videos where people bake cookies or cook frozen pizzas in their parked cars. So anyone who can leave actually tries to leave. But of course, this is not a normal year. Dubai was one of the first places to reopen for tourism on July 7th. All you need is a negative coronavirus test taken several days before you travel. From tomorrow, visitors from certain harder hit countries, about 30 countries, will need two tests, so there'll be a short quarantine after arrival in Dubai. But aside from that, it's open to anyone from anywhere.

So if it's a swelteringly unpleasant time to be there, why do you suppose Dubai opened up to bring back tourists?

There was a sense in the Dubai government that they had to reopen because their economy is so dependent on foreign travelers and on tourism in particular. Tourism last year made up about 12% of Dubai's gross domestic product. They had almost 17 million tourists who came in 2019, and this was meant to be a big year. In October, they were supposed to open the World Expo that officials were hoping would draw 25 million visitors. That obviously not a good idea in the middle of a pandemic. And so the Expo has been postponed until 2021. There was a sense in the government that as soon as they thought they had the virus under control, they needed to reopen for foreign visitors.

And so is it working? Are they flooding in?

They're not exactly flooding in. I would say they're more trickling in. If you walk into a hotel, they're reasonably busy. But a lot of the guests in the hotels are actually residents of the UAE who can't travel abroad for various reasons, travel restrictions or salary cuts that have affected many expats in the uae. So they're taking staycations instead of. But there are some foreign tourists coming. There was a diplomat posted in Bangladesh who was checking into my hotel as I was leaving. A group of women who flew down from Ukraine, some tourists from Britain and from the Netherlands and other countries, all of whom are arriving to find it's not quite the Dubai that you'd be used to in a normal year. Masks are mandatory in public. There's a 3,000 Durham fine if you don't wear one. That's about $800. And you'll have to walk more than you usually walk. Some hotels have done away with their valet parking and so you actually have to park your own car. And the buffets, once you get into the hotel, the legendarily lavish buffets in the Gulf are no longer self service. The food is all behind glass. You have to ask a server to dish it out for you. So perhaps an element of shame here, where it's one thing to get your own fourth order of crab legs, but it's another thing to have to ask someone to dish it out for you.

So how has Dubai and the UAE more generally done throughout the pandemic?

If you look just at the case count, you might think it was too early for Dubai to reopening. The UAE as a whole has logged about 60,000 cases of COVID 19. That's about 6,000 cases per 1 million residents, which puts the UAE in the top 20% of all countries around the world. But there are some other numbers that really support the UAE's case for reopening. One is quite a low death toll. There have been about 350 deaths, so 35 per million residents. That's well below the number in most European countries and most Arab countries. And then there's the number of cases that are asymptomatic. So in America, for example, the Centers for Disease control says about 40% of COVID 19 cases are asymptomatic. In the UAE, authorities say 90% of their cases have no symptoms. It's too early to say exactly why that is. Some of it might be demographics, because the population is largely migrants who tend to be relatively young and relatively healthy. It may also be a different strain of the virus. Too early to know that. But one thing we can certainly say is a lot of that is down to better testing. The UAE has done around 5 million tests, which is the equivalent of doing one test for every two residents of the country. They've been able to catch a lot of asymptomatic cases that might be missed in other countries.

So given the weather and the fact that you can't get your fourth serving of crab legs and the fact that there is still a pandemic on, do you think it will work? Will Dubai get itself an extra tourist season to make up for the gap?

Maybe not quite an extra tourist season, but they do feel that they're in a position to welcome whoever is willing to come. Not everyone in the UAE agrees with that. Abu Dhabi, the capital. Their airport is still closed to non residents. They've also been advertising quite heavily that Emirates, the national carrier, is now offering free health insurance for travelers. So should you catch COVID 19 on your trip? If you flew Emirates, the airline will cover your medical treatment. Should your trip really not go according to plan, the policy will also kick in €1500 towards funeral expenses. So that's what qualifies as an all inclusive package in the age of COVID 19.

Greg, I guess I should say safe travels. Thanks for your time.

Thank you.

That's all for this episode of the Intelligence. If you like us, give us a rating on Apple Podcasts and you can subscribe to the economist@examiner.com intelligenceoffer. See you back here on Monday.