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Sundar Pichai will have to step it up to become the wartime CEO Alphabet needs

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Via CNBC

Sundar Pichai, chief executive officer of Google Inc., attends a news conference in New Delhi, India, on Wednesday, Jan. 4, 2017.

Bloomberg | Bloomberg | Getty Images

When prominent venture capitalist and Silicon Valley figure Ben Horowitz wrote a notable blog post about “wartime” CEOs in 2011, he predicted Google co-founder Larry Page would take over as the company’s wartime CEO, seizing the reins from Eric Schmidt.

“This will be a profound change for Google and the entire high-tech industry,” he wrote.

Not exactly.

Page indeed took over from Schmidt. But after less than five years in the top spot, he reorganized the entire company, turning Google into a subsidiary of a bigger holding company, Alphabet. Page thrust an engineer-turned-manager named Sundar Pichai into the Google CEO role, giving him responsibility for search, Android, YouTube, Chrome, hardware, cloud computing and all of its other core businesses.

Page became Alphabet’s CEO and retreated from the spotlight to focus on esoteric longer-term projects like internet-delivery balloons and self-driving cars, which were reorganized into separate companies and rolled up into a financial segment called “Other Bets.” He disappeared from earnings calls and public appearances, and stopped talking to the press.

On Tuesday, four years after the Alphabet reorganization, Pichai got an even bigger job as Page and his co-founder, Alphabet President Sergey Brin, announced they would be stepping down. He will now be the CEO of the entire company, not just Google.

Pichai is a mild-mannered political type who’s held the respect of both engineers and non-technical workers — a former engineer with calm, technical expertise and charisma. He has often surprised employees at various team events with a big smile, and many consider him one of them.

But the value of being seen as “one of the people” may be coming to an end, as Google faces huge changes that could alter the entire course of the company.

Containing workers

Pichai gave the first clear hint that the scene had changed at a company-wide all-hands meeting in October.

“We are genuinely struggling with some issues — transparency at scale,” he said in a video of the event acquired by the Washington Post. The company soon after scaled back those weekly all-hands meetings, turning them into a monthly event instead.

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That moment was a capstone to more than a year of increasingly vocal employee unrest.

It kicked off last fall when the New York Times reported that execs, including Pichai, signed off on a massive $90 million golden parachute paid out to Android co-founder Andy Rubin, despite credible allegations of sexual misconduct, with similar treatment for other favored execs in the past. That triggered a company-wide walkout where 20,000 employees walked out of their respective Google offices last fall. It also started an activism within the company that has protested every problematic policy, government contract and hire since.

Over the summer, the company dropped a partnership with the Pentagon called Project Maven after employees protested its use for surveillance tools to analyze drone footage. Then, in October, Google dropped out of the competition for a different Pentagon cloud computing contract that could be worth $10 billion, saying the contract could conflict with its values. Employees also protested the company’s plans to build a censored search tool called Project Dragonfly, which resulted in the company scrapping those plans to re-enter the Chinese market.

In the wake of all this activity, the company has shut down its historically “open” lines of communication, such as banning political discussions and canceling its weekly TGIF meetings in favor of monthly meetings and separate forums.

Fast forward to today and employee trust is so low, some Googlers are now sleuthing their own human resources department, accusing leaders creating a tool to spy on them, according to a Bloomberg report. Pichai faces the threat of unionization and lawsuits from employees the company fired for allegedly leaking confidential information; they claim they were fired for trying to organize.

Government pressure

Pichai will also have to contend with being under more regulatory scrutiny than ever before. Under Eric Schmidt, Google was able to fend off an FTC probe in 2011 with few lasting repercussions. But today is a very different story as politicians on both sides of the aisle are increasingly teeing off on Silicon Valley.

In the last few months, U.S. and foreign antitrust regulators have increasingly scrutinized Google, naming Pichai along the way. The U.S. Department of Justice announced last quarter that it’s opening a broad antitrust review of big tech companies including Google, while the DOJ launched a separate antitrust probe into Google. A potential DOJ case, backed by nearly 50 state attorney generals, multiplies that challenge.

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Meanwhile, after Google withdrew from Project Maven, and Facebook board member Peter Thiel claimed without evidence that Google might have been infiltrated by Chinese intelligence, President Trump and other conservative leaders began to question the company’s loyalty to the U.S. and the military. Pichai had to move into action, immediately meeting with Trump in attempts to smooth things over.

The 2020 presidential candidates have also piled on, mentioning the company by name in the Democratic debates as being too powerful. If Democratic Senator Elizabeth Warren, an expected front-runner, gets the nomination and then wins the election, Google will have to contend with a president who promised to break the company into pieces.

The search for Alphabet’s “next act”

While the company isn’t weeks away from bankruptcy the way Apple was when Steve Jobs returned to be its wartime CEO, the company faces its biggest direct business challenge in its history: finding its next act.

Alphabet is preparing for a slowdown in its core digital advertising business, which still accounts for the vast majority of its revenue. The company showed slowing ad revenue in its first quarter of 2019 and a decline in profit from the previous year in the third quarter.

The company has struggled to reel in material revenue from its hardware line despite several attempts and acquisitions. YouTube is a juggernaut in terms of audience, but the company has never disclosed how much revenue it generates, and the video platform is under constant scrutiny for promoting misleading content, underpaying creators and more.

Google also has fumbled around for years in the cloud computing market, where it lags in a distant third behind Microsoft and Amazon. A recent cloud deal with hospital chain Ascension that should have been a triumph instead turned into a public relations debacle, as outsiders questioned how Google would use and safeguard any patient data it collected along the way. Even after Google clarified that it wasn’t using any patient information for its own purposes, the suspicion continued, resulting in more questions from Congress.

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That same perception is threatening its acquisitions. Privacy groups and congress members are calling on federal regulators to give more examination to Google’s proposed $2 billion purchase of Fitbit, which the company hoped would close in early 2020. CNBC found that people started getting rid of their Fitbit devices as soon as the announcement was made.

While casting about for material new businesses, the company has offered strange new business announcements that have little to do with its bottom line, like search algorithm updates and quantum computing milestones.

Meet the new boss…

Pichai already holds some responsibility for the current state of affairs at the company. He’s nominally been in charge of Google’s core businesses throughout this period of employee unrest, government scrutiny and slowing growth.

But with Page as his boss, and Brin in a nebulous parallel role as the company’s President, Pichai could never assume full responsibility for all aspects of the company, from its culture to its strategy.

Now, Page and Brin have entrusted their creation entirely to him, and will watch from the sidelines as he makes whatever tough decisions are necessary to position Google for its next phase.

At least that’s how it’s supposed to work. The reality may turn out to be quite different, as Microsoft discovered in the early 2000s when Bill Gates handed the CEO role to Steve Ballmer but still remained its top shareholder. Gates kept a heavy hand on the rudder, particularly with key products like Windows, for most of the next decade. Eventually Gates stepped aside completely, but the company’s slip from unrivaled dominance was well underway.

Alphabet shareholders should hope that Pichai fares better than Ballmer as the founders’ chosen successor.

WATCH: Sundar Pichai to replace Larry Page as Alphabet CEO


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