THIS WALL STREET VETERAN IS WHIPPING GOOGLE INTO SHAPE

Original Story: bloomberg.com

Google is known for multicolored bicycles, nap pods, and complimentary meals—and the free-spending ways that come with those perks. Now it wants to be known for something else: financial discipline. To whip the numbers into shape, it’s brought in Ruth Porat, an almost 30-year veteran of Wall Street.

She’s off to a good start. Porat, who joined Google as chief financial officer in May after five years as Morgan Stanley’s CFO, on July 16 unveiled second-quarter earnings and sales that topped analysts’ estimates. Impressed investors sent the shares to a record the next day, adding $65 billion to the company’s market value and more than $4 billion each to the fortunes of co-founders Larry Page and Sergey Brin. An Atlanta securities lawyer is following this story closely.

Shareholders cheered Porat, 57, with her strong finance background, as the right person to help instill more discipline at a company that’s invested in everything from driverless cars to giant barges. Now she must prove she can create efficiency without crimping the creative culture that’s helped Google dominate the online advertising market. “No one really knew her before, because there’s no reason a tech investor would really know her,” says Gene Munster, an analyst with Piper Jaffray. When she announced the second-quarter results, the idea that a Wall Street hand was whipping Google into shape “kind of went viral,” he says. “This perception of a real, hard-nosed woman who has something to prove—I think that inspires confidence.”

During the second quarter, Google’s operating expenses grew 13 percent from the same period a year ago, the slowest rate since 2013, and declined from the previous quarter. “A key focus is on the levers within our control to manage the pace of expenses while still ensuring and supporting our growth,” Porat said on a call with analysts. Her remarks also left open the possibility of Google returning cash to investors in the form of buybacks or dividends, something Wall Street has been asking about for years. At a companywide meeting following the earnings report, she talked about the importance of disciplined execution at Google even as she thanked employees for their work, according to a person familiar with the remarks. A Google spokeswoman declined to comment. A Boston investment lawyer represents clients in banking matters, project finance and private equity finance.

Porat benefited from the efforts of her predecessor, Patrick Pichette. Google’s increase in expenses started slowing during the first quarter. “Everything was probably already in motion by the time she came along,” says Sameet Sinha, an analyst with B. Riley & Co. Even so, the quarterly numbers seemed to resonate with investors, as did Porat’s résumé. “She comes with a pedigree from Morgan Stanley of doing a good job of enhancing shareholder value over her tenure there,” says Walter Price, co-manager of the AllianzGI Technology Fund, which owns shares of Google.

At Morgan Stanley, Porat helped the bank recover from its near-death experience during the financial crisis and developed a reputation as a cost-cutter who focused on boosting shareholder returns. In 2013 she laid out expense-reduction targets of $1.6 billion and last year gained approval for the bank’s biggest share buyback in four years. This year, the company more than doubled the share repurchase plan. Since the end of 2012, Morgan Stanley stock has climbed from $19 to more than $40. An Encino CPA assists companies with pension and profit-sharing plans.

Porat, a physicist’s daughter who was born in England and grew up in Silicon Valley, is no stranger to technology. As Morgan Stanley’s top Internet banker during the dot-com bubble, she advised clients such as EBay and Amazon.com and made pitches to tech startups considering going public, accompanied by her close friend Mary Meeker, the research analyst who was called “Queen of the Net.” Porat showed a passion for work, quickly diving back in after having each of her three sons and after a battle with breast cancer.

Connecting with Google shareholders will be a priority. After the earnings call, Porat, who traded pantsuits for jeans at Google, planned to begin meetings with investors in cities such as New York and Boston, making the case for Google’s prospects.

Announcing Porat’s hiring in March, Page said she would “invest in a thoughtful, disciplined way in our next generation of big bets.” She received a pay package worth more than $70 million that will vest from this year through 2019, according to a company filing. In her first months on the job, she’s been reviewing programs throughout the company. They include driverless cars, which seek to use technology to take humans out of the process; Project Loon, an effort to deliver Internet connectivity to rural and remote areas via high-altitude balloons; and Google Fiber, its broadband and TV service in select cities, according to a person familiar with the matter.

Some of those initiatives may have to be abandoned. “She might have to go and tell Larry and Sergey, ‘Here are 10 projects, pick five—let’s go with those,’” Sinha says. The Google Fiber project could get a hard look, according to Munster, because it competes with established companies such as Verizon Communications and AT&T that are focused on building and delivering broadband and TV services.

Lifting the share price is crucial for Google, where many employees get much of their compensation in stock and can easily jump to a rival such as Apple. In the year before Porat was named to the job, the shares had fallen 4.5 percent while the Nasdaq Composite Index had climbed 17 percent. “Retention is the biggest challenge,” Munster says.

Google’s issues go beyond cost control. They include a threat to its core business of selling ads next to search results. As consumers access the Web via smartphones instead of desktop PCs, they’re increasingly likely to tap on an app rather than open a browser.

At the same time, Google faces stronger competition in online commerce from Amazon, which is grabbing more users who skip comparison shopping on Google and buy from the retailer. Also, Facebook, growing more quickly than Google, is competing for advertising and is a threat to Google’s YouTube business as it pushes video options to its users. “It was a good quarter, but it doesn’t mean there aren’t a lot of the same structural and competitive concerns,” says Ben Schachter, an analyst at Macquarie Securities.

Google Pushed Hard Behind the Scenes to Convince Regulators

originally appeared in The New York Times:


For 19 months, Google pressed its case with antitrust regulators investigating the company. Working relentlessly behind the scenes, executives made frequent flights to Washington, laying out their legal arguments and shrewdly applying lessons learned from Microsoft’s bruising antitrust battle in the 1990s.

After regulators had pored over nine million documents, listened to complaints from disgruntled competitors and took sworn testimony from Google executives, the government concluded that the law was on Google’s side. At the end of the day, they said, consumers had been largely unharmed.


That is why one of the biggest antitrust investigations of an American company in years ended with a slap on the wrist Thursday, when the Federal Trade Commission closed its investigation of Google’s search practices without bringing a complaint. Google voluntarily made two minor concessions.

The way they managed to escape it is through a barrage of not only political officials but also academics aligned against doing very much in this particular case, according to a professor of antitrust law at the University of Iowa who has worked as a paid adviser to Google in the past. The first sign of a bad antitrust case is lack of consumer harm, and there just was not any consumer harm emerging in this very long investigation.

The F.T.C. had put serious effort into its investigation of Google. The agency’s chairman, has long advocated for the commission to flex its muscle as an enforcer of antitrust laws, and the commission had hired high-powered consultants, including an experienced litigator, and a well-known economist.

Still, the litigator said during a news conference announcing the result of the inquiry, the evidence showed that Google doesn’t violate American antitrust laws.

The conclusion is clear: Google’s services are good for users and good for competition, Google’s chief legal officer, wrote in a company blog post.

The main thrust of the investigation was into how Google’s search results had changed since it expanded into new search verticals, like local business listings and comparison shopping. A search for pizza or jeans, for instance, now shows results with photos and maps from Google’s own local business service and its shopping product more prominently than links to other Web sites, which has enraged competing sites.

But while the F.T.C. said that Google’s actions might have hurt individual competitors, over all it found that the search engine helped consumers, as evidenced by Google users’ clicking on the products that Google highlighted and competing search engines’ adopting similar approaches.

Google outlined these kinds of arguments to regulators in many meetings over the last two years, as it has intensified its courtship of Washington, with Google executives at the highest levels, as well as lawyers, lobbyists and engineers appearing in the capital.

One of the arguments they made, according to people briefed on the discussions, was that technology is such a fast-moving industry that regulatory burdens would hinder its evolution. Google makes about 500 changes to its search algorithm each year, so results look different now than they did even six months ago.

The definition of competition in the tech industry is also different and constantly changing, Google argued.

For instance, just recently Amazon and Apple, which used to be in different businesses than Google, have become its competitors. Google’s share of the search market has stayed at about two-thirds even though competing search engines are “just a click away,” as the company repeatedly argued. That would become the company’s mantra to demonstrate that it was not abusing its market power.

To underline these arguments, Google spent $13.1 million on lobbying in the first three quarters in 2012, up from $5.9 million in the same period in 2011. And Google’s lobbyist in chief, Eric E. Schmidt, the company’s executive chairman and former chief executive, has made himself a Washington insider as a close adviser to President Obama.

Then there were the lessons of the Microsoft case.

Google had the Microsoft case as a template, according to an associate professor at the Wharton School at the University of Pennsylvania. Google just had to convince the regulators it was sufficiently different from Microsoft.

One lesson for Google executives was to play nicely with the regulators. Microsoft’s executives were known for their uncooperative demeanors during their tangle with the government. But even Mr. Schmidt, known for speaking candidly, was on his best behavior.

Google, and its lawyers and hired experts, also argued forcefully that this case was different than the one against Microsoft. For one, they pointed out again, the technology world is so different. At the time of the Microsoft inquiry, its software was the main on-ramp to the Internet.

Search today is not a bottleneck monopoly for anything, according to an economics professor at Stanford who studies competition in computing and has worked as a paid expert for Google recently and for Microsoft in the past.

That’s not the same as everyone who wants to do mass market computing has to go through Google, like back then everyone who wanted to do mass market computing had to go through Microsoft, he added.

Microsoft, leading a chorus of unsatisfied Google competitors, said Thursday that it was disappointed in the F.T.C.’s decision.

In a blog post published Thursday night, a Microsoft vice president and deputy general counsel, called the decision a missed opportunity. The F.T.C.’s overall resolution of this matter is weak and — frankly — unusual, he wrote. We are concerned that the F.T.C. may not have obtained adequate relief even on the few subjects that Google has agreed to address.

The VP/General Counsel added that Microsoft remained hopeful that other antitrust agencies, including those in Europe, would take more forceful action against Google.

Harsh criticism of the decision also came from an experienced Silicon Valley antitrust lawyer who represents a collection of Internet companies that complained to the F.T.C. about Google’s behavior.

I’ve been doing this almost 40 years, been involved in scores of antitrust investigations, he said. I’ve never seen anything so incomplete and lacking and even incompetent as what happened here.

The director of the F.T.C.’s bureau of competition, dismissed the lawyer’s comment as silly.

This was a very thorough, very professional investigation performed by very diligent and dedicated staff, he said.

Regulators had anticipated criticism from Google’s rivals and tried to answer the complaints in their news conference.

Some believe the commission should have done more in this case, perhaps because they are locked in a hand in hand combat with Google around the world, according to their attorney. But, he said, We really do follow the facts where they lead. He added, The focus of our law is on protecting competition, not competitors.

A law professor at Columbia who was a senior adviser to the F.T.C. until last summer, said the outcome of the Google case reflected a change in thinking about antitrust enforcement. It used to be like the way we dealt with the mob, he said, who was involved in the agency’s Google inquiry but who emphasized that he was not speaking for the F.T.C.

I don’t believe it’s the position of antitrust agencies to invent competition where there isn’t any, he said. People like Google better than Bing. Microsoft is trying to do everything it can to change that, but people still seem to prefer Google.

Still, some veterans of the technology industry said that even though the agency did not find an antitrust violation, it still was sending a message to Google that it was not off the hook for good.

There’s a long track record of government never really going away, according to a professor of computer science at Carnegie Mellon University and a former chief technology for the Federal Communications Commission who testified as a government witness in the Microsoft case. They will come back.

Europe Likely to Be Harder on Google Over Search

originally appeared in The New York Times:


By some accounts, the United States let Google off the hook when it found that the technology giant had not abused its dominance in the Internet search market.

Few expect the European antitrust watchdog to be as lenient.

The Federal Trade Commission ruled on Thursday that Google had not broken antitrust laws, after a 19-month inquiry into how it operated its search engine. But the European Commission, which is pursuing claims that the company rigs results to favor its own businesses, operates under a different standard.

The agreement with the American authorities, analysts and competition lawyers say, is unlikely to alter the demands of European regulators, led by the competition commissioner, Joaquín Almunia.

We have taken note of the F.T.C. decision, but we don’t see that it has any direct implications for our investigation, for our discussions with Google, which are ongoing, according to a spokesman for the European Commission in Brussels.

Faced with nearly $4 billion in possible penalties and restrictions on its business in Europe, Google submitted proposals in July to remedy the concerns of the European Commission, which covered four areas. In its deal with the F.T.C., Google made concessions in two of those areas but was not required to do so in the rest.

A Google spokesman declined to comment on the content of the company’s proposals to Mr. Almunia but said the company would continue to work cooperatively with the European Commission.

The Google case underscores a basic difference between the approaches to monopoly power in Europe and the United States. American antitrust regulators tend to focus on whether a company’s dominance harms consumers; the European system seeks to keep competitors in the market. The Google spokesman has vowed to restore competition to the Internet search business in Europe.

History shows that competition law is applied to monopoly power more stringently in the E.U. than in the U.S., according to the head of the competition practice at Avisa Partners, a consultancy in Brussels, who brought one of the original complaints against Google. Whether the E.U. is right or not is a different question.

He has some expertise in the matter. He is the former head of corporate affairs at Microsoft Europe and watched as that company did battle with regulators over its dominant computer operating system. Microsoft won a lenient settlement with the Justice Department in October 2001, he said, only to be slapped with nearly 1.6 billion euros, or $2.1 billion, in fines and penalties from the European Union from 2004 to 2008.

Google learned from Microsoft’s mistakes. It worked with authorities in both the United States and Europe to reach a deal rather than fight a desperate legal action. That approach appears to have paid off: last month, after a meeting with Eric E. Schmidt, Google’s executive chairman, the head of the competition practice said that the sides had substantially reduced our differences.

In its deal with the F.T.C., Google agreed to make concessions in two areas that concerned European regulators. In one, it will allow rivals to opt out of allowing Google to “scrape,” or copy, text from their sites. Google will probably offer the same concession to European authorities.

But in a second area of European concern — whether Google deliberately favors its own content in search results — the F.T.C. did not require changes.

The head of the competition practice has also demanded that Google put fewer restrictions on advertising distribution deals, an area his American counterparts did not explore.

The company will make a detailed set of proposed remedies in January. The European Commission will then allow the complainants to review them in a period of what is known as “market testing.” Antitrust lawyers say a final denouement could arrive by spring, depending on how hostile Google’s rivals are to the proposed remedies.

FairSearch, an alliance of Google rivals, accused the F.T.C. of rushing its decision. It said in a statement that closing the F.T.C. investigation with only voluntary commitments from Google is disappointing and premature.

The outcome in Europe may also be affected by Google’s dominance there. Google’s share of the United States search market was 67 percent in November, according to comScore, a digital analytics company, while its share in Europe was 83 percent that month.

U.S. Tech Probe Nears End

The Wall Street Journal

Several of the U.S.'s largest technology companies are in advanced talks with the Justice Department to avoid a court battle over whether they colluded to hold down wages by agreeing not to poach each other's employees.

The companies, which include Google Inc., Apple Inc., Intel Corp., Adobe Systems Inc., Intuit Inc. and Walt Disney Co. unit Pixar Animation, are in the final stages of negotiations with the government, according to people familiar with the matter.

The talks are still fluid, these people said, with some companies more willing to settle to avoid an antitrust case than others. If negotiations falter, both sides could be headed for a defining court battle that could help decide the legality of such arrangements throughout the U.S. economy.

Still, there are powerful incentives for both sides to settle the potential civil case before it reaches that stage.

The Justice Department would have to convince a court not just that such accords existed, but that workers had suffered significant harm as a result.

The companies may not want to take a chance in court. If the government wins, it could open the floodgates for private claimants, even a class action by employees. A settlement would allow the Justice Department to halt the practice, without the companies having to admit to any legal violations.

Spokespeople for Google, Apple, Intel, Adobe and Intuit all declined to comment. Pixar had no immediate comment. A Justice Department spokeswoman also declined to comment.

The Justice Department's probe of hiring practices could reach beyond Silicon Valley.

During the course of its more than year-long investigation, the agency has uncovered evidence of such agreements in other sectors, according to the people familiar with the matter.

A settlement with tech companies—or a court fight—could therefore help determine what kinds of agreements are acceptable in other industries as well.

At stake are dueling visions of how far companies should be able to go in agreeing to limit the kind of headhunting that can help valuable employees increase their compensation.

The companies have argued to the government that there's nothing anticompetitive about the no-poaching agreements. They say they must be able to offer each other assurances that they won't lure away each others' star employees if they are to collaborate on key innovations that ultimately benefit the consumer such as improved Google SEO.

Some economists believe that banning such agreements could harm Silicon Valley's open, collaborative model.

"The effect of the lawsuit would be to reduce innovation because companies would worry about exposing their employees to each other," said Paul Rubin, an economics professor at Emory University, who isn't involved in the case.

For the Justice Department, such agreements amount to an effort by companies to limit competition for talent, harming employees' ability to get the best jobs and wages and reducing the incentives for people to enter professions in high demand, according to people familiar with the matter.

The government could argue that the agreements constitute an effort by companies to fix the price of labor, and are therefore just as harmful as price-fixing or bid-rigging—automatic violations of antitrust law.

"In a free market economy, you want the best people getting the best positions, and presumably all the rewards that come with that," said Spencer Waller, a law professor at Loyola University Chicago, who has no connection to the case. "This agreement, if the government has the facts, suggests that market for talent is being depressed by collusion."

The agreements under investigation varied in their scope and details, according to the people familiar with the matter. In conversations with the Justice Department, some companies have maintained they didn't have agreements not to hire each others' employees, only agreements not to "cold-call" partners' employees.

However, people familiar with the matter say the Justice Department believes that cold-calling is an important way in which people are hired in the sector. Even if the employees don't end up moving, their employer often has to sweeten their pay and conditions to make sure they stay.

After more than a year of investigation, the Justice Department antitrust division has concluded that many of these agreements have harmed people's ability to get better jobs or improve their conditions.

But proving that in court may be tricky, some antitrust lawyers said.

During the course of the investigation, more than a dozen tech companies have been questioned by the Justice Department, people familiar with the matter said. Those include Yahoo Inc., Genentech Inc. and IAC/InterActiveCorp.

However, some companies said they are no longer in the government's cross-hairs. "After a thorough investigation, the [Justice Department] antitrust division has advised IBM that it will not pursue a case against IBM," an International Business Machines Corp. spokesman said.

Microsoft Corp. also said it is no longer a target of the investigation. A Genentech spokeswoman said the Justice Deparment had relieved the biotech firm of the obligation to hold on to relevant information.

A Yahoo spokeswoman said the company fully cooperated in the investigation and believed its responses were sufficient. IAC didn't respond to requests for comment.

The agency has decided not to pursue charges against companies that had what it believes were legitimate reasons for agreeing not to poach each other's employees, said people familiar with the matter. Instead, it's focusing on cases in which it believes the non-solicit agreement extended well beyond the scope of any collaboration.