Former Google CIO says business misses key people marks

Douglas Merrill (Image: Joi Ito)

The former CIO of Google and founder and CEO of ZestCash, Dr Douglas Merrill, says companies stuck in traditional management practices risk becoming irrelevant and leaders should not be afraid to do ‘dumb’ things.

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During a lively keynote at this year’s CA Expo in Sydney, Merrill said the six years he spent at Google was the most fascinating part of his career.

“Google was founded by two computer science students at Stanford and they hated each other at first. I found out they were both correct,” he said jokingly.

“There is a whole cottage industry of people talking about innovation, including all kinds of garbage… and I'm part of this cottage industry.”

Merrill said there is a lot of “mythos” about Google, like free food and 20 per cent free time, but most of it is false.

He said a successful product is not about having perfect project management, rather “the more project management you do the less likely your project is to succeed”.

“It’s not about hardware and capex. Build your product and then figure out what to do with it,” he said.

“Don't be afraid to do dumb things. Larry and Sergey developed a search product called ‘Backrub’ – don’t ask me how they got that - and shortly after that launched Google as part of the Stanford domain. Most of the early Google hardware was stolen from trash and as the stuff they stole broke all the time they built a reliable software system.”

“Everyone knew we shouldn't build our own hardware as it was 'dumb', but everyone was wrong. Sometimes being dumb changes the game.”

Merrill cited the “fairly disturbing statistic” of 66 per cent of the Fortune 100 companies having either disappeared or are out of the list in the 20 years since 1990.

“Eastman Kodak is my favourite example. It has more patents than any other company on earth and is the most successful research company,” he said. “In 1990 a young researcher invented the charge coupled device which is the core of every camera today. His boss said you're a moron we make film.”

“The most important thing to take advantage of is to see innovation from everywhere – inside and outside.”

With information being democratised over the past twenty years, which has seen the price of hard drive storage drop by 2 million fold, Merrill said businesses can emerge in a cheaper way.

“Zappos.com is inline shoe retailer and each shoe sent has a return slip as people are more likely to buy something if they can return it. The company went from $1 million seed to $70 million in revenue,” he said, adding Google $1 million in funding and built “a reasonably good business”.

While technology matters to “real” bricks and mortar businesses as much as online companies, Merrill said there are lots of examples of technology turning out “spectacularly badly”.

“Just because you can do something with technology that doesn't mean you should do something with technology,” he said. “You want to find cheap ways to get your customers to care about you.”

“McDonalds wanted to get people to come back to its stores so they ran an interesting marketing program with Foursquare where people could come to a restaurant and ‘check in’ and get a hamburger for free. That resulted in 25 per cent sales lift day-on-day and the total marketing promotion cost $18,000.

When Merrill left Google he worked at EMI records, which was interesting and enjoyable, but he knew the music industry was “collapsing”.

“The RIAA said it isn't that we are making bad music, but the ‘dirty file sharing guys’ are the problem,” he said. “Going to sue customers for file sharing is like trying to sell soap by throwing dirt on your customers.”

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Merrill profiled the file sharing behaviour of people who used Limewire against the top iTunes sales and the biggest iTunes buyers were the same as the highest sharing “thieves” on Limewire.

“That's not theft, that's try-before-you-buy marketing and we weren’t even paying for it… so it makes sense to sue them,” he said wryly.

Merrill said it is also prudent not to listen too carefully to customers as so-called “focus groups” suffer from the Availability Heuristic: “If you ask a question the answer will be the first thing they think of.”

“You can't ask your customers what they want if they don't understand your innovation,” he said. “The popular Google spell correction came from user activity. We couldn't ask a customer if they wanted spell checking as they would have said know.”

“Don't lose the ability to learn from the people who do the work. Pepple will do what you measure [so] make sure you measure the right stuff.”

On funding good people, Merrill recommends always “over hiring” and diversity matters.

“Diversity yields better outcomes. Hire someone who annoys you as they are more likely to be diverse and diverse practices are better,” he said.

“To win you have to make sure you don't lose. Change happens. To you, or by you so pick. The Fortune 100 companies which are gone all 'knew' what the answer was.”

According to Merrill, everything we learned in business from 1990 to 2010 was false.

“My company has zero capex and everything is in Amazon,” he said. “The single most common thing executives do is get in the way.”

Merrill said the culture of secrecy in business is also a fallacy and people should talk about everything, well, almost everything.

“IT security people tell you what you can't say and HR people say you might hurt people's feelings, but the actual stuff you need to keep secret is small.”

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