Google Winding Down 20 Percent Time

Is this the beginning of the end of Google’s golden age of innovation?

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Google Winding Down 20 Percent Time

Google (GOOG) continues its transformation away from the “Don’t be evil” search engine company that defined cool and pushed innovation. The latest move? Killing the famous 20 percent time program that lets employees spend one day a week working on pet projects.

As the company continues its march toward $1000, it’s looking less and less like the Google of old. Google used to stand above the pack by how openly it embraced innovation, but it seems to be going in the direction of other tech industry giants as news emerges that it’s effectively winding down that 20 percent time program.

Research and development is a cornerstone of the technology industry. You simply don’t have innovation if you don’t spend the money to develop new products. However, this decade has increasingly seen tech giants turn down the R&D spending tap, favoring a strategy of litigation and incremental product improvements.

This is a topic we’ve touched on before, particularly with Apple (AAPL). The company spent 8% of revenue on R&D at the time that it began its transformation from PC maker to consumer electronics giant with category-defining products like the iPod and iPhone. Today, Apple’s R&D has dropped to the 2% range and it’s now spending more on litigation than innovation.

Meanwhile, Apple shares struggle to meet levels set last year as investors wait for the company to release something new beyond incremental upgrades to its existing products.

According to the New York Times, Google joined Apple in spending more on lawyers than R&D in 2011, but this was a bit misleading in terms of Google. Through its 20 percent program, on top of the officially designated R&D spending, Google’s employees were contributing an enormous amount of additional innovation that was largely off the books.

As pointed out in Quartz, the 20 percent program has paid off for Google with successful products like Gmail, Google Talk and AdSense — a product credited with now accounting for 25% of the company’s annual revenue — starting out as personal projects that Google staffers worked on one day a week. It was even spiked out in Google’s 2004 IPO letter, where it was states: “We encourage our employees, in addition to their regular projects, to spend 20% of their time working on what they think will most benefit Google. This empowers them to be more creative and innovative. Many of our significant advances have happened in this manner.”

So why kill it?


Article printed from InvestorPlace Media, http://investorplace.com/2013/08/google-winding-down-20-percent-time/.

©2014 InvestorPlace Media, LLC

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