Google search boss Raghavan warns employees of ‘new operating reality’

Wearing a hoodie with the words “We use Math” on the front, Google Research boss Prabhakar Raghavan had an important message for employees during an all-hands meeting last month. But first he wanted them to settle in and feel comfortable.

“Have your boba teas,” Raghavan told the crowd gathered at a theater. at the company’s headquarters in Mountain View, California.

Raghavan, who reports directly to CEO Sundar Pichai and leads key groups such as search, ads, maps and commerce, was speaking at Google’s knowledge and information organization, which has more than 25 000 full-time employees.

“I think we can agree that things are not the way they were 15 to 20 years ago, things have changed,” Raghavan said, according to audio of the event obtained by CNBC. He was referring to the search industry, which Google has dominated for two decades, becoming one of the most profitable and valuable companies on the planet.

Raghavan said Google’s digital advertising business had become “the envy of the world”. He noted that over the past three years, annual revenues have increased by more than $100 billion, surpassing StarbucksMazda and TikTok combined.

At a company long known in Silicon Valley for its free gourmet lunches and myriad campus perks, Raghavan’s comments serve as the latest warning to employees that Google’s growth is becoming increasingly difficult.

“It’s not like life is going to be good forever,” he said.

For about 35 minutes, Raghavan peppered his reality talk with sports metaphors and rallying cries.

“If there is a clear and current market reality, we must react faster, just like the athletes,” he said.

He referred to increased competition and a tougher regulatory environment. Although it did not name specific competitors, Google faces pressure from companies such as Microsoft and OpenAI in generative artificial intelligence.

“People come to us because we are trusted,” Raghavan said. “They may have a new gadget that people like to play with, but they still turn to Google to verify what they see there because it’s the trusted source and that becomes more critical in the age of Generative AI.”

Raghavan had tangible changes to announce. He said the company plans to build teams closer to users in key markets, including India and Brazil, and revealed it is reducing the time its reports have to complete some projects to move forward more quickly.

“There is something to be learned from this faster-twitch, shorter-wavelength execution,” he said.

Google’s cloud business also asked its employees to act in shorter time frames even though they had fewer resources after cost cuts, sources with knowledge of the matter told CNBC.

“With a huge opportunity ahead, we are moving forward with speed and focus,” a Google spokesperson told CNBC, when asked for comment on Raghavan’s speech. The spokesperson highlighted the addition of generative AI to search and the improvement in search quality, adding: “There is much more to come.”

In March, Google named company veteran Elizabeth Reid as vice president, leading search and reporting to Raghavan.

In many ways, Raghavan’s tone was nothing new. Google has been in cost-cutting mode since early 2023, when parent company Alphabet announced plans to cut about 12,000 jobs, or 6% of the company’s workforce. Job cuts have continued this year, with more layoffs in early 2024, and Chief Financial Officer Ruth Porat said in a memo last week that the company was restructuring its financial organization, a move that would involve additional cuts.

But Raghavan clarifies that what is happening now is not just a continuation of 2023. He noted that his group’s last general meeting was three months ago, although for some it seemed like three years .

“We’ve had a lot going on over the last three months,” consisting of “very highs and lows,” he said.

At that time, Google presented its AI image generator. After users discovered inaccuracies that went viral online, the company removed the feature in February. Google has reorganized itself to try to stay ahead in the AI ​​arms race as more users move away from traditional Internet search to find information online.

In Alphabet’s upcoming earnings report released Thursday, Wall Street expects a second straight quarter of year-over-year revenue growth of around 15%. While this marks an acceleration from the previous few quarters, the numbers are also comparable to some of the weakest reports Google has ever released.

Even though Alphabet reported better-than-expected revenue and earnings for the fourth quarter, advertising revenue fell short of analysts’ forecasts, causing the company’s shares to fall more than 6%. Meanwhile, the AI ​​boom is forcing a renewed focus on investments.

“We are facing a new cost reality,” Raghavan said. With generative AI, the company is “spending a lot more on machines,” he said.

Organic growth is slowing and the number of new devices coming into the world “isn’t what it used to be,” Raghavan said.

“This means that our growth in this new operating reality must be hard-won,” he added.

Raghavan said additional challenges are emerging as the company “navigates a regulatory environment unlike anything we’ve seen before.”

He cited the European Union’s Digital Markets Act and said the company was still learning what its obligations will be with the European Commission. The DMA, which officially took effect last month, aims to crack down on anticompetitive practices among technology companies.

“It has an impact on us,” Raghavan said.

Raghavan urged employees to “meet this moment” and “act with urgency based on market conditions.”

“It won’t be easy,” he said. “But it’s the moments and the history of the industries that will define us.”

Raghavan said Google needs to address its “systemic” challenges and build “new muscles that maybe we’ve let down a little bit.”

He praised the teams working on Gemini, the company’s main group of AI models. He said they went from working 100 hours a week to 120 hours to fix Google’s image recognition tool in a timely manner. This helped the team resolve about 80% of issues in just 10 days, he said.

However, Google still hasn’t reinstated the ability to generate images of people. Demis Hassabis, Google’s head of AI, said in February, after the tool was removed, that it would be re-released in a few weeks.

Raghavan clarified that the failure to generate images was not due to a lack of effort.

“I want to be clear, this was not a case of someone slacking off and dropping the ball,” he said.

Raghavan said the company had shown the ability to move quickly on important issues. As an example, he pointed to an effort made in 2023, when the Bard team (now Gemini) and the Magi team, which focuses on AI-based research, launched products within months.

That’s something the company couldn’t have accomplished, he suggested, with bigger numbers.

“We realized that if we had sent 2,000 engineers to these projects, we would not have succeeded,” he said, indicating that the company would pay particular attention to the size and scope of the teams .

Raghavan also spoke to critics of the company’s bureaucracy.

Employees have complained for years that Google’s growing bureaucracy has crippled their ability to launch products quickly. This got worse as the company rapidly increased its workforce during the pandemic.

In 2022, in addition to Google’s annual survey called Googlegeist, Pichai launched a “Simplicity Sprint” to collect employee feedback on effectiveness.

“The number of agreements and approvals it takes to bring a good idea to market is not the Google way,” Raghavan said. “This is not how we should operate.”

Raghavan said leaders were actively working to remove unnecessary layers in the hierarchy, echoing Pichai’s earlier comments.

“We have learned a lot over the last few quarters,” Raghavan said. “I can’t tell you that all the obstacles are behind us. What matters is how we respond and what we learn.”