Schmidt, Apple's Board, and the Teenage Google Gambit

(MoneyWatch)  Of late there's been far more government scrutiny of Google than any corporate executive wants for his or her company. Part of that has been the FTC looking at the boards of Google and Apple and how they are unusually closely interlocked, sharing, as they do, two directors. The big concern is whether Google and Apple are competitors and if an overly cozy relationship could be harmful to the market. With the former's announcement of planning an operating system using its Chrome browser on top of a Linux base, the two companies go head-to-head, and the government scrutiny will likely only intensify. But don't expect Google to back down, because it is playing what has become a familiar gambit: do what you want until the law twists your arm enough to stop you.

Look at the areas where both Google and Apple already compete:

• office productivity applications
• cell phone operating systems
• cloud computing
• application development frameworks and tools
• browsers

Given the direction of computing and both companies, Google's announcement of Android should have been enough to trigger CEO Eric Schmidt's departure. Mobile is the big future for Apple's development and Google's interests in that space have been largely at complete odds with that direction. As Tom Krazit at CNET pointed out yesterday when he called for Schmidt to step down from Apple's board, the CEO has said that he couldn't recall recusing himself from any board discussion.

And now that clear conflict of interest is compounded by Google planning to build an OS that is essentially a pleasing user interface front-end to a Linux kernel. Although many have pointed to Chrome as aimed at netbooks, the plans go much farther than that:

Google Chrome OS will run on both x86 as well as ARM chips and we are working with multiple OEMs to bring a number of netbooks to market next year. The software architecture is simple -- Google Chrome running within a new windowing system on top of a Linux kernel. For application developers, the web is the platform. All web-based applications will automatically work and new applications can be written using your favorite web technologies. And of course, these apps will run not only on Google Chrome OS, but on any standards-based browser on Windows, Mac and Linux thereby giving developers the largest user base of any platform.Google Chrome OS is a new project, separate from Android. Android was designed from the beginning to work across a variety of devices from phones to set-top boxes to netbooks. Google Chrome OS is being created for people who spend most of their time on the web, and is being designed to power computers ranging from small netbooks to full-size desktop systems. While there are areas where Google Chrome OS and Android overlap, we believe choice will drive innovation for the benefit of everyone, including Google.

Both x86 and ARM chips. An OS running on top of a Linux (or Unix) kernel. Between the two operating systems, targeting anything from a phone to a desktop. Sound familiar at all? It's a pretty good description of what Apple does. Maybe the overlap between Chrome and Android don't matter to Google; it owns both the systems. How about at all the places where the interests of Google and Apple might overlap? Just what is Schmidt supposed to do, finally decide that recusal would make sense? Even if he suddenly changed his admitted habits, that would mean having to drop out of virtually every discussion about strategic direction.

And what of Arthur Levinson, former CEO of Genentech Inc? He also sits on both boards. Is he supposed to split his brain in half, devoting the left side to Google and right to Apple?

Maybe Google isn't happy unless it's receiving plenty of attention from federal regulators. Maybe Apple likes to thumb its nose at convention. But from a perspective of governance and just smart competitive business, this is one of the most stupid arrangements you might imagine, and its persistence pushes the entire situation into the realm of asinine arrogance. That's my way of saying that I don't actually think that either Schmidt or Levinson will resign until there is so much pressure that there is no other choice, just as Google would not call off a deal with Yahoo until literally a few hours before the Department of Justice was going to file a suit, or stop scanning books from libraries until having to settle a class action suit by publishers and writers.

The pattern of Google's strategic decision making is to decide on a course and then push it until absolutely forced by law to back down. That's why Google will continue to appear before Congressional committees and to be investigated by one regulatory agency after another. By its actions, top management believes that the company is either charmed or invulnerable, much as teenagers believe in their own invincibility. The company simply lacks the cultural maturity and discipline to take the next step in its development, and what seems to be market dominance today will eventually wither. Google might do well to look at the financial industry. Sometimes being willing to bet it all on always being a winner puts you into the limelight one year and out of business the next.