Why Investors Should Be Worried About The Google Tesla Deal

News broke this morning that Google and Tesla reached an acquisition agreement in 2013. Larry Page and Elon Musk reportedly had a handshake deal that would have seen Musk head the electric car maker for 8 years or until it produced its third vehicle. The deal is reported to have fell apart at the last minute due to haggling over small details.

This should be deeply worrying to Google investors for two reasons.

Google is showing a worrying lack of focus
Electric cars are completely unrelated to any of Google’s core businesses and core stengths. Creating cars is mainly a mechanical engineering / design / marketing challenge, which is unlike Google’s core software business that relies on software engineering almost exclusively to solve problems. In short, Google knows very little about building cars or building any physical products for that matter.

Why this is worrying is that good CEOs understand their company’s zone of competence. They know what they can and more importantly cannot do well and strive to build businesses around their strengths. Here Larry Page seems to be wildly ambitious without conceding what Google isn’t good at. Google as a culture is known for its arrogance and hubris. Built on the back of earth shattering success and ivy league pedigrees its understandable why this might happen. Page’s vaulting ambition to get into a business he knows little about underscores that this ‘we’re the smartest guys in the room’ mentality is a top down phenomenon. This creates a dangerous blind spot when making large acquisitions.

Larry Page has social issues
To have reached a large, $11 billion deal and have it fall apart at the last minute of seemingly minute details show Page’s known quirkiness is handicapping his ability to lead the company. Known for his awkward demeanor, abruptness and lack of respect for others, Page is used to being the king of the castle and answering to nobody. This is part of the reason he returned as CEO. He also exhibits great personal hubris, as illustrated above.

These personal issues are now starting to matter for the company. The easy days of search advertising dollars are over and the company has had no hit product (where it makes money) since. Even Microsoft found a second revenue engine, Office, by the time it was at Google’s level of maturity. The company seems to realize that in order to find this, it is likely going to have to pay to acquire. Despite trying hundreds of beta products, the company just can’t seem to generate market winning products internally.

When a company needs to make deals you need a CEO who is charming, friendly and humble. This type of CEO gives acquisition targets comfort in selling their ‘babies’, the inventions and companies they’ve spent their life creating. They trust not only their inventions but the team they’ve build over years or decades will have a good landing spot and a bright future.

A CEO who is arrogant, awkward and meddlesome is not the kind you sell to. It’s the kind you run away from and thank your lucky stars you spotted these quirks before you signed on the dotted line. Larry page is this type of CEO.

The revelations of a Google / Tesla deal should give investors in Google cause for concern. It’s becoming clear – through this, the anti-trust issues, the Glass failure and Google’s endless flirtation with strange ideas – that Google needs different management. Fast.

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