THE ABCs OF ALPHABET'S INTERNATIONAL BUSINESS: (A) is for Australia

My key focus is bringing the best of Google to Australian businesses and helping them to make the most of these tools.  We can play a role at helping Australia move from the post-mining boom economy to look at the next boom.” – James Pellegrino, Google’s Managing Director, Australia

*Image courtesy of Gizmodo Australia

*Image courtesy of Gizmodo Australia

Australia was one of the few economically advanced countries that grew during the global financial crisis due to investment in the mining of its abundant natural resources.  However, there is growing concern in Australia about the lack of government in investment in science and technology research.  While major technology companies like Google have outposts in the land down under, Australia still ranks in poorly research and development expenditures.  According to data from the OECD, Australia ranked 18th out of 20 advanced economies - ahead of only Greece and the Slovak Republic - for government R&D spending as a share of GDP in 2013.[1]  Australian Academy of Science president Andrew Holmes said that, “We’ve been lucky so far, but with a mining boom that is slowing and an economy in transition, that luck could run out.  If we don't strategically invest in science and research, we’ll be ill-prepared for future challenges whilst other nations are powering ahead of us reaping the rewards of increased scientific investment.”[2]

When Google opened its office in Sydney in 2009, Australia’s Governor-General Quentin Bryce told the assembled Googlers that, “Google offers an inspiring approach to work life and living.  You elicit the best of Australian ingenuity - what has always defined and distinguished us.  You provide space and, importantly, time, for Australian ideas to emerge, develop, and proliferate.”[3]  Google’s office in Sydney serves as a hub for the company’s operations in the rest of the Asia Pacific region and the primary outpost for Google in the world’s 12th largest economy where 90% of people have access to the internet in their homes.[4]  Google Australia’s current Managing Director, James Pellegrino, and his predecessor, Maile Carnegie, have sought to position Google as an agent for innovation in Australia. 

In an interview with the Australian Financial Review, Pellegrino stated that, “My key focus is bringing the best of Google to Australian businesses and helping them to make the most of these tools.”  Specifically, Pellegrino cited research from Deloitte which showed that 91% of Australian businesses are not making full use of digital tools to help them grow.  “This is not about building new products,” Pellegrino said.[5]  While most of Google Australia focuses on sales and operations and not R&D, the Sydney office has been at the forefront of three key issues in the development of Google’s international business operations: the enduring success of Google Maps, an opportunity to be the preeminent company in the development of Australia’s mobile web, and a national debate on how to tax major multinational corporations like Google.

PUTTING GOOGLE MAPS ON THE MAP:

While Google Maps has become Google’s second largest property after search, Google was not first to market in the development of online maps.  In the early 2000s, Google was falling behind competitors like MapQuest and Yahoo Maps.  Rob Pike, a software engineer and one of the first employees at Google’s Sydney office recalls that, “There was an effort inside Google to try to figure out what we should do about mapping and Larry Page was looking for a way to get a good mapping product together.  We discovered this group in Sydney, a little start-up called Where2 that built an awesome little windows mapping app.”[6]

Where 2 Technologies was started in Sydney by two Danish brothers, Jens and Lars Rasmussen, and their friends, Noel Gordon and Stephen Ma.  The Rasmussen brothers initially had trouble finding interest or investment in their mapping ideas in Silicon Valley.  According to Lars, “We had tried to get friends involved in California, but everyone kept telling us, look you’re crazy, you can’t make money from maps.  Except I had these two friends in Australia of all places who were keen to get involved.  So, Jens and I bought the cheapest airline tickets we could find, we met up in Sydney, Australia, and we set up a small office in my friend’s spare bedroom.  We built a few more computers with the cheapest components we could find, and we spent another six months building out our ideas.” [7]

Once Where 2 had a new mapping prototype, they decided to make the rounds again in Silicon Valley in search of venture capital.  Sequoia Capital made Where 2 an initial offer, but ultimately changed their minds because Yahoo Maps announced a major upgrade.  After taking some time to recover from this setback, Lars called one of the few early supporters of this technology in Silicon Valley, Ram Shriram, a Google board member.  Ram gave Lars an insight that would lead to the development of Google Maps, and the momentum for Google to open an office in Sydney.  Ram told Lars that, “The same reason that Sequoia no longer wants to invest is going to make Google want to buy you.  They saw what Yahoo did as well, and if they buy you guys, they have a chance at actually leap frogging Yahoo in this area.” [8]  

Lars recalled that, “Being in a very heightened state of motivation - as I was completely broke and without any other options - we scrambled and we took three weeks, worked day and night, and actually built a website specifically to impress Larry and his crew over at Google.  It even had the Google logo on it.”[9]  Google bought Where2 along with other startups - Keyhole, VuTool, and Zipdash, which would go on to complement Where2’s technology to eventually develop Google Maps, Google Maps for mobile phones, Google Earth, and Google Street View.[10]  The Where 2 team merged with a nascent Google sales team that was already in Sydney to formally open Google’s office.[11]  As of 2017, Google has approximately 1,500 employees in Sydney’s Pyrmont neighborhood with ongoing expansion plans.[12]

Google announced the release of Google Maps on February 8, 2005.[13]  Although this early version only contained basic maps for the U.S., Canada, and Mexico – no satellite imagery or street view.[14]  Today, Google Maps is an ever-changing, personalized global atlas with more than a billion users.  Google Maps has become the world’s most popular app for smartphones, with over 54% global smartphone owners using it at least once.[15]  Google Street View is available in 65 countries[16] and over one million websites use the Google Maps API, making it the most heavily used web application development API.[17]  Lars went on to become an executive at Facebook and currently works with his wife at her startup.  Lars has also backed other Australian startups like Canva and Law Advisor.  Lars told the Australian Financial Review that, “I’m interested in companies that have global ambitions, despite the fact they’re made in Australia.  Sydney, and Australia overall, has come an incredible way [since I was here].  I’ve been following the scene ... and for the size of the country, Australia is actually doing really well.”[18]

MOBILE – A TECHNICAL INSIGHT:

Google Maps was a successful product because it was built on an underlying technical insight – users wanted a personalized, accurate, comprehensive, and up-to-date map in their pockets.  Google defines a technical insight as, “a new way of applying a technology or design that either drives down the cost or increases the functions and usability of the product by a significant factor.  The result is something that is better than the competition in a fundamental way.  The improvement is often obvious; it doesn’t take a lot of marketing for customers to figure out that this product is different that something else.”[19]  James Pellegrino has taken Google’s approach to technical insights and applied it to the Australian smartphone market as a way to advance Google’s business in Australia.  In the presentation below, Pellegrino cites to research conducted by Google and Ipsos which indicates that Australia has the 2nd highest penetration of smartphones in active use at the moment (Singapore is #1).[20]  Furthermore, this research underscores the potential of shopping within the Australian mobile web – 88% of shopping related queries come from a mobile device, 72% of people use their smartphone within a store, 26% of people used their smartphones to complete a transaction, and 1 out of 5 Australians changed their minds about a purchase as a result of information that received in-store from a mobile device.[21]  Therefore, Australia is in a unique position to demonstrate how smartphone users will utilize the mobile web to its fullest potential. 

Today, businesses merely use the mobile web to attract users to their stores through sales promotions, restaurant apps, etc.  While smartphone users utilize their phones to save time with apps or kill time with games.  Pellegrino believes that we have only seen the tip of the iceberg of what smartphones will enable us to do.  A sophisticated smartphone market like Australia creates an opportunity for companies to fully mobilize their business with data by utilizing accelerated mobile pages (AMP) and integrating their digital marketing across multiple platforms simultaneously.  Pellegrino is encouraging Australian businesses to go one step further by engaging with their customers through their smartphones before they arrive at the store, while they are consuming a product or service within a store, and after leave.  “The mobile web tends to be the first gateway for people looking for you.  Smartphones at their heart are more than a gadget or a device.  Smartphones are an enabler.  They enable us to connect and communicate, two fundamental human needs,” Pellegrino says.[22]

Before the proliferation of smartphones, the people that knew their customers best were the shopkeepers at their corner store.  Smartphones and the mobile web allow large brands to feel like Mom and Pop shops that have a deeper connection to their customers.  Pellegrino argues that, “Australian smart phone users have a high predisposition to actually taking action following smart phone usage.  That’s a very fertile environment.  We don’t have the luxury in this market of like a lot of other technology trends of actually waiting and seeing what happens in the UK, the U.S. or other advanced markets and just following that path.  This is not a case of build it and they will come.  The Australian smart phone user is online and waiting for your business.”[23]

THE GOOGLE TAX:

In 2016, Google’s operations in Australia were part of a national debate on how to tax multinational corporations under the Diverted Profits Tax (DPT), also known as “The Google Tax”.  Under the DPT, multinational companies like Google with annual global revenue of over AUD$1 billion could face double taxation if they were found to have moved profits offshore starting in 2016.[24]  The purpose of the DPT is to ensure that the tax paid by global entities properly reflects the economic substance of their activities in Australia and prevents the diversion of profits offshore through contrived arrangements.[25]  Prior to the DPT, Google Australia paid taxes on local R&D, sales and marketing activities in Australia, while its direct market revenue was booked – and therefore taxed – in Singapore.[26]  It is worth noting that Australia’s corporate tax rate is 30%, while Singapore’s is 17%.[27]  Google Australia argued that it provided services to Google Singapore, Google’s headquarters in the Asia-Pacific region, for which is received revenue; and that this arrangement was similar to that commonly used by Australian multinationals operating outside of the country like mining giant Rio Tinto.[28]  Ultimately, Google Australia like other major multinational firms, restructured its tax operations to comply with the DPT by counting all of its revenue in Australia.

*TODAY Australia: Australian Tax Office Sets sight on tax avoiding

NOTES

[1]  The Sydney Morning Herald: Australian Government investment in science reaches 30-year low, dated September 29, 2014.  Available at: www.smh.com.au/technology/sci-tech/australian-government-investment-in-science-reaches-30year-low-20140924-10lbwk.html

[2]  Id.

[3]  PCWorld: Google Australia's new HQ: a peek at the new Googleplex in Sydney.  Available at: www.pcworld.idg.com.au/slideshow/305292/google-australia-new-hq-peek-new-googleplex-sydney/

[4]  Investopedia: Amazon’s Arrival Sounds Wake-Up Bell for Australia’s Sleepy Retailers, dated April 19, 2017.  Available at: www.investopedia.com/partner/reuters/amazon-says-it-bringing-retail-shopfront-service-australia/?utm_source=news-to-use&utm_campaign=right-rail-widget&utm_term=9429100&utm_medium=email

[5]  Australian Financial Review: New Google boss Jason Pellegrino brings a bottom line focus to innovation, dated November 10, 2016.  Available at: www.afr.com/brand/boss/new-google-boss-jason-pellegrino-brings-a-bottom-line-focus-to-innovation-20160825-gr0qxm

 [6] Youtube: Life at Google - History of Google Sydney, dated May 3, 2012, available at: www.youtube.com/watch?v=2eKWzpBOizE&list=WL&index=18

[7} Youtube: Never give up! Lars Rasmussen at TEDxAthens 2012, dated December 18, 2012, available at: www.youtube.com/watch?v=TsXkH7xVAFw

[8] Id.

[9]  Recode: Ten Years of Google Maps, From Slashdot to Ground Truth, by Liz Gannes, dated February 8, 2015, available at:  www.recode.net/2015/2/8/11558788/ten-years-of-google-maps-from-slashdot-to-ground-truth

[10]  Id.

[11]  Youtube: Life at Google - History of Google Sydney, dated May 3, 2012, available at: www.youtube.com/watch?v=2eKWzpBOizE&list=WL&index=18

[12]  The Daily Telegraph, Gladys Keen to Find a New Home for Tech Giant After its Rejection of White Bay Power Station Site, by Miles Godfrey, dated April 11, 2017, available at: www.dailytelegraph.com.au/business/google-pulls-out-of-10000-jobs-hq-at-white-bay-power-station/news-story/3dc4a49defe2a0c8d06264e3001f8f8d

[13]  Official Google Blog: Mapping your way, dated, February 8, 2005, available at: www.googleblog.blogspot.com/2005/02/mapping-your-way.html

[14]  Recode: Ten Years of Google Maps, From Slashdot to Ground Truth, by Liz Gannes, dated February 8, 2015, available at:  www.recode.net/2015/2/8/11558788/ten-years-of-google-maps-from-slashdot-to-ground-truth

[15]  Business Insider: Google+ Is The Fourth Most-Used Smartphone App, by Cooper Smith, dated September 5, 2013.  Available at: www.businessinsider.com/google-smartphone-app-popularity-2013-9#infographic

[16]  Recode: Ten Years of Google Maps, From Slashdot to Ground Truth, by Liz Gannes, dated February 8, 2015, available at:  www.recode.net/2015/2/8/11558788/ten-years-of-google-maps-from-slashdot-to-ground-truth

[17]  Programmable Web API Dashboard, retrieved May 4, 2016.  Available at: www.programmableweb.com/apis

[18]  Financial Review, Google Maps co-founder Lars Rasmussen backs Australian start-up LawAdvisor, dated August 23, 2016, available at: www.afr.com/technology/google-maps-cofounder-lars-rasmussen-backs-australian-startup-lawadvisor-20160819-gqx3bq

[19]  How Google Works, by Eric Schmidt and Jonathan Rosenburg, (September 2014)

[20] Think Mobile: It's not too late to be early - Jason Pellegrino, published, September 14, 2011, available at: www.youtube.com/watch?v=HVwmsLlYsJ4

[21]  Id.

[22]  Id.

[23]  Id.

[24] iTnews: Google Australia restructures amid tax crackdown, by Allie Coyne, dated April 29, 2016, available at: www.itnews.com.au/news/google-australia-restructures-amid-tax-crackdown-418827

[25} The Sydney Morning Herald: Australia now officially has a 'Google tax': Diverted Profits Tax law passed Parliament, by Nassim Khadem, dated March 28, 2017.  Available at: www.smh.com.au/business/the-economy/australia-now-officially-has-a-google-tax-diverted-profits-tax-laws-pass-parliament-20170328-gv83va.html

[26]  iTnews: Google, Microsoft admit to sending Aussie revenue to Singapore, by Allie Coyne, dated April 8, 2015, available at: available at: www.itnews.com.au/news/google-microsoft-admit-to-sending-aussie-revenue-to-singapore-402507

[27]  Id.

[28]  iTnews: Google, Microsoft admit to sending Aussie revenue to Singapore, by Allie Coyne, dated April 8, 2015, available at: available at: www.itnews.com.au/news/google-microsoft-admit-to-sending-aussie-revenue-to-singapore-402507