Start-Ups Make Inroads
With Google's Work Force
By KEVIN J. DELANEY


As Google Inc. exploded into a company of more than 12,000 employees, attracting a million resumes a year, the Internet giant rarely lost staff to start-ups or had prospective workers turn down job offers. Now, though, Google's magnetic pull on top Silicon Valley talent is showing signs of weakening.

Take Justin Rosenstein, 24 years old, a Google employee since March 2004 who invented its Web-site-building service, Page Creator. He joined social-networking start-up Facebook Inc. last month as a senior software engineer, and says Google's past success in hiring entrepreneurial people helps explain why it's seeing some of those people leave as it becomes larger: "That same caliber of people is naturally going to consider carefully whether it's at Google or somewhere else that they have the most potential to do big things and do them quickly."

Google had more than six times the number of workers at the end of the first quarter than it had at the same point in 2004, which some former employees say tends to slow decision-making and make it harder for individuals to feel like they're having an impact.

Another big consideration: Some highly lucrative stock options are beginning to finish vesting for thousands of employees brought on during a big Google hiring spree in 2003 and 2004, lessening the financial incentives to stay. Options granted during 2003 have average exercise prices as low as 49 cents, compared with the $526.29 price in trading at 4 p.m. on the Nasdaq market yesterday.

On top of all this, a new generation of Internet start-ups has matured enough to attract top technical talent and offer a real possibility of riches from a stock offering or sale to a bigger company. In contrast, Google's shares hit a record level this week, suggesting the stock simply doesn't offer the same potential gains it once did. The concentration of many of the start-ups within a few miles of Google's headquarters, which Google itself has exploited in the past, can make poaching staff a faster and easier pursuit.

But Google People Operations Vice President Laszlo Bock says the company's staff attrition rate has remained "pretty steady" in recent years at under 5% and the rate at which Google job offers are accepted is similarly stable, approaching 90% or higher depending on the position being filled. He chalks any perception that start-ups are gaining on Google in recruiting to the fact that the Internet giant is hiring many more people than in the past. With more staff and more hiring -- and steady attrition and acceptance rates -- in absolute terms there are more people snubbing Google for start-ups, he says. "So the start-ups experience it as a change, while from our perspective there hasn't been much of a change," adds Mr. Bock.

Still, Mr. Bock says Google executives spend a lot of time thinking about how to attract and retain top talent as the company grows in size. "We don't want to become a victim of our own success; we're aware of that risk," he says.

Cautionary tales abound, as a string of other technology companies -- from Microsoft Corp. during the dot-com boom to more-recently Yahoo Inc. and eBay Inc. -- has seen hiring and retention challenges accompany massive growth.

It's unclear whether the latest departures will have any impact on Google's performance down the line. But the company acknowledges that creative and entrepreneurial people are the core of its success -- that's one reason Google lavishes them with extravagant free food and other perks. "If we do not succeed in attracting excellent personnel or retaining or motivating existing personnel, we may be unable to grow effectively," Google has acknowledged in regulatory filings.

Facebook, Mr. Rosenstein's new employer, is one company that professes having an easier time competing with Google for staff. Co-founder and engineering vice president Dustin Moskovitz says the 250-person start-up has managed to hire 10 out of the roughly 11 engineers who had rival job offers from Google since the beginning of the year, an improvement on the past.

"There are lot of people [at Google] who are talking about leaving now and what they want to do next," says Mr. Moskovitz.

Mr. Rosenstein says he still loves Google, but was attracted enough by the "huge potential upside" at Facebook and other factors to leave "a lot of value on the table" in stock options that had yet to vest when he jumped. After leaving, he posted a note online for friends describing Facebook as "the Google of yesterday, the Microsoft of long ago."

Similar factors are at play in other Google departures. Suranga Chandratillake, chief executive of video-search startup Blinkx, just hired a young engineer from Google. "Google was a big draw for exactly the sort of people we looked for a year ago, and that seems less the case now," he says.

Vanessa Fox, 34, a two-year Google veteran who created a service called Webmaster Central to help sites better manage their inclusion in search results, recently left the company and will begin working at online real estate start-up Zillow.com next month.

Two other Google defectors, Bret Taylor, 26, and Jim Norris, 26, started yesterday at venture-capital firm Benchmark Capital as entrepreneurs-in-residence and are working on their own Internet start-up idea. Two of the engineers who created the Google Maps service, they last year received the prestigious Google Founders' Award for their work. "Google has grown to be a larger company now, so I wanted to find our own destiny," says Mr. Taylor, who joined Google in March 2003 and estimates his net worth at under $10 million.

Bismarck Lepe, 27, is starting an interactive-video company called Ooyala Inc. with two other former Google employees. "We decided even Google, such an innovative company, wasn't taking an innovative approach at solving" a video-related problem they were working on, says Mr. Lepe, a four-year Google veteran. He began thinking about leaving when his initial options grant was about to vest completely in March, after four years.

"Google is losing a number of its very talented individuals -- some because they're frustrated and some because they're burned out," Mr. Lepe adds. He predicts any flow of staff out of Google will eventually slow, as the company finds ways to stem it and the wave of cheap options vesting passes next year.

Google's Mr. Bock, though, says vesting stock options have "not been in our experience a huge driver of people leaving." In addition, he says that the company is taking measures to try to keep employees satisfied. Google has begun experimenting with the creation of offsite "skunkworks" operations to develop cutting-edge products and separating out parts of the business to be run as more autonomous units within the company. It's trying to distribute authority for activities such as hiring and deal making farther down in the organization. Like other big companies, Google has also established a training program for employees it identifies as having leadership potential.

But Mr. Lepe says Google in the meantime has lost currency with young engineering recruits. "They just assume Google is now 'the Borg,' now 'the Man,'" says Mr. Lepe, conjuring groupthink bogeymen from 1960s radicalism to "Star Trek: The Next Generation."

Mr. Bock points out that the company is on track to receive more than two million resumes in 2007.