The 70-20-10 Rule: How Google Balances Innovation and Success

In a recent episode of the “Diary of a CEO” podcast, Eric Schmidt, former CEO of Google, referred to the 70-20-10 rule. This rule is a framework often used by Google to guide resource allocation for innovation, learning, and development. Here’s how it breaks down:

1. 70% on Core Business (Core Projects):

• Focus resources on primary business activities that drive the majority of revenue or align with the company’s main goals.

2. 20% on Adjacent Business (Side Projects):

• Allocate efforts to explore areas closely related to the core business but with the potential to expand into new markets or add value.

• This might involve improving existing products, experimenting with new use cases, or catering to emerging customer needs.

3. 10% on Transformational/Experimental (Innovative Projects):

• Dedicate a portion of time and resources to completely new ideas that could disrupt the market or become a game-changer.

Here’s how Google have applied the framework to their business model:

1. 70% on Core Business

• Google's primary revenue source is its advertising platform, particularly through Google Ads and YouTube Ads.

• They continually invest resources into improving the efficiency of search algorithms, enhancing ad targeting, and refining the user experience on their search engine and related platforms.

• This focus ensures that their bread-and-butter operations remain robust and profitable.

2. 20% on Adjacent Projects

• Google invests in products that are closely related to its core business but open new opportunities. Examples include:

• Google Maps: Extending the utility of its search engine into location-based searches.

• Google Drive and Workspace: Expanding its presence into cloud-based productivity tools, which align with users already using its core services like Gmail.

• These projects help Google reach new users and increase engagement among existing customers.

3. 10% on Transformational Projects

• Google uses its innovative culture to pursue moonshot projects through X (formerly Google X), its innovation lab. Examples include:

• Waymo (self-driving cars): A groundbreaking project aimed at redefining transportation.

• Project Loon: Delivering internet access via high-altitude balloons to remote areas.

• Google Glass: A wearable technology experiment that explored augmented reality.

The 70-20-10 strategy allowed Google to not only maintain dominance in search and ads but also expand into diverse areas like cloud computing, hardware (Pixel phones, smart home devices), and experimental technologies.

Projects like Gmail and Google Maps, initially considered adjacent or experimental, have grown to become vital components of Google’s ecosystem and revenue streams.