Google’s softly, softly approach to world domination pays off

Ten years after it was founded, the internet search engine is once again giving Wall Street the jitters with its squeamish attitude to advertising

P29_searchIt is hard to believe that just ten years ago Google founders Sergey Brin and Larry Page, two Stanford University PhD students, unleashed their web search engine on the world.

So much of the way we live today is organised around search in one fashion or another it is a struggle to remember how you found anything out before Google. Its success is due to the proliferation of information and data in all its forms. An electronic TV programme guide is a good example of a basic search system that wouldn’t be needed but for the hundreds of cable and satellite TV channels we now have.

Google’s founders and its chief executive Eric Schmidt, who joined in August 2001, set about the business of search with a determined focus that has built one of the world’s great technology firms. The company unabashedly set as its goal the bid to help organise all the world’s information.

Whether it has achieved that or not isn’t as important as the far-reaching impact it has had on a wide range of industries, particularly technology, media and, of course, marketing and advertising.

Google wasn’t taken very seriously at the start. According to search expert John Battelle’s 2005 book The Search, companies such as the now defunct Infoseek and Yahoo! turned down an opportunity to buy the start-up company in 1998 for less than $1.6m.

Today Google has no serious competitor in search technology. Microsoft huffed and puffed, but failed to make a lasting dent. Two other former search leaders, Yahoo! and Ask, license or plan to license Google’s service.

In May, Google was the internet site of choice for nearly 70% of all US internet searches, Yahoo! had 20% of the market, while Microsoft’s MSN Search had a 6% share. Google’s market capitalisation peaked at $225bn in November 2007and in June Yahoo! signed a search advertising deal with Google, which it hopes will allow it to remain independent.

But Google wasn’t an overnight success. Even after it got going, with substantial funding from backers led by famed Silicon Valley venture capital firm Sequoia Capital, it took a while for the early Googlers to get their head around the urgent need to make some money from their rather nifty search technology.

By the end of 1999, Battelle writes in his book, there was “more than $500,000 (and growing) going out the door each month and less than $20m in the bank. You didn’t need a Stanford PhD to do the math: the company needed a business model that worked.”

Google didn’t want to do marketing and advertising. It could easily have made millions by running banners on its website in a deal with graphic banner leader DoubleClick. However, Page and Brin didn’t want to turn the website into the online version of New York’s Times Square. Schmidt was still arguing against ads on the home page just last month, saying it would put off regular users – but that’s a lot easier to argue today.

In the end they did put sponsored links on, by copying the search advertising link-based model started by GoTo.com, the company which later became Overture and then was bought by Yahoo! In October 2000, Google introduced AdWords to the world and so began the journey from making $0 in revenue to making $3bn in 2004.

Google’s hugely profitable success with AdWords, and later AdSense, is the foundation on which it has been able to invest in technological scale at a rapid pace. It has huge data centres around the world to back up its continued expansion beyond mere text search on computers.

That success in advertising – and its impact on the future of a variety of media businesses from newspapers to advertising holding companies to technology stalwarts such as Microsoft – has prompted WPP’s Sir Martin Sorrell to dub Google a “frenemy” and others to call it a “froe”. Even as it gives away or licenses its technology and scale to business partners such as WPP, it appears to compete with some of its agencies in some services. However, Schmidt argued in an interview with Battelle that he had no intention of building Google into a media company.

“If Google were content to prosper with web search, and only web search, its story would be compact,” writes Randall Stross in his new book Planet Google (Free Press). “It is Google’s pursuit of all information, any form, that has made its story larger, more complicated and more interesting.”

Google offers specialist searches on news, books, university journals, street maps, satellite images and corporate financial information, among other things. But a few years ago it went beyond accessing public information. Its data centres now allow it to be a storage centre for your email messages, calendar, photos, blogs, videos, instant messaging and online discussion groups.

The Google Docs suite of free, online word processing, spreadsheets and power-point style applications are the early stage of an assault on Microsoft’s dominance with Office. Its paid-for Google Apps package of similar applications is being taken up by small to medium-sized businesses and universities, which can pay as little as $50 per employee or $10 per university student. Depending on the package Microsoft Office can charge more than $200 per employee for businesses.

“More data is better data,” is a favourite maxim of Google’s engineers. “Building systems at scale is the way to gather the data to create ever-smarter software,” writes Stross.

Yet Google is not stopping there. Plans are well under way for a mobile phone operating system and there is strong speculation that the first ‘GooglePhone’ will hit the stores in the fourth quarter. And, last week, Google released its first web browser called Google Chrome, which it said will be better for video and rich media. This is, of course, a challenge to Microsoft’s Internet Explorer, which is on more than 70% of PCs around the world.

Then there’s the small matter of YouTube. The success of YouTube in online video is the byword in venture capital world for how a start-up business can grow very rapidly and build huge customer numbers. It is not so much a destination site as the web’s platform for online video.

Google bought YouTube for $1.65bn after it struggled to win users of its Google Video service. But Wall Street is losing patience with what they see as Google’s indulgence of YouTube. Sure YouTube can gather the hundreds of millions of user eyeballs but when is it going to start making some money? – they ask.

“Amusingly, YouTube’s overwhelming lead in online video has not brought Google a new profitable way to ‘organise the world’s information’,” writes Stross. YouTube founders Chad Hurley and Steve Chen believe that with huge scale and a good service they’ll crack the business model challenge without distracting users with irritations such as pre-roll advertising. There’s no reason to believe they won’t – after all they are from Planet Google. v

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