January 31 2008: 11:14 AM EST
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Can Google three-peat?

Co-founders Sergey Brin and Larry Page and CEO Eric Schmidt talk to Fortune about what they're doing to keep the search giant the best company to work for.

By Adam Lashinsky

What makes Google great
Beyond pay and perks at the No. 1 firm on Fortune's 100 Best Companies to Work For list, employees love the chance to try new things.
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(Fortune) -- Over the years Google co-founders Sergey Brin and Larry Page have become understandably judicious about their time. After all, multibillionaires are constantly in demand. Yet the engineering-grad-students- turned-media-moguls made time for FORTUNE when informed that Google had been chosen, for the second year running, as America's best company to work for.

We met late in the afternoon on Thursday Jan. 10, in a large conference room near their offices, where Google's top executives convene for their regular meetings. Both were relaxed, friendly and openly appreciative of the honor being bestowed.

A lot had changed for the founders in the last year. Both got married. Google's shares thundered over $700 a piece, despite a 2007 hiccup related, appropriately, to breakneck hiring costs. (The shares have since withered with the rest of the market, closing Monday at just under $556.) About 20 minutes into our conversation CEO Eric Schmidt wandered into the conference room, opened his laptop and began tapping away, giving the air that he was only half paying attention to the conversation. As you'll see, Schmidt wasn't daydreaming.

They talked to Fortune about the soft side of Google, the hows and whys of making a tech company a great place to work, the challenges of maintaining the company's Google-y spirit and how new treats like afternoon tea service perk employees up.

Given their obvious pleasure at the PR, hiring and morale-boosting value of heading FORTUNE's list, I ask the founders how important Google's reputation is to them.

It's not a trivial question. Google (GOOG, Fortune 500) cultivates an air not only of goodness - remember the whole "Don't be evil" thing - but also of iconoclasm. Google has insisted from the beginning it would do things its way, which doesn't always make it a friend magnet. Brin's quick response bears out the dichotomy.

"We really care about what people think of us in the long term," Brin says. "We're sometimes willing to take an unconventional position on a short-term issue that maybe people aren't used to or haven't considered before. But if we think it's going to be right in the long term, and therefore the company is, in the long term, going to be even more respected for it, that's important."

As examples, he cites Google's recent bid for wireless spectrum and its program to allow its employees to trade vested stock options, even if they are out of the money, meaning their strike price is below the stock's current level in the market.

Brin might as well have been talking about Google's approach to intellectual property - a short-term headache in the form of controversial products such as Google's book project that scans whole libraries - and YouTube, which has provoked fights with film and television studios.

Page brings the conversation to the topic that Internet-industry pundits believe will be a hot button in 2008: whether or not Google and its competitors can be trusted with the information they gain from all the searches its users perform.

"Whenever you do a search, you're trusting us to give you the right things," he says. "We take that very seriously. We have a pretty good reputation in that regard. I think people see us as willing to take positions that some might find weird initially. But we definitely can explain why we did it, and we're upfront about that." He's only talking about half the equation, of course - namely users trusting that Google's so-called natural search is delivering unbiased results. Page didn't volunteer any thoughts on the larger privacy concerns.

On the subject of culture, one of the key components to building a great long-term company, Page and Brin by turns again display the art of spin and candor. Page recently visited some new Google offices in the Seattle area and says he's amazed at how much these newer, smaller offices resemble Google in its early days.

"You walk into an office with 200 people and it's amazing the extent it feels like Google did when it was a startup," he says. "I think that's really healthy for a culture." Page believes human organizations have an optimal size he calls "natural units." He waxes for a bit on their virtues. "I think as we get bigger, that's the way we're going to try to maintain our culture - to make sure we have the right sized groups."

Brin isn't so sure. The founders famously say they bicker privately, and Brin offers a glimpse by contradicting Page. "I don't think keeping the culture is a goal," Brin says. "I don't think we should be looking back to our golden years in the garage. The goal is to improve as we grow, and we certainly have more resources to bring to bear on the cultural issues and whatnot as we gain scale."

In other words, for Page it's about maintaining the culture, for Brin it's about improving it. Interestingly, Schmidt, who'll often interrupt the founders when he thinks it's necessary, sits by silently.

I ask if they think Microsoft erred by allowing itself to get too big, and Page returns to his natural-units kick.

"Microsoft, as I understand it, grew mostly in one location, which certainly is not the case for us," Page says. "We have different groups of people that are doing different kinds of things, like, for example, YouTube, which has remained largely a division. They're in San Bruno [about 20 minutes up the freeway from Google's Mountain View, Calif., headquarters], and they have their own culture, which is different and cool. If you look at companies that are really big and successful at doing many different things, like GE, they certainly have a complex organizational structure. But they're able to keep it together."

This notion of YouTube's being a separate entity is certain to raise eyebrows among certain factions within Google. Yes, YouTube is physically apart, and its founders, Chad Hurley and Steve Chen, appear to be still very much engaged. YouTube, in fact, hasn't been Google-ized. But Google insiders make it clear that Google guides the show at YouTube, including the fact that most department heads at YouTube report to a superior at Google. And while General Electric is famous for its decentralized approach, it has a unified culture nurtured from headquarters. More to the point, there aren't many companies that have pulled off the balancing act GE (GE, Fortune 500) has.

The founders clearly are thinking ahead as Google becomes more acquisitive. I wonder, for example, how Google will do at integrating the people of DoubleClick, none of whom will have been vetted by the famously rigorous - and often annoying - Google hiring process.

"We don't really know that the way we hire at Google is optimal, and we're trying to improve it all the time," says Page. "We obviously hire a lot of smart people. We also hire people who have different kinds of skills, and we hire people who work on computers, and do construction, and many, many other things."

With companies Google has acquired, their hiring culture may be different, "but they've had something that really worked for them in their space," Page adds. "For a company like DoubleClick, they understand what they're doing. The company has been around for a long time, is pretty mature, and they're obviously serving the customers well. So, we're not religious about the way we do it. In fact, we're trying to learn from how other people operate as well."

The founders are aware that their quirky perks are an object of fascination. But the perks aren't static. The company has stopped offering $5,000 to employees who buy a hybrid vehicle, for example, because the hybrid market no longer needs the boost, says Brin.

Brin remains interested in promoting healthy eating at Google. He's the one who drastically reduced sugary snacks at the company's mini-cafes. Schmidt takes credit for a new perk: tea service. That's right, little tea carts now make their way through Google's halls late in the afternoon offering goodies for employees who don't want to leave meetings to fuel up. Says Schmidt: "What happens is this bizarre social thing where all of a sudden they're wandering down the hallway and people congregate."

The founders are full of other ideas. They're tinkering with Google's 401(k) plan and making sure it's easier for employees to get financial advice. They're studying the effect of wealth on happiness, trying to understand what it takes to keep rich folks actively interested in their jobs -- and making a contribution to the company. Page says he traces his interest in benevolence to employees to the rotten time his grandfather had of it working in an auto plant in Flint, Mich., in the days of sit-down strikes back in the 1930s.

I wonder, though, what I'd do if I had an idea to build the next great company. Why in the world would I become just another Googler instead? Schmidt chooses this moment to jump in. He says Google is absolutely the place to be, particularly for computer scientists who want to work with great colleagues and on all the most interesting projects.

"Most people would like to be Larry and Sergey, but they have neither the ability nor the chutzpah to pull it off," Schmidt says. "Most people would like to be successful in the way that the founders of Google have been. But that's not, in fact, their path. It's not going to happen. They're not that risk-seeking, they don't have that opportunity in front of them, the stars did not align in the right way. Those people are still very, very smart. They're still incredible contributors. We want them to work at Google."

I ask what happens when, if history repeats itself, Google hits the proverbial wall -- its sales growth slows, its stock craters and morale suffers. How will the company react? What I really want to know is what kind of scenario planning Google is doing for that seemingly inevitable event.

I get something of an answer, but Brin's response is really just an affirmation of Google's culture. "This is where you want to make sure you are hiring employees because they love to work here, they love to create things, and they're not here primarily for the money," says Brin. "Although when they do create something valuable you want to reward them. That's when these things really pay off. I like to think we're putting a lot of investment in things that matter a lot more when you're not having such a great time as a company. I'm sure things will fluctuate."

Already things are fluctuating, of course. There are fears of a downturn in Internet advertising. Net phenomena like Facebook have more momentum than Google and mature stalwarts like VMware are giving Google a run for the money in terms of hiring computer scientists. It's certainly good to be the king, but staying on top will only get tougher.

Is it possible for a successful company like Google to adequately prepare for the moment when it could suffer a major hiccup? Post your thoughts on the Go West blog.  To top of page

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