What Your Company Can Learn from Google How did the Internet search firm become the hottest company on the planet? It wasn't the lava lamps, or the Segways in the halls, or the massages, or ... wait a minute. Maybe, indirectly, it was.
(Business 2.0) – When Omid Kordestani showed up for his new job as head of sales at Google in May 1999, the place was a mess. Founders Sergey Brin and Larry Page, ages 25 and 26, were working out of a cramped, disheveled office in Palo Alto. Their "business plan" wasn't much more than a series of notes scribbled on a whiteboard. Nearly all 12 employees had Ph.D.s in engineering or computer science, but nobody had a clue how the sophisticated search engine technology they were building was supposed to generate any money. The first MBA hired and the only guy pictured on Google's website wearing a tie, Iranian-born Kordestani was the startup's adult supervision.
A former sales executive at Netscape, he was charged with devising a coherent business model and five-year revenue plan for a duo who never expected to need such things. "Sergey and Larry never really wanted to start a company," explains Jeff Ullman, a former computer science professor at Stanford University and a member of Google's technical advisory board. "They had hoped to sell Google to Yahoo for $1 million, but Yahoo wasn't willing to pay that much. So they launched the company as a last resort."
Funny how things turn out.
Google is now by far the world's biggest search engine, representing 48 percent of all Internet queries, according to WebSideStory. The company pulls in roughly $1 billion a year in sales, and its forthcoming IPO--which most of Silicon Valley seems to regard as the most earth-shattering event since the formation of the San Andreas Fault--is expected to value the company north of $30 billion. That would put its market cap roughly on par with Colgate-Palmolive's ($9.9 billion in 2003 revenues) and in sight of rival Yahoo's $33.6 billion. If history is any guide, institutional investors will spend an obscene amount of energy during the next few months trying to wheedle a few shares of the IPO in order to profit from Googlemania.
For the rest of us, a more productive way to profit from Google would be to look beyond the investment frenzy to the long-term business lessons the company imparts. While Brin and Page may not have known what they were doing five years ago, they have clearly figured it out since. What distinguishes Google most is that it started with a vision not so much of what it should be, but of what it should not be. Brin and Page would insist that it not resemble every other company. It should never be lazy or arrogant or take its users for granted. It should never, in its oft-quoted resolution, "be evil." Any sober-minded businessperson could say, of course, that these principles are hopelessly vague and almost laughably idealistic. But no one can now say they didn't work.
The Wisdom of Google
LESSON 1: DON'T SELL YOUR SOUL TO THE HIGHEST BIDDER. From the start, Brin and Page took the high road with advertising. While other search engines were secretly tucking paid advertiser sites into their listings--a process called "paid inclusion"--Google decided that the only parts of its site it would ever sell to advertisers would be clearly marked "Sponsored Links" sections at the top and side of the page. The founders also refused to allow banners and pop-up ads. Brin, in particular, was adamant about this. He hated using search sites like AltaVista and Yahoo and waiting while a colorful, inane ad lumbered across the screen.
All ads on Google had to be tagged to specific search terms that users typed in, so the ads might actually have some utility. Competitor Overture was already doing this, but Google took it a step further. All ads would be simple text on no more than two lines. Dana Todd, an executive vice president at Internet advertising firm SiteLab, remembers thinking, "These people are nuts; they're not going to get any business."
But they did. Users loved the purity of Google's look and feel, and they actually clicked on the ads. Google's search-tagged ads are now among the most effective ways to reach consumers on the Internet, with average click-through rates of 4 to 6 percent. Banner ads, by contrast, average 0.44 percent. Responses to Google ads can be overwhelming. Todd says the ad she buys tagged to the phrase "Buy a hot tub" gets clicks from 15 percent of the people who see it.
LESSON 2: CREATE A CULTURE OF RISK TAKING. Now that Google dominates Web search, it's easy to forget how strange its approach really was in 1998. The notion that the world needed another search engine--there were already at least 10--was absurd. Though the quality of search results was declining as the Internet swelled, most people didn't seem to care. Even technologically savvy people like Kordestani were content with their search engines. "I was using Yahoo and Netscape," Kordestani admits. "In some ways, you just didn't know any better."
Conventional logic held that the ability to do searches was, at best, a feature of some bigger, fancier product. Google stripped its search engine down to the point where it looked naked. No news, no weather, no horoscopes. Just a goofy logo in Romper Room colors and a search bar floating on an empty page.
Such a counterintuitive move branded Page and Brin as serious mavericks, which in turn attracted kindred spirits. It's partly why Google CEO Eric Schmidt was so keen on taking the job. Schmidt tagged himself as something of a risk taker when he quit as Sun's chief technology officer to join the ailing networking company Novell. Brin delights in saying that he and Page chose Schmidt because "he was the only candidate who had been to Burning Man."
The risk-taking culture at Google is fostered by a policy that encourages engineers to spend 20 percent of their time working on personal projects that may or may not benefit the company. The point is to get people thinking creatively and independently instead of just hewing to strategies generated from above. So far it's worked. Google News was born out of one researcher's self-directed project.
Even the aspects of Google that make it seem more like a kindergarten than a company worth billions--the lava lamps, the Segway scooters, the remote-control UFOs Brin and Page bought at Costco a while back for no particular reason--send an important message. They remind people that companies don't have to operate the way everyone thinks they're supposed to. Just because people at Dell or Siebel don't bring their dogs to work doesn't mean no one should.
LESSON 3: IT'S ALL ABOUT THE PRODUCT. This sounds obvious, but it's amazing how often companies screw it up. Look at nearly every search engine that was on the market when Google launched in 1999. Rather than focusing on technical research and development to improve search quality, AltaVista, Excite, and Infoseek grew enamored with doing deals and putting out press releases.
Brin and Page saw that everyone had stopped believing in search. To them, it was the most important gateway into the boundless and byzantine world of the Internet. Their two consuming passions were making search results more relevant and delivering them almost instantaneously. "Sergey and Larry wanted every Google search to happen in less than one second," Ullman says. "At first it took about a second and a half, but eventually they got them down."
Part of the reason Google has never spent much on advertising (the company grew entirely by word of mouth) is that Brin and Page believed the product would always improve. "They wanted people to come later rather than sooner, because Google would always get better," says Seth Godin, an Internet consultant and former Yahoo executive who discussed the philosophy with Brin at a conference last August.
This quest for eternal improvement explains why Google has, out of 1,900 employees, roughly 600 engineers and other gearheads and just a few dozen people in marketing. "Larry and Sergey always thought, 'We'll build something really good, and money will follow,'" says Jakob Nielsen, a former Sun Microsystems engineer who joined Google's technical advisory board shortly after the company incorporated in 1998. "It may have been naive, but it turned out to be right."
LESSON 4: DON'T GET GREEDY. While the tech boom raged, most Internet entrepreneurs grabbed as much as they could get. With the backing of celebrated VCs like John Doerr of Kleiner Perkins Caufield & Byers and Sequoia Capital's Mike Moritz, Google could have gone public as early as 2000. Yet had it done so, it's unlikely the company would be where it is today. Everyone would have been much more aware of what Google was doing and how well it was working. And competitors like Microsoft and Yahoo would have broken into the search-ad market a long time ago.
All along the way, Google sacrificed short-term gain for long-term viability. In 2001 the company nearly signed a deal with DoubleClick to have the ad network manage Google's advertising inventory. It would have made Google profitable almost immediately. "We even had a test with them in Europe," Kordestani recalls. But ultimately Kordestani realized that Google could capture much more revenue by patiently building its own ad management system.
Google still refuses to chase the quick buck. The company will actually suggest that customers stop advertising on its site if click-through rates are too low. Jim Cancil, who used to advertise his small Salisbury, Md., auto accessory business on Google, was shocked when he received a letter from the company advising him to stop wasting his money. "Most companies will just suck dollars out of you," he says.
LESSON 5: KEEP YOUR EMPLOYEES HAPPY. Some of the notoriously indulgent behaviors of the bubble era, like having a chef and masseuse on staff, never died out at Google. And why should they? They don't cost that much money, and they deliver huge payoffs in goodwill. Thanks in part to the combined effect of Google's resident chef, masseuses, and doctor, not to mention parental leaves that include free home food delivery during the first two weeks, company turnover is in the low single digits. Of prospective employees to whom the company makes offers, more than 90 percent accept, a harvest most companies would kill for. Of course, it doesn't hurt that the Google IPO could turn hundreds of staffers into paper millionaires.
Whether Google likes it or not, it now wields extraordinary influence. The company's commanding share of the search market gives it the power to make or break an online enterprise, which naturally attracts more competition, harsher scrutiny, and higher expectations than in the past. A Google search for "Google Evil" brings up dozens of websites that collect grievances against the company, including Google Watch, which warns that "Google is not your friend." It's not difficult to see how the next five years could be infinitely more challenging for the company than the last five.
RISK 1: GOOGLE BECOMES BIG BROTHER. OK, that overstates it, but consider what happened to Carolina Buyer's Agent (www.charlotte-eba.com). For two years this small business got a top Google ranking for the search term "Charlotte Real Estate." Last November it suddenly disappeared from the list, and traffic to the website plummeted. An agent's attempt to contact Google to find out what happened got no response.
The four real estate brokers who own the company join a chorus of other website owners who've seen their fortunes suddenly change in response to Google's search results. They say Google, without warning, last year adjusted the algorithms that determine how it ranks webpages. "Google gained a whole new class of people who hate them," says Danny Sullivan, editor of SearchEngineWatch.com. "A lot of people felt like 'You kicked us out because you just want us to buy your ads.'" Google says the changes had nothing to do with trying to squeeze more ad dollars from small businesses, but rather were designed to improve the relevance of results.
However good Google's intentions may be, its actions are now all but guaranteed to upset someone somewhere. When a Harvard University research project revealed that Google had been removing links from its French and German websites to other sites likely to be judged racist or inflammatory by authorities in those countries, free speech advocates wondered what else Google might quietly be yanking out of the index. One answer could be found in the Church of Scientology's request that Google stop linking to a Norwegian anti-Scientology site, which the church claimed was displaying copyrighted content. Google complied with the request but later reinstated the site.
Google's success has thrust it into the role of Internet parent, forced to arbitrate beefs between warring parties--anti-Semites and Jews, nude webcasters Naked News and Nekkid News, Anita Roddick and John Malkovich. (Google refused an ad for political-correctness doyenne Roddick's site, which calls the actor a "vomitous worm.") It's a role that Google, whose culture of secrecy would do the National Security Agency proud, is spectacularly unequipped to play. "They're very tight-lipped," says Matthew Berk, who followed Internet companies at Jupiter for two and a half years and is now a consultant. "It might have served them at one point, but it isn't helping anymore." In the company's first acknowledgment that it has an influential role in society, in February Google lured Andrew McLaughlin from Harvard's Berkman Center for Internet and Society (whose study uncovered the blocked websites in Europe) to be its senior policy counsel.
McLaughlin will no doubt be busy. Recent news of Google's nascent free e-mail service, Gmail, produced spasms of outrage among privacy crusaders that Google would "read" people's e-mail and insert ads relevant to keywords. In fact, Google will not read e-mails any more than anti-spam and antivirus scanning programs do now. And the inserted ads will be the plain-text variety that appear on Google's site--arguably far less intrusive than the animated banner-ad bazaar encountered by users of other free e-mail services like Hotmail and Yahoo. The reaction underscores the point that Google, the Internet powerhouse, will now often be viewed as guilty until proven innocent.
RISK 2: GOOGLE GETS NETSCAPED. A few years ago, Google technical adviser Jeff Ullman was on the phone with an airline reservation rep who needed to know the phone number of the hotel in Hawaii where he would be staying. "Hold on," he said. "Let me look it up on Google."
"Oooh, I love Google," the rep squealed.
In the past four years, Ullman's heard that sort of adoration a lot. But now that both Microsoft and Yahoo are marshaling resources in a race to catch up with and--if they get their way--squash Google, is love really enough?
Google thinks it is. The company's first response to the onset of real competition has been to keep doing what it has been doing, which is building technology that gives people the best possible search results. "We're staying focused on what brought us here," Kordestani explains.
But analysts point out that having the best product doesn't always mean success. "We've seen that Microsoft only needs to be barely competent to dominate a market. There was nothing so wonderful about the Windows OS, or Windows Media Player, for instance," Berk says. If Microsoft creates a search engine at least as good as Google's and embeds it into either the Internet Explorer browser or its new operating system, how long will people continue to surf over to Google to start their Web browsing?
In truth, Google hasn't created anything "sticky," to use a favorite term of tech marketers. Intentionally so. "I wouldn't pursue anything sticky for the sake of having something sticky," Brin has said. "I'm not a big fan of handcuffing."
But surely there's some middle ground between handcuffing and zero brand loyalty. In a report titled "What Should Google Do?," Godin suggests that the site could, for instance, ask users if they'd like it to keep an eye on what they're searching for and use that data to improve their Google experience. "If you search on 'John Kerry' a lot, they could say, 'Would you like us to e-mail you when we find something about John Kerry that you might find interesting?'" Google actually offers that service now, Godin says, but since the company doesn't publicize it, most people don't know it's there. Another possibility is e-mailing users of Froogle, Google's shopping search engine, with offers of coupons or promotions from companies selling products that those users have searched for.
RISK 3: BEING PUBLIC CHANGES EVERYTHING. It's hard to imagine a company less suited than Google to existence as a public corporation. For starters, it doesn't particularly need to raise money. As one of the largest brands in the world, it doesn't need more public recognition. And, given its unconventional ways, Google certainly doesn't need the intense financial scrutiny and pressure to perform that comes from stockholders and Wall Street analysts. Indeed, in the extraordinary "letter from the founders" that Google filed along with its IPO documents, Page rails against the distorting influences of short-term-minded shareholders. That's why the duo will keep most of the voting power after the IPO, even though they must have known this arrangement would raise howls from corporate governance types.
Still, going public can't help but dramatically change things at Google. The company's stand against user-unfriendly ads will be assaulted by Wall Street's demands for ever-higher profits. It's instructive that Yahoo at one point refused to accept paid listings; that policy lasted until right about when the company's stock price began to tank. Predicts Berk, "Investors are going to say, 'I see Yahoo is going to do $50 million this year in paid inclusions. Why don't you have a paid inclusion program?'"
As Google gets bigger--and as a public company, it will have to--it's also going to be more difficult to manage. Schmidt once described "small innovative technical teams" as the source of virtually all Google's strategic initiatives. When Google has 10 separate business units, what happens to those intimate teams? On its website, Google boasts that "few walls separate those who write the code from those who write the checks" and that meetings that would take hours at other companies are "frequently little more than a conversation in line for lunch." It's safe to say that when Google becomes a company of 4,000 people, double its current size, you're probably not going to run into the person you need to talk to in the lunch line.
The irony is that the IPO itself is an amazingly faithful expression of the principles that brought Google to this point. The offering's Dutch-auction format--in which shares go to the highest bidders instead of to the best-connected investors--is a resounding break with some of the seamiest conventions of the usual IPO process. And the letter from Page makes it clear that Google's founders believe the company owes its success to its uniquely creative, unconventional intelligence. It's hard for anyone who knows the company to disagree. But staying that way while feeding the expectations of a vast anonymous army of shareholders may be the toughest challenge the company faces.