Case 9 Google in 2011

CASE 9
Internet Search and the Growth of Google

Charles W.L. Hill
University of Washington
Introduction By May 2011, some 65.5% all U.S. Internet

searches were conducted through Google sites.1
In the early-2000s, many Internet users started to Yahoo! (15.9% share), Microsoft (14.1% share),
gravitate toward a new search engine. It was called and Ask Network (2.9% share) were Behind Google.
Google, and it delivered remarkable results. Put in a Google had been gaining ground; 5 years earlier its
keyword, and in a blink of an eye the search engine share had stood at 45%.2 In an effort to catch up
would return a list of links, with the most relevant to Google, Microsoft and Yahoo! had joined forces.
links appearing at the top of the page. People quickly Yahoo! had agreed to use Microsoft’s Bing search
realized that Google was an amazing tool, enabling engine (or decision engine as Microsoft preferred to
users to quickly find almost anything they wanted call it). In late-2010, Bing powered searching was
on the Web—to effortlessly sort through the vast sea implemented throughout Yahoo! properties, making
of information contained in billions of Web pages Bing’s share 30% in May 2011. The belief at Micro-
and retrieve the precise information they desired. It soft was that adding Yahoo! search queries to the
seemed like magic. Before long, “to Google” became mix would enable Bing to gain scale economies and
a verb (in June 2006, the verb Google was added boost revenues per search.
to the Oxford English Dictionary). To find out more As more users gravitated to Google’s site, more
about a person, you would “Google them.” To find advertisers were attracted to it, and Google’s rev-
out more about a subject, you would “Google it.” enues and profits took off. From a standing start in
Enter a key word in Google, and a list of relevant 2001, by 2010 revenues had grown to $29.3 billion
links would be returned in an instant. For many us- and net income to $8.5 billion. Google had become
ers, Google quickly became the “go to” page every the gorilla in the online advertising space. In 2001,
time they wanted information about anything. Google garnered 18.4% of total US search ad spend-
What captured the attention of the business coming. By 2005, its share had increased to 48.5% and
munity, however, was Google’s ability to monetize its according to the research firm eMarketer, 75% of
search results. Google’s core business model was the all U.S. search-advertising dollars went to Google in
essence of simplicity. The company auctioned off the 2007.3 Moreover, the future looks bright. In 2010,
keywords used in searches to advertisers. The high- Internet advertising spending looked set to exceed
est bidders would have links to their sites placed on $25 billion, up from $16.9 billion in 2006, and ac-
the right hand side of a page returning search results. counting for 15.1% of all media spending in the
The advertisers would then pay Google every time U.S.4 Google was reportedly accounting for well over
someone clicked on a link and was directed to their 70% of worldwide search marketing spending. Fore-
site. Thus, when bidding for a keyword, advertis- casts called for Google’s revenues to hit $36 billion
ers would bid for the price per click. Interestingly, by 2012, as ever more advertisers moved from tradi-
Google did not necessarily place the advertiser who tional media to the Web.5
bid the highest amount per click at the top of the Flushed by this success, Google introduced a
page. Rather, the top spot was determined by the wave of new products, including mapping services
amount per click multiplied by Google’s statistical (Google Maps and Google Earth), an e-mail service
estimate of the likelihood that someone would actu- (gmail), Google Desktop (which enables users to
ally click on the advertisement. This refinement max- search files on their own computers), Google Apps,
imized the revenue that Google got from its valuable which includes free online word processing and
real estate. spread sheet programs that have much of the look,
C107
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C108 Section A: Business-Level Strategy
feel, and functionality of Microsoft’s Word and Ex- the Web and with demands on the search engine.
cel offerings, its own Web browser, Chrome, and In 2007, Google had $2.7 billion in information
its smartphone operating system, Android. These technology assets on its balance sheet, had close
products fueled speculation that Google’s ambitions to 400,000 computers configured in large scale
extended outside search capabilities and that the clusters dedicated to the job of running its search
company was trying to position itself as a platform engine, and spent around $600 million on main-
company supported by an ecosystem that would ri- taining its system.7
val that fostered by Microsoft, the long-dominant
player in the software industry.
The Early Days of Search
Search Engines6 Search did not begin with Google. The first Internet
search engine was Archie. Created in 1990, before
A search engine connects the keywords that users the World Wide Web had burst onto the scene, Archie
enter (queries) to a database it has created of Web connected users through queries to the machines on
pages (an index). It then produces a list of links to which documents they wanted were stored. The us-
pages (and summaries of content) that it believes are ers then had to dig through the public files on those
most relevant to a query. machines to find what they wanted. The next search
Search engines consist of four main components— engine, Veronica, improved upon Archie, as it al-
a Web crawler, an index, a runtime index, and a lowed searchers to connect directly to the document
query processor (the interface that connects users to they had queried.
the index). The Web crawler is a piece of software The Web started to take off after 1993, with the
that goes from link to link on the Web, collecting number of Websites expanding from 130 to more
the pages it finds and sending them back to the in- than 600,000 by 1996. As this expansion occurred,
dex. Once in the index, Web pages are analyzed by the problem of finding the information you wanted
sophisticated algorithms that look for statistical pat- on the Web became more difficult. The first Web-
terns. Google’s page rank algorithm, for example, based search engine was the WWW Wanderer, de-
looks at the links on a page, the text around those veloped by Matthew Gray at MIT. This was soon
links, and the popularity of the pages that link to surpassed by Web Crawler, which was a search
that page, to determine how relevant a page is to a engine developed by Brian Pinkerton of the Uni-
particular query (in fact, Google’s algorithm looks versity of Washington. Web Crawler was the first
at more than 100 factors to determine a page’s rel- search engine to index the full text of Web pages,
evance to a query term). rather than just the title. Web Crawler was sold to
Once analyzed, pages are tagged. The tag contains AOL for $1 million in 1995. This marked the first
information about the pages, for example, whether time anyone had ascribed an economic value to a
it is porn, or spam, written in a certain language, search engine.
or updated infrequently. Tagged pages are then In December 1995, the next search engine ap-
dumped into a runtime index, which is a database peared on the scene, Alta Vista. Developed by an
that is ready to serve users. The runtime index forms employee at Digital Equipment Corporation (DEC),
a bridge between the back end of an engine, the Web Louis Monier, like Web Crawler, Alta Vista indexed
crawler and index, and the front end, the query pro- the entire text of a Web page. Unlike Web Crawler,
cessor and user interface. The query processor takes however, Alta Vista sent out thousands of Web
a keyword inputted by a user, transports it to the crawlers, which enabled it to build the most com-
runtime index, where an algorithm matches the key- plete index of the Web to date. Avid Web users soon
word to pages, ranking them by relevance, and then came to value the service, but the search engine
transports the results back to the user, where they are was handicapped by two things. First, it was very
displayed on the user interface. much a step child within DEC, which was seen as
The computing and data storage infrastruc- a hardware-driven business and didn’t really know
ture required to support a search engine is signifi- what to do with Alta Vista. Second, there was no
cant. It must scale with the continued growth of obvious way for Alta Vista to make much money,
Case 9: Internet Search and the Growth of Google C109
which meant that it was difficult for Monier to get GoTo.com: A Business
the resources required for Alta Vista to keep up with
the rapid growth of the Web. Ultimately, DEC was Model Emerges8
acquired by Compaq. Compaq then sold Alta Vista
Bill Gross made his first million with Knowledge
and related Internet properties to a high-flying Inter-
Adventure, which developed software to help kids
net firm, CMGI, at the height of the Internet boom
learn. After he sold Knowledge Adventure to Cen-
in 1999, for $2.3 billion in CMGI stock. CMGI did
dant for $100 million, Gross created IdeaLab, a busi-
have plans to spin off Alta Vista in an Initial Public
ness incubator that subsequently generated a number
Offering, but it never happened. The NASDAQ stock
of Internet startups including GoTo.com.
market collapsed in 2000, taking CMGI’s stock
GoTo.com was born of Gross’ concern that a
down with it, and the market had no appetite for
growing wave of spam was detracting from the value
another dot.com IPO.
of search engines such as Alta Vista. Spam arose be-
Around the same time that Alta Vista was gain-
cause publishers of Websites realized that they could
ing traffic, two other companies introduced search
drive traffic to their sites by including commonly used
engines, Lycos and Excite. Both search engines repre-
search key words such as “used cars” or “airfares” on
sented further incremental improvement. Lycos was
their sites. Often the words were in the same color as
the first search engine to use algorithms to try and
the background of the Website (e.g., black words on
determine the relevance of a Web page for a search
a black background) so that they could not be seen
query. Excite utilized similar algorithms. However,
by Web users, who would suddenly wonder why their
neither company developed a way of making money
search for used cars had directed them to a porn site.
directly from search. Instead they saw themselves
Gross also wanted a tool that would help drive
as portal companies, like Yahoo!, AOL and MSN.
good traffic to the Websites of a number of Internet
Search was just a tool to increase the value of their
businesses being developed by IdeaLab. In Gross’
portal as a destination site, enabling them to capture
view, much of the traffic arriving at Websites was
revenues from banner ads, ecommerce transactions,
undifferentiated—people who had come to a site be-
and the like. Both Lycos and Excite went public
cause of spam, bad portal real estate deals, or poor
and then squandered much of the capital raised on
search engine results. Gross established GoTo.com
acquiring other Internet properties, before seeing
to build a better search engine, one that would defeat
their value implode as the Internet bubble burst in
spam, produce highly relevant results, and eliminate
2000–2001.
bad traffic.
Another company that tried to make sense out
Gross concluded that a way to limit spam was to
of the Web for users was Yahoo!, but Yahoo! did not
charge for search. He realized that it was unwork-
use a search engine. Instead it created a hierarchical
able to charge the Internet user, so why not charge
directory of Web pages. This helped drive traffic to
the advertiser? This led to his key insight—the key-
its site. Other content kept users coming back, en-
words that Internet users typed into a search engine
abling Yahoo! to emerge as one of the most popular
were inherently valuable to the owners of Websites.
portals on the Web. In contrast to many of its smaller
They drove traffic to their sites, and many sites made
competitors, Yahoo!’s industry leading scale allowed
money from that traffic, so why not charge for the
it to make good money from advertising on its site.
keywords? Moreover, Gross realized that if a search
Yahoo! did add a search engine to its offering, but
engine directed higher quality traffic to a site, it would
until 2003 it always did so through a partner. At one
be possible to charge more for relevant keywords.
time, Alta Vista powered Yahoo!’s search function,
By this time, GoTo.com had decided to license
then Inktomi, and ultimately Google. Yahoo!’s man-
search engine technology from Inktomi and focus
agers did consider developing their own search en-
its efforts on developing the paid search model.
gine, but they saw it as too capital intensive—search
However, GoTo.com faced a classic chicken and egg
required a lot of computing power, storage and
problem—to launch a service the company needed
bandwidth. Besides, there was no business model for
both audience and advertisers, but it had neither.
monetizing search. That, however, was all about to
To attract advertisers GoTo.com adopted two
change, and it wasn’t Google that pioneered the way,
strategies.9 First, GoTo.com would only charge
it was a serial entrepreneur called Bill Gross.
a dvertisers when somebody clicked on a link and was GoTo.com was reaching 24 million users through its
directed to their Website. To Gross’ way thinking, for affiliates. After the deal, it was reaching 60 million
merchants this pay-per-click model would be more ef- unique users, or some 75% of the United States In-
ficient than advertising through traditional media, or ternet audience (AOL itself had 23 million subscrib-
through banner ads on Web pages. Second, GoTo.com ers, CompuServe 3 million, and Netscape—which
initially priced keywords low—as low as $0.01 a click was owned by AOL—another 31 million registered
(although they could, of course, be sold for more). users).12 With over 50,000 advertisers now in its net-
To capture an audience, a Website alone would work and a large audience pool, both keyword prices
not be enough. GoTo.com needed to tap into the and click-through rates increased. GoTo.com turned
traffic already visiting established Websites. One ap- profitable shortly after the AOL deal was put into
proach was to pay the owners of high-traffic Websites effect. In 2001, the company earned net profits of
to place banner ads that would direct traffic to GoTo. $20.2 million on revenues of $288 million. In 2002,
com’s Website. A second approach, which ultimately it earned $73.1 million on revenues of $667.7 mil-
became the core of GoTo.com’s business, was to lion, making it one of the few dot.com companies to
syndicate its service, allowing affiliates to place a co- break into profitability.
branded GoTo.com search box on their site, or to use In 2001, GoTo.com changed its name to Over-
GoTo.com’s search engine and identify the results as ture Services. The name change reflected the results
“partner results.” GoTo.com would then split the rev- of a strategic shift. By 2001, the bulk of revenues
enues from search with them. GoTo.com had to pay were coming from affiliate sites, with the GoTo
an upfront fee to significant affiliates, who viewed .com Website only garnering 5% of the company’s
their Websites as valuable real estate. For example, in total traffic.13 Still, because GoTo.com had its own
late-2000 GoTo.com paid AOL $50 million to syndi- Website, it was in effect competing with traffic going
cate GoTo.com’s listings on its sites, which included to affiliates and creating potential channel conflict.
AOL, CompuServe, and Netscape. Many in the company feared that channel conflict
To finance its expansion, GoTo.com raised some might induce key affiliates, such as AOL, to switch
$53 million in venture capital funding—a relatively their allegiance. After much internal debate, the com-
easy proposition in the heady days of the dot.com pany decided to phase out the GoTo.com Website, fo-
boom. In June 1999, GoTo.com raised another cusing all of its attention on the syndication network.
$90 million through an initial public offering.10 Around the same time, Bill Gross apparently
GoTo.com launched its service in June 1998 with talked to the founders of another fast growing
just 15 advertisers. Initially GoTo.com was paying search engine, Google, about whether they would be
more to acquire traffic than it was earning from interested in merging the two companies. At the time
click-through-ad revenue. According to its initial Google had no business model. Gross was paying at-
IPO filing, in its first year of operation, GoTo.com tention to the fast growth of traffic going to Google’s
was paying $0.055 a click to acquire traffic from Website. He saw a merger as an opportunity to join
Microsoft’s MSN sites and around $0.04 a click a superior search engine with Overture’s advertising
to acquire traffic from Netscape. The average yield and syndication network (the company was still us-
from this traffic, however, was still less than the cost ing Inktomi’s search engine). The talks stalled, how-
of acquisition, resulting in red ink—not an unusual ever, reportedly because Google’s founders stated
situation for a dot.com in the 1990s. that they would never be associated with a company
However, the momentum was beginning to shift that mixed paid advertising with organic results.14
toward the company. As traffic volumes grew, and as Within months, however, Google had intro-
advertisers began to understand the value of keywords, duced its own advertising service using a pay-for-
yields improved. By early-1999, the price of popular click model that looked very similar in conception
keywords was starting to rise. The highest bidder for to Overture’s. Overture promptly sued Google for
the keyword “software” was $0.59 a click, “books” patent infringement. To make maters worse, in 2002
was $0.38 a click, “vacations” $0.36 a click, and AOL declined to renew its deal with Overture, and
“porn,” the source of so much spam, $0.28 a click.11 instead switched to Google for search services.
The turning point was the AOL syndication deal By 2003, it was clear that although still grow-
signed in September 2000. Prior to signing with AOL, ing and profitable, Overture was losing traction to
Google (Overture’s revenues were on track to hit the virtue of discounting links from pages that had
$1 billion in 2003 and the company had 80,000 ad- few if any links into them.
vertisers in its network)15. Moreover, Overture was Brin and Page noticed that the search results gen-
invisible to many of its users, who saw the service erated by this algorithm were superior to those re-
as a part of the offering of affiliates, many of whom turned by Alta Vista and Excite, both of which often
were powerful brands in their own right, including returned irrelevant results, including a fair share of
Yahoo! and Microsoft’s MSN. Yahoo! and Micro- spam. They had stumbled onto the key ingredient for
soft were also waking up to the threat posed by a better search engine—rank search results accord-
Google. Realizing that paid search was becoming a ing to their relevance using a back link methodology.
highly profitable market, both began to eye Over- Moreover, they realized that the bigger the Web, the
ture to jump start their own paid search services. better the results would be.
While Microsoft apparently decided to build its own Brin and Page released the basic details of what
search engine and ad service from scratch, Yahoo! was now a search engine on the Stanford Website
decided to bid for Overture. In June 2003, a deal in August 1996. They christened their new search
was announced, and Overture was sold to Yahoo! engine “Google” after googol, the term for the num-
for $1.63 billion in cash. The payday was a bitter- ber 1 followed by 100 zeros. Early on Brin and Page
sweet one for Bill Gross. IdeaLab had done very well talked to several companies about the possibility of
out of Overture, but Gross couldn’t help but feel that licensing Google. Executives at Excite took a look
a bigger opportunity had slipped through his fingers but passed, as did executives at Infoseek and Yahoo!.
and into the palms of Google’s founders. Many of these companies were embroiled in the por-
As for the patent case, this settled in 2004 when tal wars—and portals were all about acquiring traf-
Google agreed to hand over 2.7 million shares to fic, not about sending it away via search. Search just
Yahoo!. This represented about 1% of the outstand- didn’t seem central to their mission.
ing stock, which at the time was valued at $330. Today By late-1998, Google was serving some 10,000
the value of those shares is closer to $1 billion.16 queries per day and was rapidly outgrowing the com-
puting resources available at Stanford. Brin and Page
realized that to get the resources required to keep
Google Rising scaling Google they needed capital, and that meant
starting a company. Here Stanford’s deep links into
Google started as a research project undertaken by Silicon Valley came in useful. Before long they found
Larry Page while he was a computer science PhD themselves sitting together with Andy Bechtolsheim,
student at Stanford in 1996. Called BackRub, the one of the founders of another Stanford startup, Sun
goal of the project was to document the link struc- Microsystems. Bechtolsheim watched a demo of
ture of the Web. Page had observed that while it was Google and wrote a check on the spot for $100,000.
easy to follow links from one page to another, it was Google was formally incorporated on September 7,
much more difficult to discover links back. Put dif- 1998 with Page as CEO and Brin as President. From
ferently, just by looking at a page, it was impossible this point on, things began to rapidly accelerate. Traffic
to know who was linking to that page. Page reasoned was growing by nearly 50 % a month, enough to at-
that this might be very important information. Spe- tract the attention of several angle investors (including
cifically, one might be able to rank to value of a Web Amazon founder Jeff Bezos), who collectively put in
page by discovering which pages were linking to it another million. That was not enough; search engines
and if those pages were linked to many other pages. have a voracious appetite for computing resources. To
To rank pages, Page knew that he would have to run its search engine, Brin and Page had custom de-
send out a Web crawler to index pages and archive signed a low-cost, Linux based server architecture that
links. At this point, another PhD student, Sergey Brin was modular and could be rapidly scaled. But to keep
became involved in the project. Brin, a gifted math- up with the growth of the Web and return answers to
ematician, was able to develop an algorithm that search queries in a fraction of a second, they needed
ranked Web pages according not only to the number ever more machines (by late-2005, the company was
of links into that site, but also the number of links reportedly using over 250,000 Linux servers to handle
into each of the linking sites. This methodology had more than 3,000 searches a second).17
To finance growth of their search engine, in there were things about GoTo.com that they did not
early-1999 Brin and Page started to look for ven- like. GoTo.com would give guarantees that Websites
ture capital funding. It was the height of the dot.com would be included more frequently in Web crawls,
boom and money was cheap. Never mind that there making sure they were updated, provided that the
was no business model, Google’s growth was enough owners were prepared to pay more. Moreover, the
to attract considerable interest. By June 1999, the purity of GoTo.com’s search results was biased by
company had closed its first round of venture cap- the desire to make money from advertisers, with
ital financing, raising $25 million from two of the those who paid the most being ranked highest. Brin
premier firms in Silicon Valley, Sequoia Capital and and Page were ideologically attached to the idea of
Kleiner Perkins Caufield & Byers. Just as impor- serving up the best possible search results to users,
tantly perhaps, the legendary John Doerr, one of Sili- uncorrupted by commercial considerations. At the
con Valley’s most successful investors and a Kleiner same time, they needed to make money.
Perkins partner, took a seat on Google’s board. Although Bill Gross pitched the idea of GoTo.
By late-1999, Google had grown to around 40 com teaming up with Google, Brin and Page decided
employees, and it was serving some 3.5 million to go it alone. They believed they could do as good
searches a day. However, the company was burning a job as GoTo.com, so why share revenues with the
through $500,000 a month, and there was still no company?18
business model. They had some licensing deals with The approach that Google ultimately settled
companies that used Google as their search technol- on combined the innovations of GotTo.com with
ogy, but they were not bringing in enough money Google’s superior relevance based search engine.
to stem the flow of red ink. At this point, Google Brin and Page had always believed that Google’s
started to experiment with ads, but they were not yet Web page should be kept as clean and elegant as
pay-per-click ads. Rather, Google began selling text- possible—something that seemed to appeal to users.
based ads to clients that were interested in certain Moreover, they knew that users valued the fact that
keywords. The ads would then appear on the page Google served up relevant search results that were
returning search results, but not in the list of rele- unbiased by commercial considerations. The last
vant sites. For example, if someone typed in “Toyota thing they wanted to do was alienate their rapidly
Corolla,” an ad would appear at the top of the page, growing user base. So they decided to place text-
above the list of links for Toyota Corolla cars. These based ads on the right hand side of a page, clearly
ads were sold on a “cost per thousand impressions” separated from search results by a thin line.
basis, or CPM (the M being the Roman numeral for Like GoTo.com, they decided to adopt a pay-
thousand). In other words, the cost of an ad was per-click model. Unlike GoTo.com, Brin and Page
determined by how many people were estimated to decided that in addition to the price an advertiser
have viewed it—not how many clicked on it. It didn’t had paid for a keyword, ads should also be ranked
work very well. according to relevance. Relevance was measured by
The management team also started to ponder how frequently users clicked on ads. More popular
placing banner ads on Google’s Website as a way of ads rose to the top of the list, less popular ones fell.
generating additional revenue, but before they made In other word’s, Google allowed their users to rank
that decision the dot.com boom imploded, the NAS- ads. This had a nice economic advantage for Google,
DAQ crashed, and the volume of online advertising since an ad that is generating $1.00 a click, but is
dropped precipitously. Google clearly needed to fig- being clicked on three times as much as an ad gen-
ure out a different way to make money. erating $1.50 a click would make significantly more
money for Google. It also motivated advertisers to
make sure that their ads were appealing.
Google Gets a Business Model The system that Google used to auction off key-
words was also different in detail from that used
Brin and Page now looked closely at the one search by GoTo.com. Google used a Vickery second price
company that seemed to be making good money, auction methodology. Under this system, the win-
GoTo.com. They could see the value of the pay-per- ner pays only $0.01 more than the bidder below
click model, and of auctioning off keywords, but them. Thus, if there are bids of $1, $0.50 and $0.25
for a keyword, the winner of the top place pays Google Grows Up
just $0.51 not $1, the winner of the second place
$0.26, and so on. The auction is nonstop, with the Between 2001 and 2010, Google changed in a num-
price for a keyword rising or falling depending ber of ways. First, in mid-2001 the company hired
upon bids at each moment in time. Although the a new CEO to replace Larry Page, Eric Schmidt.
minimum bid for a keyword was set at $0.05, most Schmidt had been the Chief Technology Officer of
were above that, and the range was wide. One of Sun Microsystems, and then CEO of Novell. Schmidt
the most expensive search terms was reputed to be was brought on to help manage the company’s
“mesothelioma,” a type of cancer caused by expo- growth with the explicit blessing of Brin and Page.
sure to asbestos. Bids were around $30 per click! Both Brin and Page were still in their 20s, and the
They came from lawyers vying for a chance to earn board felt they needed a “grown up” who had run
lucrative fees by representing clients in suits against a large company to help Google transition to the
asbestos producers.19 next stage (Google turned a profit the month after
While developing this service, Google continued Schmidt joined). Brin and Page became the Presidents
to grow like wildfire. In mid-2000, the service was of Technology and Products, respectively. When
dealing with 18 million search queries per day and Schmidt was hired, Google had over 200 employees
the index surpassed one billion documents, making and was handling over 100 million searches a day.
it by far the largest search engine on the Web. By According to knowledgeable observers, Schmidt,
late-2000, when Google introduced the first version Brin and Page acted as a triumvirate, with Brin and
of its new service, which it called “AdWords,” the Page continuing to exercise a very strong influence
company was serving up 60 million search queries over strategies and policies at Google. Schmidt may
a day—giving it a scale that GoTo.com never came have been CEO, but Google was still very much
close to achieving. In February 2002, Google intro- Brin and Page’s company.20 Working closely to-
duced a new version of AdWords that included for gether, the three drove the development of a set of
the first time the full set of pay-per-click advertis- values and an organization that would come to de-
ing, keyword auctions, and advertising links ranked fine Google’s unique way of doing things. In Janu-
by relevance. Sales immediately started to accelerate. ary 2011, Schmidt retired from the CEO position,
Google had hit on the business model that would passing the reins back to Larry Page. Schmidt re-
propel the company into the big league. mained Chairman.
In 2003, Google introduced a second product,
AdSense. AdSense allowed third party publishers
large and small to access Google’s massive network Vision and Values
of advertisers on a self-service basis. Publishers
could sign up for AdSense in a matter of minutes. As Google’s growth started to accelerate, there was
AdSense would then scan the publisher’s site for concern that rapid hiring would quickly dilute the vi-
content and place contextually relevant ads next to sion, values and principles of the founders. In mid-
that content. As with AdWords, this is a pay-per- 2001, Brin and Page gathered a core group of early
click service, but AdSense splits the revenues with employees and asked them to come up with a policy
the publishers. In addition to large publishers, such for ensuring that the company’s culture did not frac-
as online news sites, AdSense has been particularly ture as the company added employees. From this
appealing to many small publishers, such as Web group, and subsequent discussions, emerged a vision
Bloggers. Small publishers found that by adding a and list of values that have continued to shape the
few lines of code to their site, they could suddenly evolution of the company. These were not new, rather,
monetize their content. However, many advertisers they represented the formalization of principles to
feel that AdSense is not as effective as AdWords in which Brin and Page felt they had always adhered.
driving traffic to their sites. Google allowed adver- The central vision of Google is to organize the
tisers to opt out of AdSense in 2004. Despite this, world’s information and make it universally ac-
AdSense has also grown into a respectable business, ceptable and useful.21 The team also articulated a
accounting for 15% of Google’s revenues in 2005, set of 10 core philosophies (values), which are now
or close to $1 billion. listed on its Website.22 Perhaps the most significant
and certainly the most discussed of these values is Google Inc. puts employees first when it comes
captured by the phrase “don’t be evil.” The central to daily life in our Googleplex headquarters. There
message underlying this phrase was that Google is an emphasis on team achievements and pride in
should never compromise the integrity of its search individual accomplishments that contribute to the
results. Google would never let commercial consid- company’s overall success. Ideas are traded, tested,
erations bias its rankings. Don’t be evil, however, has and put into practice with an alacrity that can be
become more than that at Google; it has become a dizzying. Meetings that would take hours elsewhere
central organizing principle of the company, albeit are frequently little more than a conversation in line
one that is far from easy to implement. Google got for lunch and few walls separate those who write the
positive press from libertarians when it refused to code from those who write the checks. This highly
share its search data with the U.S. government, which communicative environment fosters a productiv-
wanted the data to help fight child porn. However, ity and camaraderie fueled by the realization that
the same constituency reacted with dismay when the millions of people rely on Google results. Give the
company caved into the Chinese government and re- proper tools to a group of people who like to make
moved from its Chinese service offending results for a difference, and they will.25
search terms such as “human rights” and “democ-
racy”! Brin justified the Chinese decision by saying
that “it will be better for Chinese Web users, because
Organization
ultimately they will get more information, though By all accounts, Google has a flat organization. In
not quite all of it.”23 November 2005, Google had 1 manager for every
Another core value at Google is “focus on the 20 line employees. At times, the ratio has been as
user, and all else will follow.” In many ways, this high as 1:40. For a while—one manager had 180
value captures what Brin and Page initially devel- direct reports.26 The structure is reportedly based on
oped. They focused on giving the user the best pos- teams. Big projects are broken down and allocated
sible search experience—highly relevant results, to small, tightly focused teams. Hundreds of proj-
delivered with lightening speed to an uncultured and ects may be going on at the same time. Teams often
elegant interface. The value also reflects a belief at release new software in 6 weeks or less and look at
Google that it is okay to deliver value to users first how users respond hours later. Google can try a new
and then figure out the business model for monetiz- user interface, or some other tweak, with just 0.1%
ing that value. This belief seems to reflect Google’s of its users and get massive feedback very quickly,
own early experience. letting it decide a project’s fate in weeks.27
Yet another key principle, although it is not one One aspect of Google’s organization that has
that is written down anywhere, is captured by the garnered considerable attention is the company’s
phrase “launch early and often.” This seems to un- approach toward product development. Employees
derpin Google’s approach to product development. are expected to spend 20% of their time on some-
Google has introduced a rash of new products over thing that interests them, away from their main
the last few years, not all of which are initially that jobs. Seemingly based on 3M’s famous 15% rule,
compelling, but through rapid upgrades, it has sub- Google’s 20% rule is designed to encourage creativ-
sequently improved the efficacy of those products. ity. The company has set up forums on its internal
Google also prides itself on being a company network where anyone can post ideas, discuss them,
where decisions are data driven. Opinions are said and solicit help from other employees. As a natural
to count for nothing unless they are backed up by part of this process, talent tends to gravitate to those
hard data. It is not the loudest voice that wins the projects that seem most promising, giving those who
day in arguments over strategy, it is the data. In some post the most interesting ideas the ability to select a
meetings, people are not allowed to say “I think . . .” talented team to take them to the next level.
but instead “The data suggests. . . .24 Like 3M, Google has set up a process by which
Finally, Google devotes considerable resources to projects coming out of 20% time can be evaluated,
making sure that its employees are working in a sup- receive feedback from peers, and ultimately garner
portive and stimulating environment. To quote from funding. Marissa Myer, one of Google’s early em-
the company’s Website: ployees, acts as a gatekeeper, helping to decide when
projects are ready to be pitched to senior management ing styles. Reportedly, some brilliant prospects don’t
(and that typically means Brin and Page). Once in get hired when background checks find state they are
front of the founders, advocates have 20 minutes, difficult to work with. In essence, all hiring at Google
and no more, to make their pitch.28 Myer has also is by committee, and while this can take consider-
articulated a number of other principals that guide able time, the company insists that the effort yields
product development at Google.29 These include: dividends.
While accounts of Google’s organization and
1. Ideas come from everywhere: Set up a system
culture tend to emphasize their positive aspects, not
where good ideas rise to the top.
everyone has such a sanguine view. Brain Reid, who
2. Focus on users, not money: Money follows con-
was recruited into senior management at Google in
sumers. Advertisers follow consumers. If you
2002 and fired 2 years later, told author John Bat-
amass a lot of consumers you will find ways to
telle “Google is a monarchy with two kings, Larry
monetize your ideas.
and Sergey. Eric is a puppet. Larry and Sergey are
3. Innovation, not instant perfection: Put products
arbitrary, whimsical people . . . they run the com-
on the market, learn and iterate.
pany with an iron hand . . . Nobody at Google from
4. Don’t kill projects, morph them: If an idea has
what I could tell had any authority to do anything
managed to make its way out of the door, there
of consequence except Larry and Sergey.”31 Accord-
is usually some kernel of truth to it. Don’t walk
ing to Battelle, several other former employees made
away from ideas, think of ways to replace or re-
similar statements.
juvenate them.
Other former employees have noted that in prac-
One of the early products to come out 20% tice 20% time turns out to be 120% time, because
time was Google News, which returns news arti- people still have their regular work load. There are
cles ranked by relevance in response to a key word also complaints that the culture is one of long work
query. Put the term “oil prices” into Google News, days and 7-day work weeks, with little consider-
for example, and the search will return news dealing ation for family issues. Several employees have com-
with changes in oil prices, with the most relevant at plained that Google’s organization is not scaling that
the top of the list. A sophisticated algorithm deter- well and that with nearly 14,000 employees on the
mines relevance on a real-time basis by looking at books, the firm’s personnel department is “collaps-
the quality of the news source (e.g., The New York ing” and that “absolute chaos reigns.” One former
Times rates higher than local news papers), publish- employee noted that when she was hired, nobody
ing date, the number of other people who click on knew when or where she was supposed to work.32
that source, and numerous other factors. Krishna Many of the early employees, who are now finan-
Bharat, a software engineer from India, initiated the cially wealthy, are starting to leave. As a result, em-
project, who, in response to the events of September ployee turnover is increasing. At the same time, there
11, 2001, had a desire to learn what was being writ- are reports that the company’s free wheeling culture
ten and said around the world. Two other employ- has led to a rather anarchic resource allocation pro-
ees worked with Bharat to construct a demo that cess, and extensive duplication, with multiple teams
was released within Google. Positive reaction soon working on the same project.33
got Bharat in front of Brin and Page, who were im-
pressed and gave the project a green light; Bharat
started to work on the project full time.30
The IPO
Another feature of Google’s organization is its As Google’s growth started to accelerate, the ques-
hiring strategy. Like Microsoft, Google has made a tion of if and when to undertake an IPO became
virtue out of hiring people with a high IQ. The hiring more pressing. There were two obvious reasons for
process is very rigorous. Each prospect has to take doing an IPO—gaining access to capital and provid-
an “exam” to test their conceptual abilities. This is ing liquidity for early backers and the large number
followed by interviews with 8 or more people, each of employees who had equity positions. On the other
of who rate the applicant on a 1–4 scale (4 being hand, from 2001 onward, the company was profit-
“I would hire this person”). Applicants also undergo able, generating significant cash flows, and could in-
detailed background checks to find out their work- ternally fund its expansion. Moreover, management
felt that the longer they could keep the details of proving the search algorithms and investing heavily
what was turning out to be an extraordinarily suc- in computing resources. The company has branched
cessful business model private, the better. In the end, out from a text-based search engine. One strategic
the company’s hand was forced by an obscure SEC thrust has been to extend search to as many digital
regulation that required companies that give stock devices as possible. Google started out on PCs, but
options to employees to report as if they were public can now be accessed through PDAs and cell phones.
company by as early as April 2004. Realizing that A second strategy has been to widen the scope of
the cat would be out of the bag anyway, Google told search to include different sorts of information.
its employees in early-2004 that it would go public. Google has pushed beyond text into indexing and
True to form, Google flouted Wall Street tradi- offering up searches of images, news reports, books,
tion in the way it structured its IPO. The company maps, scholarly papers, a blog search, a shopping
decided to auction off shares directly to the public network (Froogle), and videos. Google Desktop,
using an untested and modified version of a Dutch which searches files on a user’s personal computer,
auction, which starts by asking for a high price and also fits in with this schema. However, not all of
then lowers it until someone accepts. Two classes of these new search formats have advertising attached
shares were created, Class A and B; Class B’s shares to them (e.g., images and scholarly papers do not
had 10 times the votes of Class A shares. Only Class include sponsored links, while map and book search-
A shares were auctioned. Brin, Page and Schmidt ing does).
were holders of Class B shares. Consequently, al- Not all of this has gone smoothly. Book publish-
though they would own 1/3 of the company after the ers have been angered by Google’s book project,
IPO, they would control 80% of the votes. Google which seeks to create the world’s largest searchable
also announced that it would not provide regular fi- digital library of books by systematically scanning
nancial guidance to Wall Street financial analysts. In books from the libraries of major universities (e.g.,
effect, Google had thumbed its nose at Wall Street. Stanford). The publishers have argued that Google
The controversial nature of the IPO, however, has no right to do this without first getting permis-
was overshadowed by the first public glimpse of sion from the publishers and is violating copyright
Google’s financials, which were contained in the by doing so. Several publishers have filed a com-
offering document. They were jaw dropping. The plaint with the U.S. District Court in New York.
company had generated revenues of $1.47 billion in Google has responded that users will not be able to
2003, an increase of 230% over 2002. Google earned download entire books and that in any event creat-
net profits of $106 million in 2003, but accountants ing an easy to use index of books is fair use under
soon figured out that the number was depressed by copyright law and will increase the awareness and
certain one time accounting items and that cash flow sales of books, directly benefiting copyright holders.
in 2003 had been over $500 million! On another front, the World Association of News-
Google went public on August 19, 2004 at $85 paper Publishers has formed a task force to examine
a share. The company’s first quarterly report showed the exploitation of content by search engines.34
sales doubling over the prior year, and by November Over the last 6 years Google has introduced a
the price was $200. rash of product offerings, not all of which have a
In September 2005, with the stock close to $300 strong affinity with the company’s search mission.
a share, Google undertook a secondary offering, sell- Many of these products grew out of the company’s
ing 14 million shares to raise $4.18 billion. With pos- new product development process. They have in-
itive cash flow adding to this, by June 2008 Google clude free e-mail (gmail) and online chat programs,
was sitting on $12.8 billion in cash and short-term a calendar, a blog site (Blogger), a social networking
investments, prompting speculation as to the com- site (Orkut), a finance site (Google Money), a service
pany’s strategic intentions. for finding, editing and sharing photos (Picasa), and
plans to offer citywide free WiFi networks.
Google has introduced several Web-based appli-
Strategy cations that seem squarely aimed at Microsoft’s Of-
Since 2001, Google has endeavored to keep enhanc- fice franchise, collectively known as Google Apps.
ing the efficacy of its search engine, continually im- In March of 2006, the company acquired a word
processing program, Writely. This was quickly followed market with a 31.2% share, followed by RIM with
by the introduction of a spreadsheet program, Google a 30.4% share, and Apple with a 24.7% share.38
Spreadsheets. These products have the look and feel Phones powered by a Microsoft operating system
of Microsoft Word and Excel, respectively. Both prod- had only an 8% share. Android was gaining share
ucts are designed for online collaboration. They can at the expense of all other players except Apple—its
save files in formats used by Microsoft products, al- share had increased from 13% in May 2010. In Oc-
though they lack the full feature set of Microsoft’s of- tober 2010, Google reported that its mobile advertis-
ferings. Google states that the company is not trying ing revenues were growing strongly and had hit an
to match the features of office and that “90% of users annualized run rate of $1 billion.39
don’t necessarily need 90% of the functions that are Some analysts have questioned the logic behind
in there.”35 For an annual licensing fee of $50, Google Google’s new product efforts, noting that their track
provides corporate customers with an Apps service record on new product offerings has been mixed. One
that includes gmail and its Office-like products. noted that: “Google has product ADD. They don’t
In July 2006, Google introduced a product to know why they are getting into all of these prod-
compete with PayPal, a Web-based payment system ucts. They have fantastic cash flow, but terrible disci-
owned by the online auction giant, eBay. Google’s pline on products.”40 Another has accused Google of
product, known as “Checkout,” offers secure online having an insular culture and argued that “Neither
payment functionality for both merchants and con- Froogle or Google’s travel efforts has gained any
sumers. For merchants, the fee for using Checkout traction, at least partly because of Google’s tendency
is being priced below PayPal’s. Moreover, Checkout to provide insufficient support to its ecosystem part-
is being integrated into Google’s AdWords product, ners and its habit of acting in an independent, secre-
so merchants who participate will be highlighted in tive manner.”41 However, others argue that Google
Google’s search results. In addition, merchants who has been successful in upgrading the quality of its
purchase Google’s search advertising will get a dis- new offerings and that several products that were
count on processing fees. According to one analysis, once laggards, such as Google News, are now the
a merchant with monthly sales of $100,000 who best in breed.42 Moreover, it is very difficult to argue
uses Checkout and AdWords stands to reduce their with the success of Android.
transaction costs by 28%, or $8,400 a year. If they On the acquisition front, Google stuck to purchas-
use just Checkout, they will reduce their transac- ing small technology firms until 2006. This changed in
tion costs by 4%, or $1,200 a year.36 However, with October 2006 when Google announced that it would
105 million accounts in mid-2006, PayPal will be purchase YouTube for $1.64 billion in stock. You-
difficult to challenge. Tube is a simple, fun Website to which anybody can
In late-2007, Google announced another new upload video clips in order to share them. In October
product, this time a suite of software for smartphones 2006 some 65,000 video clips were being uploaded
that include an operating system, Android, and ap- every day and 100 million were being watched. Like
plications that work with it. Android is squarely Google in its early days, YouTube had no business
aimed at Apple’s iPhone and Research In Motion’s model. Google thought it would find ways to sell ad-
BlackBerry, which are the two runaway successes in vertising that is linked to video clips on YouTube.43
the smartphone space. The attraction for Google is Over the next 4 years, YouTube continued to
that advertising is increasingly being inserted into grow at a rapid pace. By May 2011, YouTube ranked
content viewed on mobile handsets. By one esti- as the top U.S. online video site with 147 million
mate, worldwide spending on mobile advertising unique viewers, followed by Vevo, the fast grow-
will rise to $19 billion in 2012, up from $2.7 billion ing music video site, which had 60.4 million unique
in 2007.37 Google gives away Android for free, and viewers. Yahoo! sites were next with 55.5 million,
aims to make money through mobile search. followed by Facebook sites with 48.2 million.44 Al-
By 2011, Android was gaining strong traction, though detailed figures are not available, it appears
with a number of equipment manufacturers includ- that Google is starting to make significant money
ing HTC, Motorola, Samsung, and LG offering from YouTube by selling display ads, and through
Android powered smartphones. In January 2011, a service where advertisers pay Google whenever a
Android powered phones led the U.S. smartphone user clicks on and watches one of their ads.
Another notable Google acquisition was its pay a rate for such a spot called CPM (costs per
$3.1 billion purchase of DoubleClick in 2007. Dou- thousand). The CPM is based on estimates of how
bleClick is an online display advertising specialist, many people are watching a show. There are nu-
using formats such as banner ads that are targeted merous problems with this system. The estimates of
at building brand awareness. Internet publishers pay audience numbers are only approximations at best.
DoubleClick to insert display ads on their Websites The owners of the TV may have left the room while
as users visit their Websites. While display advertis- the commercials are airing. They may channel surf
ing has not grown as rapidly as search-based adver- during the commercial break, be napping, or talking
tising, it is a big business accounting for around 1/4 on the telephone. The viewer may not be among the
of all Internet advertising revenue with significant intended audience—a Viagra commercial might be
upside potential as companies begin to apply de- wasted on a teenage girl, for example. Or the house-
mographic technology to increase the effectiveness hold might be using a TiVo or a similar digital video
of Internet display ads.45 The DoubleClick deal was recorder that skips commercials.
criticized by Google’s rivals, including Microsoft, on By contrast, new advertising models based on
antitrust grounds, but regulators in the United States pay-per-click are more discriminating. Rather than
and the EU approved the deal, which closed in 2008. sending out ads to a large audience, only a few of
By the end of 2010, Google was reporting that an- whom will be interested in the products being ad-
nualized revenues for display ads were running at vertised, consumers select in to search based ads.
around $2.5 billion. They do this twice, first, by entering a key word in
Critics argue that as Google moves into these ad- a search engine, and second, by scanning the search
ditional areas, its profit margins will be compressed. results as well as the sponsored links, and clicking
Henry Blodget of Cherry Hill Research notes that on a link. In effect, potential purchasers pull the ads
in its core business, Google makes profit margins of toward them through the search process. Advertisers
about 60%. In its more recent business of placing ad- only pay when someone clicks on their ad. Conse-
vertisements on Web pages belonging to other peo- quently, the conversion rate for search-based ads is
ple, such as bloggers, its profit margins are 10–20%, far higher than the conversion rate for traditional
because it is harder to make the advertisements as media advertising.
relevant to the audience and it must share the result- Moreover, traditional advertising is so waste-
ing revenues. Display advertising also offers lower ful that most firms only advertise 5%–10% of their
returns. Google, not surprisingly, does not see things products in the mass media, hoping that other prod-
this way. The company argues that since its costs are ucts will benefit from a halo effect. In contrast, the
mostly fixed, and incremental revenue is profit, it targeted nature of search-based advertising makes
makes good sense to push into other markets, even it cost effective to advertise products that only sell
if its average revenue per viewer is only $0.01 (com- in small quantities. In effect, search based Internet
pared with $0.50 for each click on the Web).46 advertising allows producers to exploit the econom-
ics of the long tail. Pay-per-click models also make
it economical for small merchants to advertise their
wares on the Web.
The Online Advertising
Market in 2010 The Growth Story
There is an old adage in advertising that half of all the Powered by the rapid growth of search based pay-
money spent on advertising is wasted—advertisers per-click advertising, and the increasing amount of
just don’t know which half. Estimates suggest that time people spend online, total advertising spending
around 1/2 of the $500 billion worldwide advertis- on the Internet is expected to account for 15.1%
ing spent is wasted because the wrong message is sent of all global advertising spending in 2011, up from
to the wrong audience.47 The problem is that tradi- 13.9% in 2010 and 10.2% in 2008.48 This structural
tional media advertising is indiscriminate. Consider growth trend is likely to continue for some time,
a 30 second ad spot on broadcast TV. Advertisers since consumers in many developed nations are now
spending over 25% of their media time online.49 In In February 2008, Microsoft launched an unso-
terms of the mix of advertising online, search-based licited takeover bid for Yahoo!. Microsoft offered
advertising dominates accounting for 47.2% of U.S. $44.6 billion, or $31 a share, for Yahoo!, represent-
online advertising spending in 2010, followed by dis- ing a 62% premium over the closing share price
play advertising with a 36.1% share (classifieds and before the takeover announcement. Microsoft’s
lead generation makes up most of the balance).50 rationalization for the takeover rested on the as-
Google has been the main beneficiary of this sumption that the combined entity would be able
trend. In mid-2011 Google was the dominant search to realize substantial scale economies, with its ex-
engine in America with a 65.5% share of all searches, panded Web properties offering a more attractive
up from 45% in 2006, followed by Yahoo! (15.9%) value proposition to advertisers. In addition, Micro-
and Microsoft (14.1%). Google’s share of total U.S. soft argued that it would be able to reduce costs by
paid search advertising is larger still at around 75%. $1 billion per year by combining some assets, such
In the world’s second largest market for search ad- as data centers.
vertising, Europe, Google is estimated to command a After several months of difficult negotiations,
staggering 97% of advertising spent.51 during which Microsoft raised its bid to $33 a share
Google’s rise is reflected in its increased share of and also threatened to fight a proxy battle to replace
all Internet traffic. In mid-2006 Google’s Websites had Yahoo!’s board with one favorable to the bid, Micro-
the fourth largest unique audience on the Web, close soft eventually withdrew its offer to acquire Yahoo!.
behind the longer established portal sites maintained In rationalizing its decision, Microsoft argued that
by Microsoft (MSN), Yahoo! and Time Warner (AOL) Yahoo!’s continuing market share erosion during the
respectively. By mid-2010 Google’s We sites were tied months of negotiations had made the acquisition far
with Yahoo! sites for the number 1 spot, followed by less compelling. Yahoo!’s managers continued to ar-
Microsoft, Facebook, and AOL. In no small part, the gue that Microsoft was not offering enough.
addition of YouTube has helped to propel Google to Yahoo!, however, continued to lose market share.
the top of the traffic rankings.52 After some top management changes at Yahoo!,
in June 2009, Microsoft and Yahoo! announced a
broad based partnership in the search area. Under
Google’s Competitors the terms of the agreement, Bing will be the exclu-
Google’s most significant competitors are Yahoo! and sive search platform at Yahoo!. Yahoo! will be the
Microsoft. As paid search has grown, all three have exclusive seller to both companies’ Premium Search
increased their investment in search.53 Both Yahoo! advertisers, while Microsoft’s AdCenter will handle
and Microsoft spent several years and hundreds of self-service advertising. Each company will continue
millions in R&D spending trying to improve their to manage their own display advertising business.
search engine technology and gain market share at Yahoo! also has the option to use Bing on their mo-
the expense of Google. Yahoo! failed, and their share bile properties.
has declined, while Microsoft recorded small market The partnership received regulatory approval in
share gains of around 2% after it launched its Bing mid-2010, and both companies began to implement
search engine in 2008. However, Microsoft has never the agreement in late-2010. To succeed, the part-
made any money in the online search arena—in fact, nership must (a) increase search query volume and
it has lost billions. In fiscal 2010, its annualized run (b) drive greater revenues per search. In 2009, esti-
rate losses in this business were projected to be around mates suggest that Google was generating $36.37 of
$2.3 billion. Put differently, absent of any financial revenue per thousand search queries, Yahoo! $17.06,
improvement, if Microsoft closed its search business and Microsoft $14.31.
tomorrow, this would boost the company’s earnings Search query volume could increase if the greater
per share by about $0.26, which at a price-to-earnings traffic improves the relevance of search results gener-
ratio of 15 represents a $3.90 increase in the share ated by Bing and if consumers and advertisers notice
price. CEO Steve Ballmer, however, has indicated that this. Revenues per search could increase if advertis-
search is a key strategic business for the company and ers are willing to bid more for keywords on Bing
exiting the business does not seem to be an option. given the greater traffic volume of the search engine.
Another significant strategic partner for Micro- Looking Forward

soft is Facebook, the leading social network site with
over 750 million registered users. Microsoft invested With online advertising predicted to grow strongly,
$240 million in Facebook in 2007 for a 1.6% stake. Google seems to be in the driver’s seat. It has the
Since then, the two companies have worked together largest market share in search, the greatest name rec-
to introduce advertisements on Facebook. In Oc- ognition, and is capturing a proportionately greater
tober 2010, the two companies announced an ex- share of search based advertising than its rivals.
tended deal that will incorporate Facebook data into However, despite market share losses, Microsoft
Bing search results. Bing results will now include a and Yahoo! cannot be dismissed. As their partner-
Facebook module offering users the likes, images, ship in search progresses, will they be able to lever-
comments, and other public data from their network age their substantial assets and capabilities to gain
of friends. Thus, when searching for restaurants, you ground of Google? As for Google, what is its long-
can see if any of your friends liked or recommended term game plan? Recent strategic moves suggest that
a restaurant. There is no question that the evolving it is attempting to expand beyond search, but where
partnership between Microsoft and Facebook is in will this take the company, and what does that mean
part a response to their common rival, Google. for other Internet companies?
Endnotes
1 comScore Releases May 2011 Search Engine Rankings, 16 Richard Waters, “Google Settles Yahoo! Case with
comScore Press Release, June 10, 2011. Shares,” Financial Times, August 19, 2004, 29.
2 Nielsen/Net Ratings, “Google Accounts for Half of all 17 Fred Vogelstein, “Gates vs Google: Search and Destroy,”
U.S. Searches,” May 25, 2006. Fortune, May 2, 2005, 72–82.
3 Dadid Hallerman, “Search Marketing: Players and 18 This is according to David A. Vise, The Google Story
Problems,” eMarketer, April 2006; “Search Marketing (Random House, New York, 2004).
Still Dominates Online Advertising,” eMarketer Press R 19 David A. Vise, The Google Story (Random House, New
elease, January 29, 2008. York, 2004).
4 Citigroup Global Markets, “The Microhoo Search 20 John Battelle, The Search (Penguin Portfolio, New York,
Transaction,” May 23, 2010. 2005). There is no independent confirmation of the
5 Citigroup Global markets, “Google Inc.,” September 26, story.
2010. 21 http://www.google.com/corporate/index.html
6 This section draws heavily upon the excellent descrip- 22 http://www.google.com/corporate/tenthings.html
tion of search given by John Battelle. See John Battelle, 23 Andy Kessler, “Sellout.com,” Wall Street Journal, Janu-
The Search (Penguin Portfolio, New York, 2005). ary 31, 2006, A14.
7 Google 10K for 2007. 24 Quentin Hardy, “Google Thinks Small,” Fortune,
8 The basic story of GoTo.com is related in John Battelle, November 14, 2005, 198–199.
The Search (Penguin Portfolio, New York, 2005). 25 http://www.google.com/corporate/tenthings.html
9 Karl Greenberg, “Pay-for-placement Search Services 26 Quentin Hardy, “Google Thinks Small,” Fortune,
Offer Ad Alternatives,” Adweek, September 25, 2000, 60. November 14, 2005, 198–199.
10 M. Gannon, “GoTo.com Inc,” Venture Capital Journal, 27 Quentin Hardy, “Google Thinks Small,” Fortune,
August 1, 1999, 1. November 14, 2005, 198–199.
11 Tim Jackson, “Cash is the Key to a True Portal,” Finan- 28 Ben Elgin, “Managing Google’s Idea Factory,” Business
cial Times, February 2, 1999, 16. Week, October 3, 2005, 88–90.
12 Karl Greenberg, “Pay-for-placement Search Services 29 Michael Krauss, “Google’s Mayer Tells How Innovation
Offer Ad Alternatives,” Adweek, September 25, 2000, 60. Gets Done,” Marketing News, April 1, 2007, 7–8.
13 Sarah Heim, “GoTo.com Changes to Overture Services, 30 David A. Vise, The Google Story (Random House, New
Launches Campaign,” Adweek, September 10, 2001, 7. York, 2004).
14 This little gem comes from John Battelle, The Search 31 John Battelle, The Search (Penguin Portfolio, New York,
(Penguin Portfolio, New York, 2005). There is no inde- 2005), 233.
pendent confirmation of the story. 32 The Economist, “Inside the Googleplex,” September 1,
15 Anonymous, “Yahoo! to Acquire Overture Services for 2007, 53–56.
2.44 Times Revenues,” Weekly Corporate Growth Ser- 33 B. Lashinsky and Y.W. Yen, “Where does Google go
vice, July 21, 2003, 8. Next?” Fortune, May 26, 2008, 104–110.
34 Jacqueline Doherty, “In the Drink,” Barrons, February 13, 45 R. Hof, “Ad Wars: Google’s Green Light,” Business
2006, 31–36. Week, March 3, 2008, 22.
35 K.J. Delaney and R.A. Guth, “Google’s Free Web Ser- 46 The Economist, “Inside the Googleplex,” September 1,
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Case 9 Google in 2011

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Case 9 Google in 2011

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CASE 9

Internet Search and the Growth of Google

Introduction By May 2011, some 65.5% all U.S. Internet

Another significant strategic partner for Micro- Looking Forward

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