THE GOOGLE STORY

Inside the Hottest Business,

Media and Technology
Success of Our Time
DAVID VISE and MARK MALSEED

DAVID VISE is a reporter for the Washington Post. A winner of the Pulitzer Prize in 1990, he is the author of
three books including The Bureau and the Mole. Mr. Vise is a graduate of the University of Pennsylvania and
the Wharton School. He was formerly an investment banker with Goldman Sachs & Co.
MARK MALSEED is a writer, researcher and contributor to the Washington Post and the Boston Herald. He
carried out the research for two best-sellers, Plan of Attack and Bush At War. Mr. Malseed is a graduate of
Lehigh University.
The Web site for this book is at www.thegooglestory.com.

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 The Google Story - Page 1

Since both Page and Brin were the sons of professors, they had
1. The Genesis of a Great Idea
always just naturally assumed they too would stay in academia
for the balance of their careers. Brin’s advisor, Professor
Motwani, suggested a good subject for a doctoral thesis would
“Not since Gutenberg invented the modern printing press more
be to look at finding new ways to extract meaningful information
than 500 years ago, making books and scientific tomes
from large mountains of data. In the mid-1990s, it was very
affordable and widely available to the masses, has any new
difficult to find information on the Internet, which resembled a
invention empowered individuals, and transformed access to
virtual Wild West in many ways – unregulated, unorganized and
information, as profoundly as Google. With its colorful, childlike
unruly. This was the era of the first generation search engines
logo set against a background of pure white, Google’s magical
like WebCrawler, Lycos, Magellan, Infoseek, Excite and HotBot.
ability to produce speedy, relevant responses to queries
In response to this need, two other Stanford doctoral candidates,
hundreds of millions times daily has changed the way people find
Jerry Yang and David Filo, had started assembling an
information and stay abreast of the news. Woven into the fabric
alphabetized directory assembled by human editors, which
of daily life, Google has seemingly overnight become
would eventually become Yahoo! Motwani suggested to Brin
indispensable. Millions of people use it daily in more than 100
there might be a smarter and better way to get the job done.
languages and have come to regard Google and the Internet as
one. The quest for immediate information on anything and “At the same time, Page began hunting around the Web using a
everything is satisfied by ‘googling’ it on a computer or cell new search engine called AltaVista. While it returned somewhat
phone. Men, women and children have come to rely so heavily better and faster results than the other search engines, Page
on Google that they cannot imagine how they ever lived without noticed something else entirely. In addition to a list of Web sites,
it.” AltaVista’s search results included seemingly obscure
– David Vise and Mark Malseed information about something called ‘links’. Links contributed to
the Web’s dynamism; computer users seeing a highlighted word
Strange as it may sound considering the fact Google is today
or phrase could click on that link if they wanted to learn more, and
worth more than Disney and General Motors combined, Sergey
they would instantly be taken to another Web page. Instead of
Brin and Larry Page, the two young co-founders of Google never
focusing on AltaVista’s main search results, Page began
actually set out to change the world. When the company was
pondering what could be gleaned from analyzing the links.”
founded in 1998, it didn’t even have a business plan or a
– David Vise and Mark Malseed
definitive business strategy. Instead, all Brin and Page had was
an intense desire to do something innovative and to create a Page decided he would dig into those links and analyze how they
workplace where the best and brightest people could do some could be used further. To test his theories, Page audaciously
fun stuff. decided he would download the entire World Wide Web onto his
Sergey Brin was born in Moscow, Russia on August 21, 1973. At desktop. He thought this could be done fairly easily and quickly.
age six, his parents emigrated from Russia to America to escape Page dispatched an automated piece of software called a
anti-Semitism and in search of greater freedom and “spider” to systematically visit every Web site and download its
opportunities. Sergey’s parents are both highly educated. His contents. As might be expected, this attempt fell well short of the
mother is now an accomplished scientist at NASA’s Goddard mark and Page was never actually able to download the entire
Space Flight Center while his father teaches math at the Internet, but this project did look promising. Both Brin and his
University of Maryland. As a result, a good education is highly advisor, Professor Motwani, thought Page’s approach of looking
valued in the Brim household. Sergey received an at the links held the promise of improving Web research.
undergraduate degree from the University of Maryland at age 19 Page came up with a theory. In just the same way as academic
with honors in math and computer science. He was then articles always quoted citations, he suggested not all links were
awarded a National Science Foundation graduate fellowship and of equal value. Page suggested incoming links from important
enrolled in the doctoral program at Stanford University. pages should have greater weight than links from obscure and
Larry Page was born in Michigan on March 26, 1973. His father rarely visited Web sites. He came up with a ranking system which
Carl had received one of the first computer science degrees ever said the sites with the most links pointing to them were more
awarded by the University of Michigan, so Larry grew up using important than the sites with few links pointing to them. He
computers all his life. His mother had a master’s degree in brashly and playfully decided to call his link-rating system
computer science and worked as a database consultant. Both “PageRank” as a play of words on his own name.
his parents taught at Michigan State University although they
“Larry talked about the idea initially asa random surfing, the idea
divorced when Larry was eight years old. Larry graduated from
of a random walk on the Web. The motivation for the algorithm (a
the University of Michigan in 1995 majoring in computer
set of mathematical equations) was really thinking about the
engineering and was also accepted into Stanford University’s
surfer. Start on a page, click on a link, and see where you would
doctoral program.
land most of the time. That got refined into PageRank.”
Larry Page and Sergey Brin actually met for the first time in 1995 – Terry Winograd, Stanford professor, advisor to Larry Page
when Sergey was running a new student orientation program at
Stanford. They hit it off right away, mainly on the basis both of Brin and Page decided in early 1997 they would team up to write
them liked to argue about anything and everything. Page and a Ph.D. thesis around the idea of applying PageRank to the
Brin considered each other to be obnoxious but an intellectually Internet. They even came up with a primitive search engine they
worthy adversary. Soon, they were sparring verbally about every called “BackRub” which analyzed the incoming links to a Web
subject imaginable. Sergey was louder and more extroverted page. Without realizing it, they had actually managed to develop
while Larry tended to be quieter and more introspective, but their the first ranking system for the Internet which would later come to
intellectual dueling laid the foundation for what would ultimately solve one of the core problems involved when searching for
become a lasting friendship. information on the Web.
 The Google Story - Page 2

“It wasn’t that they sat down and said, ‘Let’s build the next great While they were indecisive about how to move forward, the pair
search engine’. They were trying to solve interesting problems were also hard at work improving Google. In July 1998, they
and stumbled upon some great ideas. Larry added ideas, Sergey added a summary or small snippet for each search result. This
added ideas, I added ideas, we all did; and it became clear we allowed users to get a feel for the results without having to visit
could build a full-scale search engine.” each Web site. They also continued to work day and night
– Professor Motwani developing other breakthroughs which would enhance the user’s
experience when using Google. Page and Brin finally came to
Larry Page and Sergey Brin decided they needed a catchy name the conclusion to really grow Google, they would have to move
for their new search engine. They spent days thinking up new off campus and attract some financial backing.
ideas and discarding one idea after another. Finally, a friend
suggested that since they were trying to search and index vast One of their professors suggested they should meet with Andy
amounts of information, they could use a huge number like a Bechtolsheim, one of Palo Alto’s best known entrepreneurs who
googolplex – the number one followed by 100 zeroes. That had been a cofounder of Sun Microsystems and an early-stage
sounded like a good idea, but it was decided to shorten it to investor in a number of other successful companies.
G-o-o-g-o-l. Larry, however, misspelled it when he typed it in, Bechtolsheim met with Page and Brin and was impressed with
and ended up with Google. Since that was available, Page and their ideas plus the fact they already had a working product
Brin went ahead and registered Google.com as the Web domain rather than mere ideas embodied in a PowerPoint presentation.
name for their new search engine. Bechtolsheim told them candidly: “This is the single best idea I
have heard in years. I want to be part of this.”
Page and Brin had no idea how to respond to this. Therefore,
2. Making a Start Bechtolsheim suggested he would write them a check on the
spot which they could use to buy computers. They could then
meet again and decide what he would get in exchange for the
In 1997, Page and Brin were still treating Google.com as their money. Bechtolsheim didn’t even ask them if they had formally
doctoral thesis project. They therefore made the search engine registered the company yet, but he wrote a check made out to
available to students, faculty and friends at Stanford University. “Google Inc.” for $100,000 – a figure he picked because it was a
Its popularity started growing quickly through word-of-mouth nice, round number.
endorsements. This caused Stanford’s Office of Technology
Licensing to decide to seek a patent for what Google was doing. Page and Brin were so enthused by this vote of confidence they
went off to celebrate by having lunch at Burger King. Page put
Since Page and Brin lacked any money to hire a designer, they the check into his desk draw for two weeks until they could
developed a very simple homepage which had an uncluttered incorporate Google and open a bank account so they had
look. It really consisted solely of the search engine name and a somewhere to deposit the check. They also found other people
box where an inquiry could be entered. This was in stark contrast were anxious to invest in any project Andy Bechtolsheim backed
to other search engines which had crowded graphics and a and in short order, the two had raised about $1 million in start-up
proliferation of banner ads trying to sell things. funding. The fact they had raised as much capital to launch a new
“As a piece of design, it is really brilliant. If you went to a design company as the amount they were trying to sell their technology
firm and asked for a homepage for a search engine, you would for outright just a few short months earlier was not lost on them.
never get that. It doesn’t have to have any animation or metallic “They are really driven by a vision of how things ought to be, and
colors, and there is no sound or lights. It flies completely in the not to make money. The idea of digitizing the entirety of the
face of the common belief that people love to find their way universe and making it work is something nobody was willing to
through the noise.” tackle but lots of people knew needed to be done. They managed
– Dennis Allison, Stanford professor to get that together and bulldozed through the limitations. And
To keep up with the demands for searches, Page and Brin with some luck, it is actually going to work.”
started adding more computing power to their server. Since they – Dennis Allison, Stanford professor
couldn’t afford anything better, they started assembling their own One thing Page and Brin knew for sure was quality searches
machines and linking them together with software. They also would require not only the right algorithms but also much greater
scrounged around the campus, and even managed to computing power than had ever before been employed by a
commandeer any computers which lay unclaimed around the search engine. In simple terms, Google search results were
campus’s loading docks. Stanford University also provided better because they didn’t just count words or count links.
$10,000 to help the pair bulk up their servers. Instead, Google took more factors into account to come up with
At this stage, Brin and Page were still quite ambivalent about results than any other search engine. Page and Brin knew the
Google. While on the one hand it was their doctoral research key to their success in the future would be to optimize their
project, they also realized it had some serious commercial available computing power at the same time as they continued to
potential. They decided to offer their PageRank technology and improve their search software and methodologies.
the search engine software for sale. They met with the owners of
AltaVista, Excite and Yahoo offering their technology for $1 “PageRank is basically saying, if somebody points at you, you
million. All of them rejected the offer to buy Google. Yahoo get some fraction of the importance that they have. Let’s say
cofounder David Filo advised Page and Brin they should take a somebody really important points to you. That’s worth more than
leave of absence from the Ph.D. program at Stanford and start somebody who has a random Web page. We’ve assigned
their own business to commercialize their search engine. Even numbers to those pages that correspond roughly to their
with this encouragement, Brin and Page were undecided and importance. The page’s ranking is the sum of all things pointing
weren’t sure what to do. to it.”
– Larry Page
 The Google Story - Page 3

supercomputer, Google again purchased a heap of cheap PCs

3. The Venture Capital Era
and cobbled them together in a network. The beauty of this
system was not only the fact it was cheaper to purchase but
computers could fail and be replaced all the time without any
In the fall of 1998, Larry Page and Sergey Brin officially took
performance degradation. By spreading the data and the
leave from Stanford University and moved their computers, toys
computer tasks over a large number of systems in multiple
and gadgets into the garage of a nearby house. They chose this
locations, Google also gained redundancy in the event any
site mainly because the house had a hot tub. Google Inc. was
single data center went down because of power failure or for any
formally registered on September 7, 1998 and the pair hired their
other reason. By the summer of 1999, Google had expanded
first employee, a fellow Stanford Ph.D. student. They paid
from about 300 computers to more than 4,000 machines.
$1,700 per month for their first garage/office which they outgrew
within five months. Brin and Page moved Google into a While all this infrastructure beefing up was underway in the
second-floor office space in downtown Palo Alto. background, Google continued to garner more attention. The
leading commentator for search engines was Danny Sullivan
At this stage, neither the two co-founders nor any of the
who previously worked as a reporter for the Los Angeles Times
early-stage investors had any idea how Google would actually
and The Orange County Register. Sullivan studied how all the
make money. They assumed having the best search engine
search engines worked, and published a study entitled “A
would be valuable somehow, but there was never a clearly stated
Webmaster’s Guide to Search Engines”. He also launched a
strategy for commercializing this. At this time, Google was
Web site called Search Engine Watch, and became the guru for
handling about 100,000 queries per day, and was attempting to
the search engine industry. When Danny Sullivan rated Google
hire as many talented people as could be found. To entice people
as the best search engine available, people really started to sit
to come work for them, Page and Brin offered cool technology,
up and take notice. Through the endorsement of Danny Sullivan
stock options, free snacks and drinks and the “opportunity to
and other commentators, Google was able to market and grow
have millions of people use and appreciate your software”.
its business without any advertising or marketing expenditure.
When PC Magazine listed Google in its list of the Top 100 Web
By late-1999, Google was averaging about seven million
sites and Search Engines for 1998, the company suddenly
searches per day. That was impressive, but the business still
started attracting more users. Within a few months, Google was
wasn’t generating any significant revenues. It appeared the
routinely providing 500,000 searches a day. To provide that, the
company might burn through all its capital and then disappear
company had to constantly add more computing power. Within
into the night.
eight months of its formal launch, Google had already chewed
through its initial start-up funding of $1 million, and it was clear a “The original business idea was aimed at licensing the
substantial chunk of money would be needed to keep the underlying search engine technology to a variety of other
company growing. Brin and Page knew they would have to Internet companies and enterprises. During the first year we
approach some venture capital investors for more funding but collectively had concern that the market we were pursuing was
they were determined not to lose control of their company. They more difficult and more intractable than we had originally
therefore came up with a novel funding strategy which was as anticipated. The conversations with potential customers and
clever as their search engine. negotiations with potential customers were protracted. There
Brin and Page decided to simultaneously approach two of the was a fair amount of competition, and we didn’t have a direct
most prestigious venture capital firms in Silicon Valley: Kleiner sales force. The customers were very harsh on the prices they
Perkins Caufield & Byers and Sequoia Capital. They goal was to were prepared to pay. It was clear if we were going to pursue that
get both firms to invest in Google without either taking charge of path, it was going to be a brutal path.”
the company. By having two investors rather than just the one, – Michael Moritz, Sequoia Capital
Brin and Page hoped they would be able to maintain control of
If licensing the Google technology wasn’t going to work, the only
Google while the two venture capital firms battled with each
other real alternative for generating cash was for Google to sell
other. With this in mind, Brin and Page approached John Doerr of
advertising. Brin and Page were initially very reluctant to go down
Kleiner Perkins and Michael Moritz of Sequoia Capital. Both
this path as they thought other search engines biased their
these companies decided they wanted to invest in Google but
search results towards those who paid for advertising. This was
neither were willing to co-invest or share the investment. It wasn’t
a totally unacceptable idea for Google and would be viewed as a
until Brin and Page started assembling another group of angel
breach of trust. It would even violate the spirit of the company
investors as a viable alternative that both venture capital firms
motto that Brin and Page adopted for Google: “Don’t be evil”.
agreed to the very unique funding arrangement. In the end,
Kleiner Perkins and Sequoia Capital invested $12.5 million each Eventually, Brin and Page came up with a new idea for
in Google. The venture capitalists did, however, attach one generating revenue. They decided they would split their search
condition to the funding. The two entrepreneurs had to promise results page into two sections. On the left hand side would be the
they would hire an experienced industry executive to help them search results which would continue to be free and which would
transform their search engine into a profitable business. Brin and provide the best results possible irrespective of whether
Page agreed to this request reasoning they would delay hiring someone advertised with Google or not. On the right hand side of
adult supervision for as long as possible. the results page, they would place targeted ads which were
triggered by the user’s specific search request. Advertisers could
The $25 million in expansion capital was put in place in June
pay for their ads to appear when specific search requests were
1999. By this stage, the company had seventeen employees.
entered, and the ads could even be ranked according to their
Employee No. 18 was Dr. Jim Reese, a brain surgeon who was
relevance. Brin and Page also decided these ads should be in
hired as Google’s operation’s chief. His job was to beef up
text format only with a headline, a link and a short description just
Google’s computer power so Sergey and Larry could grow the
the same as the free search results.
company aggressively. Rather than investing in a
 The Google Story - Page 4

“Google’s superior search delivered a big enough audience for

4. Google’s Growth
businesses to target their advertising, but how well it would all
work remained to be seen. By the middle of 2000, Google was
handling 15 million searches per day compared to the 10,000 of
Despite the fact Google was now starting to generate a profit, the
a year and a half earlier. Computer users were flocking to
venture capitalists were still insistent Brin and Page should hire
Google, but would they start clicking on ads too, enabling
someone with management experience to help run the business.
businesses to sell products and Google to sustain its financial
Sergey and Larry valued their independence highly and stalled
model? Brin and Page remained confident, but skepticism
for as long as possible, turning down a string of people who the
abounded about the company’s ability to make it as a business
two venture capitalists kept sending over to meet with them. It
that gave search results away for free and refused to accept both
wasn’t until Sequoia Capital threatened to demand repayment of
banner ads and paid placement in search results.”
their $12.5 million investment that Page and Brin really started to
– David Vise and Mark Malseed
think about this seriously.
While the company was waiting to see how the new business They finally met with Eric Schmidt, the CEO of Novell and the
model worked out, it also continued to expand impressively. As former chief technology officer of Sun Microsystems. The first
many Internet companies were scaling back operations in 2000 meeting didn’t really go all that well in that it consisted of one long
due to the fact stock market valuations of Internet based argument between Sergey and Schmidt about the strategy he
companies had fallen dramatically, Google was hiring. Similarly, was executing at Novell. Both Brin and Page were impressed,
with Microsoft’s high profile anti-trust court cases, software however, by the passion with which Schmidt argued his point of
engineers who once had aspired to work for Microsoft started view. They also respected the fact he was a computer scientist
applying for jobs at Google. The company continued to innovate with a Ph.D. from the University of California at Berkeley.
at an impressive rate: After some behind the scenes discussions, Brin and Page
n Wireless search capability was introduced, so cell phone agreed to appoint Eric Schmidt as chairman of the board of
users could carry out Google searches on the go. Google until he finished helping guide the impending sale of
n Google allowed other Web sites to add a Google search box Novell at which point he would become CEO of Google. They
to their own sites. They even paid 3-cents for each search the insisted that Schmidt had to demonstrate his commitment by
other Web sites sent Google’s way in a new and innovative buying $1 million of preferred Google stock. Schmidt agreed and
affiliate program. the deal was signed in March 2001. Eric Schmidt subsequently
was appointed CEO of Google in July 2001.
n Google entered into an agreement with Yahoo to provide
search results generated by Google but branded by Yahoo. “The place was always a zoo. The underlying structure and
n Google introduced new features which would catch spelling strategy and culture were good. The most apt description of what
errors, allow people to search the Web for images, look up I did in the first year or two was put a business and management
phone numbers and do much more. culture around the vision and gem that Larry and Sergey had
By the end of 2001,Google was three years old. The company created. When I got here, the company had credit cards that
also generated its first annual profit of $7 million. didn’t get billed to individuals. Larry and Sergey just gave credit
cards out. The first thing I did was cancel all the credit cards
“Brin and Page had spent judiciously when building the computer except one, which Larry and Sergey controlled. They gave their
infrastructure that powered its business, but they spared no card to other people to use to buy stuff, just to spite me. One day,
expense when it came to creating the right culture inside the a telephone booth showed up in my office. I said, ‘Who bought
Googleplex and cultivating strong loyalty and job satisfaction the telephone booth?’ We tracked it down to somebody who had
among Googlers. The artifacts of that culture – brightly colored their credit card number. It was very entertaining. One day these
medicine balls, lava lamps and assorted gadgets and toys here massage chairs showed up. Who bought ‘em? I don’t know. A
and there – gave the business the appeal of a vibrant college little bit of mischief goes a long way.”
campus. All of this, they believed, would pay off handsomely in – Eric Schmidt
the long run. The 85 employees who now worked for Google
CEO Larry Page and President Sergey Brin labored long hours The two Google cofounders were also hard at work growing their
but were treated like family. They were fed like family as well, business. In 2002, they entered into an agreement with America
with free meals, healthy juices, and snacks in abundance. Online (which had more than 34 million subscribers) to provide a
Googlers also enjoyed a bevy of conveniences like on-site small search box on every page that said: “Search Powered by
laundry, hair styling, dental and medical care, a car wash – and, Google”. Google also did similar deals with EarthLink to provide
later, day care, fitness facilities with personal trainers, and a search and Ask Jeeves to provide text-based advertising.
professional masseuse – which virtually eliminated the need to Google also moved to charging advertisers only when their ads
leave the office. Beach volleyball, foosball, roller hockey, scooter were clicked rather than every time they were displayed on a
races, palm trees, bean bag chairs, even dogs – it was all part of computer screen. Google created a 24/7 online marketplace
making work fun and fostering a creative, playful environment where advertisers could go and purchase ads for specific words
where Google’s employees, most of them young and single, and phrases.
would want to spend their waking hours. Google would even go “Companies of all sizes were participating in these keyword
on to charter buses with wireless Internet access so that auctions, spending anywhere from hundreds of dollars to many
Googlers who commuted the hour from San Francisco could be millions each quarter on Google. Turning traditional advertising
productive, putting their energy into their laptops instead of on its head, these ad buyers determined the price they were
worrying about how they would get to work.” willing to pay to get across their message, rather than having
– David Vise and Mark Malseed Google set the price, as TV networks and newspapers had long
done. The self-service nature of the system and the low
 The Google Story - Page 5

minimum ad prices enabled even small firms with no sales staff assigned a team of engineers to build and develop the product.
to jump in and out of the game. On Google, mom-and-pop Many other similar innovations are bubbling away in the
enterprises had the same opportunity to reach millions of users background at Google all the time as a result of the company’s
as a Fortune 500 company.” 20-percent rule.
– David Vise and Mark Malseed The company is also steadily expanding its core offerings. On
Due to the fact advertising on Google has turned out to be an April 1, 2004, Google announced it would provide users with a
extremely efficient way for firms to reach potential customers just different type of e-mail service, called Gmail. Every Gmail
at the time when they are about to make a purchase decision, account would have one gigabyte of storage – roughly 500 times
Google’s online ad business has grown rapidly. Google also has the storage offered by Microsoft and 250 times the storage
established relationships with the biggest and best-known offered by Yahoo. At first, people weren’t sure whether this was
Internet sites including Yahoo, AOL, EarthLink and Ask Jeeves. an elaborate April Fool’s Day joke or the real thing, but eventually
More than 25,000 Web sites now feature a Google search box everyone realized this was an actual service Google would offer.
creating a network that would be extremely difficult for any Attention then changed to the fact Google planned on putting
competitor to match or replicate. On the strength of that small paid ads on the right hand side of the Gmail viewing page,
business, Google generated $440 million in sales and $100 with the ads being triggered by words contained in the e-mail.
million in profits in 2002. Of course, Google kept these numbers Various groups saw this as an invasion of privacy, and there was
quiet in order to stay under the radar of others who had the a huge amount of negative publicity. As people became more
resources to build or acquire search engines of their own, but the familiar and comfortable with how Gmail functioned, this became
business was definitely in good shape. Google was well on its less and less of an issue, but the company was forced to explain
way to becoming the #1 destination for anyone who wanted to its privacy features in greater detail before the furore subsided.
advertise on the Internet. Another area where Google has struggled to adapt is in the
filtering of pornographic material in the results of Web searches.
Some people actively search for pornography using Google, and
5. The Google Way the company does not censure those requests. Google even
generates revenue by selling sex-related ads. But at the same
time, the company does try to stop pornography from appearing
Right from the founding of the company, Brin and Page had in the search results of those who are not actually seeking that
decreed that all software engineers employed by the company type of material. The company introduced a feature called
should spend at least 20-percent of their time – one day a week – “SafeSearch filtering” which attempts to block all inappropriate
working on whatever projects were of interest to them. Brin and material from appearing in search results. Google also make a
Page thought this would send the right signal that Google was a clear statement about the type of ads it will and will not accept.
place where bright people could come and do some interesting Google rejects ads for hard liquor, beer, political attacks,
stuff. The inspiration for this rule came from the fact both of the cigarettes, guns, ammunition, illegal drugs, fireworks, radar
cofounders had been raised in homes where their fathers were detectors and other products. This is the company’s way of
on university faculties where they spent four days a week making its own political statements about what should and
lecturing and one day each week on their own research. should not be acceptable in society.
“The 20 percent time was invented for people to just explore.
People are productive when they are working on things they see 6. Google’s Public Offering
as important or they have invented, or are working on something
they are passionate about. This is also an opportunity to get
bottom-up innovation. There is only so much that top Larry Page and Sergey Brin put off taking Google public as long
management can specify or ordain.” as possible. They realized once competitors like Microsoft and
– Krishna Bharat, Google software engineer Yahoo knew how profitable Google had become, competition
Google doesn’t even specify that its engineers have to use their would ramp up quickly. The problem was that Google had now
20-percent time each week. Instead, some choose to pool their reached the threshold of assets and shareholders by which
time, and then spend a month or so working solely on the under U.S. securities laws the company was required to publicly
projects they are passionate about. That allows people the disclose its financial results. Since that information was going to
flexibility that is sometimes needed to develop successful enter the public domain anyway, it made sense to take Google
products. public. Doing so would also allow employees to more readily
convert their shares into cash as required.
A good example of this is Google News. It was developed by
Krishna Baharat, an Indian software engineer. Using his “For most Silicon Valley entrepreneurs, an IPO was the ultimate
20-percent time, he developed a way to cluster stories in dream, a time to bask in the limelight and measure their worth the
categories, update the news articles in real-time and then rank American way: with dollar signs. But Brin and Page were just the
them so the most important news stories could rise to the top opposite. They loved the privacy, they loved the freedom, and
depending on how many different newspapers or wire services they relished having analysts and competitors consistently
were carrying them. The results could then be personalized to underestimate Google’s performance. Since the company was
suit the location or preferences of the viewer. debt-free, self-funded, and had plenty of cash, they didn’t need to
Another example was Froogle, a comparison shopping pricing sell stock to the public to raise money. The only upside they saw
service which allows users to compare the different offerings of was that they would have more resources to grow and realize
online retailers based on category, price and description. This their vision for Google. If they were going to go public and give up
started out as a small 20-percent project until it gained internal their privacy, Larry and Sergey agreed to do it their way.”
popularity around Google, at which point Brin and Page – David Vise and Mark Malseed
 The Google Story - Page 6

Traditionally, Wall Street investment bankers control the IPO alleging Google had breached patents held by one of its
process carefully. They decide what the initial offering price of subsidiaries, Overture. If Yahoo’s lawsuit could not be resolved,
stock should be, decide which investors will be allocated shares, it appeared Google would be forced to change its entire
run the road shows and generally micromanage the process. advertising method of generating revenue which underpinned
The investment banks have an incentive to underprice the new the company’s overall market valuation.
offering so it will be easier to sell and the price will shoot up on the With the possibility the IPO might stall imminent, Google’s two
first day of trading, validating their smarts. The companies going key venture capitalists John Doerr and Michael Moritz sprung
public, by contrast, want the highest possible price since this will into action. They forced Page and Brin to settle the Yahoo lawsuit
determine how much is raised and ultimately the market value of by giving Yahoo 2.7 million Google shares without admitting
the entire enterprise. Page and Brin felt they trusted whether or not Google had violated the patents. Google’s
mathematical equations, software and technology far more than lawyers filed the Playboy interview as an appendix to the
they needed to have their hands held by some old-time company’s SEC registration statement, effectively making it part
investment bank throughout the IPO process. of the information officially disclosed. This satisfied the SEC to a
Google therefore decided it would price and sell its stock based large degree. Doerr and Moritz also announced they had
on bids received online from potential investors. Everyone who slashed the IPO price range from $110-$135 a share down to
entered a bid at or above the final set price would be allocated $85-$95 a share as a reflection of the battering Google had taken
stock without any favoritism or input from the investment during the IPO process. The two venture capitalists also
bankers. Suddenly, millions of Google users, many of whom had announced their own firms would keep all their Google stock
never owned a share of a public company in their lives, started rather than sell it at that lower price, signaling to the market the
looking seriously at buying a few shares. In addition, the smart money was on Google’s stock price rising in the months
company did no road shows for large investors but openly posted ahead. All of these moves worked, and 19.6 million Google
information about the IPO process on its Web site for anyone to shares were sold at $85 per share. They started trading on the
read. NASDAQ exchange on August 19, 2004 and immediately
Despite the unusual method of going public, Google’s financial jumped from $85 to $100.01 per share.
results spoke for themselves. In the first half of 2004, Google “The offering raised $1.67 billion and gave the company an initial
recorded sales of $1.4 billion and a profit of $143 million. This market value of $23.1 billion. Suddenly, Google had a stock
compared favorably with the previous year’s results of $560 market value higher than many older, well-established
million in sales and $58 million in profits. Brin and Page openly enterprises. The novel auction process, in the end, achieved one
stated they intended to continue to run Google the same way as of its two goals: the company, not Wall Street, had remained in
a public company as they had when they were private, and this control by allocating shares equitably based on investor bids.
idealism was widely noted and commented on. What the auction failed to achieve was a dearer price for Google
“Google is not a conventional company. We do not intend to stock. By selling shares at $85, the company left plenty of money
become one. We aspire to make Google an institution that on the table. Had the offering gone more smoothly, the bidding
makes the world a better place. We are in the process of process been simpler, or Google not been so determined to get
establishing the Google foundation and intend to contribute the deal done in August, a higher initial public offering price
significant resources to the foundation, including employee time would have been achieved. And the company would have been
and approximately 1 percent of Google’s equity and profits. We able to stash more money into its coffers.”
hope someday this institution may eclipse Google itself in terms – David Vise and Mark Malseed
of overall world impact.” “The Google IPO marked a watershed in the relationship
– Extracts from the Google SEC filing statement between Silicon Valley and Wall Street. Larry and Sergey had
The Securities and Exchange Commission (SEC) came back to pulled off one of the biggest initial public offerings ever,
Google asking it to revise or delete many statements from its maintaining control over the process and earning the respect of
filing documents. They also asked that all references to the corporate chieftains who had been through the Wall Street mill
founders and the CEO use their full names or their last names themselves. Speculation was rampant whether the public
only rather than referring to them by their first names. Page and offering heralded the dawn of a new era in deal-making for
Brin made the changes which were required but absolutely technology companies, or was merely the latest sign of Google’s
refused to change the way they referred to people. The SEC also powerful and unique enterprise. Few other companies could
launched an investigation into the company’s internal have pulled off the August IPO under such duress. As for Larry
procedures and whether it had breached any securities and Sergey, they breathed a sigh of relief. They knew things
regulations prior to this time by issuing stock and options to would never be the same, given the legal and other issues
employees without revealing any financial information. hanging over the now public company. But at least life inside the
Googleplex had a shot at returning to normal and being fun
In addition to all these SEC probes and the fact Google was
again. For Brin and Page, the march toward public ownership
attempting to raise billions of dollars in what the financial
was finally over. They had done the IPO their way, effectively
community thought was an unconventional way, other problems
breaking a Wall Street cartel. They could restore their focus to
arose. Playboy magazine published an interview with Larry and
the business of running their business. Still, with shareholders
Sergey which broke the SEC rules requiring a “quiet period”
they had never met, the founders faced an entirely new level of
before an IPO in which a company cannot make public
public scrutiny and responsibility. They knew things would never
comments. Geico, an automobile insurance company, filed a
be quite the same, given the legal and other issues hanging over
lawsuit against Google for trademark infringement alleging
the now public company. But at least life inside the Googleplex
Google’s advertising system unlawfully profited from trademarks
had a shot at returning to normal and being fun again.”
Geico owned. Two other companies filed similar lawsuits in
– David Vise and Mark Malseed
Germany. And just for good measure, Yahoo also filed a lawsuit
 The Google Story - Page 7

announced the company hoped to have digitized and make

7. The Future of Google
available around 50 million books in digital format over the next
decade or so.
With the public offering behind them, Larry Page, Sergey Brin Google’s idea of creating a vast digital library has sparked a
and Eric Schmidt got back to work. Larry took the title of worldwide furor. On the one hand, the potential for the
President-Products and focused on the day-to-day details of advancement of human knowledge is enormous since, for the
running the business. Sergey’s title was President-Technology. first time in history, scholars from anywhere in the world would be
He focused on building the corporate culture, negotiating deals able to access the full text of the best books available. On the
and long-term growth projects. That left Eric Schmidt free as other hand, however, the very idea of doing this has book
CEO to oversee operations, a big task in and of itself in a publishers and copyright owners in a blind panic.
high-growth enterprise. Eric focused on scaling up Google’s
“Even before we started Google, we dreamed of making the
accounting and financial systems.
incredible breadth of information that librarians so lovingly
Once a week, the senior management team met to discuss organize searchable online. I just wanted to be able to search the
projects and requests for resources. More often than not, libraries myself. You get interested in something and want to see
decisions were made on the spot rather than running through a the state of human knowledge. Right now, it is really hard for
long and convoluted approval process. Unusually for a high tech scholars to work outside of their area of expertise because of the
company, these three provided some impressive business skills physical limitations of libraries.”
which matched their combined technical smarts. – Larry Page
Larry and Sergey personally negotiated a deal which literally
To address the copyright issue, Google proposed to display only
snatched the AOL Europe business out from under the noses of
the few selected pages or snippets of text which were directly
Yahoo. Whenever Microsoft chairman Bill Gates made public
relevant to a user’s query. They also proposed delivering it in an
noises about how future versions of Windows would crush and
electronic format which could not be copied or printed, and to
trump Google, Google would do something which widened the
provide direct links to booksellers who had available copies of
gap again. In one memorable incident in the fall of 2004,
the book. As a further act of good faith, Google even offered to
Microsoft was just about to announce its new search engine had
share with the book’s publishers the revenue generated from any
catalogued five billion documents from the Internet, eclipsing the
ads displayed during this process. Google has also announced it
comprehensiveness of Google’s four billion documents indexed.
will be developing a proprietary content distribution product in
Just a few hours before the Microsoft press release was due to
the future which copyright owners will be able to use to sell
go out, Google announced it had doubled its own index to eight
information securely online. In response, the publishing industry
billion Web pages, well surpassing Microsoft’s achievement.
is divided over whether Google’s plans will be advantageous or
Microsoft was caught flat-footed and red-faced.
not for them.
The ongoing range of innovations which have continued to come
Google also has ambitious long-term plans to expand search
out of Google since its IPO are very impressive:
capabilities into the fields of biology and genetics. Sergey Brin
n In October 2004, Google released desktop search – a fast, and Larry Page have signaled their goal for Google’s charitable
free way for people to find information of all kinds stored on foundation is to empower individuals to live smarter and healthier
their own computers quickly and precisely. lifestyles through the prevention and cure of a range of diseases.
n Next Google announced satellite mapping and navigational Towards this end, a lot of the company’s resources are being
services. This was followed by video search based on the directed at artificial intelligence and new methods of language
closed-captioning of television programs and mobile translation in order to make it easier for people to find the
searches by cell phones, PDAs and other devices. information they need. Google is also accelerating the arrival of
n Google Suggest was released as a way for the search engine personalized medicines by adding the information about the
to propose search topics as the user typed in their request. human genome to its database. The company hopes it will be
able to eventually have available a searchable gene catalog
n Google Scholar became available, a means whereby
which people can use to characterize their ailments, understand
scientific journals, abstracts, theses and technical reports
their development and then obtain specific medical treatments.
could be searched.
In other areas, Google is also hunting for a clean, renewable
n Google released quick and better ways for users to search for
energy source which will ultimately power the company’s
stock quotes, taxis and weather conditions.
computers and then be adopted by the broader economic
n Google Earth became available, enabling computer users to community. Brin and Page have also asked their foundation to
fly to any spot on the planet with 3-D views along the way. become actively involved in causes that work to relieve hunger
Google later added a way to explore the moon’s surface using and poverty through combinations of entrepreneurship,
similar technology. self-reliance and philanthropy. Google regularly helps the micro
As impressive as any of these products might be in and of loans programs which enable people in developing nations
themselves, the fact Google has been able to come out with one obtain small loans to establish their own businesses. Thus far,
new and noteworthy product after another is unprecedented. Google has given out more than $2 billion in small micro loans.
However, in terms of publicity, even these dazzling new products
“Why not improve the brain? You would want a lot of compute
receded into the fringes when Google announced on December
power. Perhaps in the future, we can attach a little version of
14, 2004 it intended to digitize and make available online more
Google that you just plug into your brain. We’ll have to develop
than 15 million library books drawn from Michigan, Oxford,
stylish versions, but then you’d have all of the world’s knowledge
Harvard, the New York Public Library and Stanford. And as if that
immediately available, which is pretty exciting.”
prospect alone wasn’t enough to dazzle, Google also
– Sergey Brin
 The Google Story - Page 8

“No company is as popular as Google. It would take only a tiny

8. Life as a Public Company
mishap or flattening of advertising growth for the shares to
plummet. Does that matter? Probably not, as long as Google
remains, as it shows every sign of doing, a proudly independent
When Google went public in August 2004, its shares were
company. But anybody who takes its lofty valuation too seriously
pegged at $100 each, valuing the entire company at $23.1
is in danger of making a big mistake.”
billion. Most analysts predicted the shares would decline
– The Financial Times
post-float, especially in view of the fact millions of shares held by
insiders would become eligible for sale six months after the IPO. Google’s success has also had a positive flow-on effect for other
Defying these predictions, however, the stock continued to rise companies. In 2004, Google purchase a 2.6-percent stake in a
in price. Google shares sold at $135 a share in October 2004, Chinese search engine, Baidu.com. When the Chinese
$200 in January 2005 and hit $216 per share on February 1, company went public on Wall Street in August 2005, many
2005 when the company announced sales for the quarter had people pegged the new company as “China’s Google”. On its
topped $1 billion with $200 million in profits. At these prices, first day of trading, Baidu’s shares went from $27 to $122 – the
Google’s market value exceeded $50 billion, making the biggest first-day gain since the dot-com bubble burst five years
company worth more than many of the most prestigious earlier. People remembered they had the chance to buy Google
blue-chip firms in America. at $85 and they didn’t want to let that happen again by failing to
Since the company steadfastly refused to provide analysts with get onboard with Baidu.com.
any guidance about its future earnings, the company is viewed Even the commentators who follow the search industry are
as something of a maverick by the financial community. highly valued. A British company paid $43 million in cash to
Regardless of their hesitations, however, many Wall Street acquire Search Engine Watch, the Web site started by search
analysts have been forced to keep revising their Google share industry guru Danny Sullivan who continues to track Google’s
prices upwards. This is even more impressive in light of the fact moves for a global audience of readers. This suggests
most analysts worry that Google derives all its income from just companies and people are betting the search industry will
the one source – Internet advertising tied to free searches. remain topical for many years to come.
When Google held its first annual meeting for shareholders on
“Google’s own stock market value now neared $80 billion,
May 12, 2005, its stock price had passed $225 fueled by the
making the company more valuable than Amazon and eBay
latest quarterly results of $1.3 billion in sales and $369 in profits.
combined. While Google thought of itself as an engineering and
As Google celebrated its first birthday as a public company in
technology-driven firm, it made its money the same way most
August 2005, it stunned the financial community anew by
media companies did – primarily through advertising. The irony
announcing plans for a $4 billion stock offering. In a whimsical
was that a company whose financial strength was built on
touch, Google announced it would issue and sell 14,159,265
advertising did almost no advertising itself. It didn’t need to.”
shares – a number representing the first eight digits after the
– David Vise and Mark Malseed
decimal point in pi, the mathematical ratio which is very widely
used. “We have figured out ways to stay focused on end users and
Larry Page and Sergey Brin, both 31-years old at the time of innovation. We’re sticking to the focus that we talked about in the
Google’s IPO, might have become America’s newest and original founders’ letter around getting all of the world’s
wealthiest young billionaires, but they seemed to remain largely information online. And we have been able, even with growth
unaffected. When the Google share price reached $300, Page and so forth, to be able to attract the very best and brightest
and Brin both had a personal net worth exceeding $10 billion. around the world. We’re very excited about the talent we have
They regularly sell about 400,000 Google shares a month assembled, the scale that we operate in, the computing power of
providing each of them with around $750 million in cash. CEO the technology that we have built here, and all of the innovation.
Eric Schmidt also sells 113,000 shares every month, giving him The most direct way to access the world’s information will be
more than $225 million since Google went public. Despite all this through Google.”
success, however, Sergey’s mother still keeps reminding him he – Eric Schmidt
has only taken a leave of absence from Stanford. She wants
Sergey to return to Stanford, write his thesis and finish his Ph.D. “Google is not a conventional company. We do not intend to
become one. Our search results are the best we know how to
In all, employees and major shareholders of Google sold $3 produce. We do not accept payment for them or for inclusion or
billion worth of Google shares in its first year as a public more frequent updating. We also display advertising, which we
company. A large number of early Google employees became work hard to make relevant, and we label it clearly. This is similar
millionaires. The company itself has also gone shopping, to a well-run newspaper, where the advertisements are clear
investing hundreds of millions in acquiring or funding a wide and the articles are not influenced by the advertiser’s payments.
range of other companies with interesting technologies. A management team distracted by a series of short term targets
The investment community remains divided on the merits of is as pointless as a dieter stepping on a scale every half hour. In
Google. Mark Mahaney, a well-known Wall Street analyst, Warren Buffett’s words, ‘We won’t smooth’ quarterly or annual
advised investors to sell Google stock when it hit $135 in October results: If earnings figures are lumpy when they reach
2004. He then switched employment and at his new post at headquarters, they will be lumpy when they reach you. As an
Citigroup Smith Barney he became bullish on Google, setting a investor, you are placing a potentially risky long term bet on the
new price target of $360. Other analysts and commentators are team.”
equally divided in their opinions about Google. – Larry Page and Sergey Brin

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