Tarun Reflex

September 5, 2008

A decade on | Google’s Internet Economy

It’s the success story to beat all internet success stories.
Ten years ago, on 7 September 1998, two young graduate students at Stanford University incorporated a company with the (then) odd-sounding name “Google”.

Today, Larry Page and Sergey Brin are billionaires. Their company is hugely profitable; between April and June this year alone, it reported a turnover of $5.7bn (£3.2bn) and generated a net profit of $1.25bn (the first quarter was even more profitable).

Not bad for a company that makes its money being a broker for and publisher of online advertising.

The secret of Google’s success, of course, is the algorithm driving its internet search engine. In fact, it is so good that it has entered our dictionaries.

People don’t search the internet any more, they google it.

The secret sauce
Some critics accuse Google of being a one-trick pony and warn that competitors, newly emerging and potentially better search engines, are a mere mouse click away.

But Google’s secret sauce has more ingredients than its clever way of organising and ranking search results.

Equally important is the technology underlying the vast data centres that give Google the scale, speed and efficiency to serve its rapidly growing number of users.

And finally there are Google’s two money spinners: AdWords – which puts relevant advertisements next to Google’s own search results – and AdSense, the revenue-sharing deals that put Google’s context-driven adverts on third-party websites.

The clever thing here is Google’s restraint. It auctions advertising space not to the highest bidder but the most relevant advertiser, making Google users happy and generating more lucrative click-throughs to the websites of the advertisers.

Google’s real ambition
Google may be a money spinner, but the company says it has much more high-minded aims than making a fast internet buck.

“Google’s mission is to organize the world’s information and make it universally accessible and useful,” claims its corporate vision statement.

Note the word universal. Whether high-minded or not, it is this “Google everywhere” ambition that makes it such a successful company.

Over the years, Google has been releasing a steady stream of innovative tools and services – some of them developed in-house, many others bought in from start-ups: Gmail, Google Docs for word processing and spreadsheets, Picasa for picture editing, Google Earth and Maps for location-based search and display of information, Blogger, YouTube’s video service … the list is seemingly endless.

Not that long ago this looked like random growth. But as these services get a more coherent look and feel, the pieces of Google’s puzzle are falling into place.

Every search we do, every tool we use helps Google to gather more information and organise the artefacts of our knowledge society.

The price to pay

Providing an entry point to Google’s search engine at every level keeps feeding our Google habit, and creates a virtuous circle: the more information Google has, the better its search results, the happier its users, the higher the click-throughs on adverts, the bigger the profits, the more money for new “free” services that entice users to surrender yet more information.

It may leave us happy and Google profitable, but is it a corporate disaster waiting to happen?

Messrs Page and Brin may famously – or notoriously – promise that Google “can make money without doing evil”.

But with Google hoarding all this personalised and traceable information in its vast data centres, issues of data safety, privacy, and corporate Big Brothership are looming large.

The chrome Android
Google is expanding because the internet is expanding. The definition of where the internet ends is getting hazy, with devices like fridges, digital picture frames and mobile phones becoming part of the internet-enabled world.

The company’s next steps are already mapped. This week it launched its very own internet browser, called Chrome.

Today’s browsers were built to show web pages, says Google, not to be platforms for complex applications. Chrome promises to bring stability to our online experience – and the more computing happens on the internet, the more information Google can gather.

Coming shortly is an even more important piece of software called Android, Google’s (Linux-based) operating system for internet-enabled telephones.

Google makes the same business case as for Chrome: today’s smart phones were not designed for the mobile internet, so Google steps into the breach.

Partner or rival?
The company started ten years ago by two students has the size to do it all.

At the end of 2007 it had 16,800 employees, and is reportedly hiring about 100 new people each week.

But with Google spreading its wings and complementing more and more parts of our lives, a rapidly growing number of companies in ever more industries have to ponder whether this “search engine” is a partner, a competitor or a destroyer of business models.

Google’s company motto could quite as well be: “Anything you can do I can do better – and for free.”
It leaves even Google’s largest rivals constantly stressed out – whether it is Microsoft (who saw the beta launch of its new browser Internet Explorer 8 overshadowed by Chrome), or ailing web portal Yahoo, which was forced to agree a revenue-sharing deal by outsourcing some of its advertising to Google.
Even the people who happily pay Google top advertising dollar are getting worried. They complain that Google’s dominance could result in a lack of choice, not least since the company bought its way into the world of traditional display advertising on the web, through the acquisition of Doubleclick.


This is especially true during the current economic downturn. Google expects that its revenue is going to hold up, because its advertising service is highly targeted and its success measurable. It’s the old media with their mass medium approach that have to worry.

And to reassure investors, Google executives are pledging that they won’t fall into the Yahoo trap of trying to turn Google into a media company.

Google chief executive Eric Schmidt told Conde Nast Portfolio that “one of the general rules we’ve had is ‘don’t own the content; partner with your content company'”.

But even here the lines are blurring. Is there a lot of difference between “old media” publishing the pictures and videos supplied by news agencies, freelance photographers and their own audiences, and Google News or YouTube?

For now, the Google juggernaut rolls on.

The two founders keep driving the company’s technical excellence, and Mr Schmidt – a veteran of the technology industry – ensures that the money keeps coming.

This triumvirate has made an informal deal to stick together for at least 20 years, says Mr Schmidt.

Plenty of time for Google to secure its position as the lynchpin of our internet economy.   



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