Tuesday, February 14, 2006

In Search Of The Real Google

Time has an insider look at Google, but since you need subscription, I couldn't post the direct link:

It's time to make some big decisions, so the Google guys are slipping on their white lab coats. After eight years in the spotlight running a company that Wall Street values at more than $100 billion, Google co-founders Sergey Brin and Larry Page are still just in their early 30s and, with the stubbornness of youth, perhaps, and the aura of invincibility, keep doing things their way. So the white coats go on when it's time to approve new products. For a few hours, teams of engineers will come forward with their best ideas, hoping to dazzle the most powerful men in Silicon Valley. Google paid crazy money to attract top talent--supercharging the nerd market in the process--and this is the recruits' chance to show the investments were worth it.

The Google guys can be tough sells. Page, a computer geek from Michigan who as a boy idolized inventor Nikola Tesla (you know, the guy who developed AC power), has a Muppet's voice and a rocket scientist's brain. Brin, born in Russia and raised outside Washington, is no less clever but has a mischievous twinkle in his eye. When he drops little asides--"Let's make the little windows actually explode when you close them," he tells a group presenting new desktop software--no one seems certain whether to laugh or start writing the computer code. Both men often rise from the conference-room table to pace or to grab a snack or just to appear bored. In a culture of creativity, there's nothing wrong with keeping people off balance.

A team of four engineers enters the meeting room, each clutching an IBM Think Pad. They have just 20 minutes: a digital clock projected on the wall ticks it down. You don't go before Brin and Page--joined by CEO Eric Schmidt, 51, the Silicon Valley veteran brought in a few years ago to provide adult supervision--until you have your pitch down. And the way Google operates, you don't have your pitch down until you have the numbers to quantify its superiority. The engineers tell Brin and Page that they can generate extra advertising revenue by adding small sponsored links to image-search results, as Google already does with text searches. "We're not making enough money already?" Page asks. Everyone laughs. The share price has soared as high as $475, making Google, in market-cap terms, the biggest media company in the world. (The stock plummeted early this month on earnings that Wall Street didn't like, although it's still far above its 2004 IPO price of $85.) The engineers press on. Their trials predict the tweak would be worth as much as $80 million a year in additional revenue. Brin isn't moved. "I don't see how it enhances the experience of our users," he says. It probably wouldn't hurt it much either. But the Google guys reject the proposal--"Let's not do it," Brin declares, to the engineers' obvious disappointment--leaving the $80 million on the table.

Whether Google gets it right in sessions like that--balancing business opportunities against consumers' trust--is crucial to the company's future. After eight years of incredible growth, it's fair to ask whether Google is due for a stumble. To put it another way, Can Google maintain its success and remain true to the ideals that made it so popular? These are the guys who adopted as their informal corporate motto "Don't be evil." Sure, analysts in recent years have asked frequently whether Google's luck has run out, and yet the company kept thriving. But its vulnerability was plainly evident two weeks ago when jittery investors cashed out en masse after it reported an 82% increase in its fourth-quarter profit (below the market's expectations) and again after Google said it was launching a heavily censored Chinese-language site. Plus Google faces tough competition from big players like Yahoo!, which is making a dramatically different bet on the Internet's future, and Microsoft, which plans to challenge Google in search and advertising. The Google guys are feeling the heat. "I worry about Microsoft," Brin told TIME. "I don't worry about competing with them, but they've stated that they really want to destroy Google. I feel like they've left a lot of companies by the wayside."

To be sure, many Google watchers are still gaga. Safa Rashtchy, a managing director of investment firm Piper Jaffray, says he expects Google shares to reach $600 by the end of this year. But the big bet behind the lofty share price--that Google can keep up its torrid rate of growth--is far from a sure thing. At last week's close of $363 a share, Google's P/E ratio (stock price divided by earnings per share, a measure of expected profits) is a whopping 76. Compared with the average of about 20 for S&P 500 tech stocks, Google, by that yardstick at least, is way overvalued. "People should not assume that Google will succeed at and dominate whatever it pursues," says Scott Kessler of Standard & Poor's Equity Research. "The company has been trying to diversify but hasn't done a great job at monetizing its new offerings."

To gauge Google's ability to weather the storms, TIME spent several days at the company's headquarters in Mountain View, Calif. It's a unique experience. Set up in 1998 in a Silicon Valley garage (O.K., that part's familiar), Google inflated with the Internet bubble and then, after everything around it collapsed, kept on inflating. Google's search engine--devised by Brin and Page when they were Ph.D. candidates at Stanford--was better than the rest and, without any marketing, spread by word of mouth from early adopters to, eventually, your grandmother. Search became Google; google became a verb. The world fell in love with the fun, effective, blindingly fast technology and its boy-wizard founders. Ultimately, the company even found a business model--advertising--and last year made a profit of nearly $1.5 billion on revenue of $6.1 billion.

Beyond that quantifiable success, Google has tried to be special, the company that won't give in to the dark side, be it censorship, greed or just plain jerkiness. It's hard to say exactly what "Don't be evil" means, and one could argue that that's the unwritten principle of every respectable corporation. But Brin and Page's ultimate vision--to make nearly all information accessible to everyone all the time--is a tricky thing, given that a lot of us (individuals, corporations, governments) aren't comfortable with a 100% free flow of data. Just last week Google was slammed for a software feature that results in the company's storing users' personal data for up to a month. At times like these, Google keeps that mantra handy--Don't be evil, don't be evil, don't be evil--as a reminder to try to do the right thing in a complex world. Which means turning down $80 million windfalls from time to time. Or telling U.S. prosecutors, as Google did last month, that it won't hand over data on people's Internet use.

That's why Google's decision to launch a censored website in China was so jarring. (See "Google Under the Gun," TIME, Feb. 13, 2006.) Doing a totalitarian government's bidding in blocking the truth in order to make a few extra bucks is practically the definition of evil. Google acknowledges that it's in a tough situation but says it ultimately has to obey local laws. "There's a subtext to 'Don't be evil,' and that is 'Don't be illegal,'" says Vint Cerf, an Internet founding father who now serves as "chief Internet evangelist" at Google. "Overall, having Google there is better than not having Google there." But at what cost? Can Brin and Page live with the idea that Chinese Netizens can't access anything other than the official line on, say, the 1989 Tiananmen Square massacre and that Google is part of the cover-up?

There's another big question that makes Brin and Page squirm: Does Google have a master plan? To outsiders, it sometimes seems as if the company is investing everywhere, trying to be everything, often giving its products away. A few of the newer pursuits: a proposal to provide free wireless Internet service for San Francisco; an online video store selling TV shows and NBA games; a classified-advertising site; a project to scan every book ever published and make the texts searchable; a free desktop package loaded with software; free instant messaging and online voice communication; a $1 billion investment in America Online. (AOL, like this magazine, is owned by Time Warner.) In the past year or so, Google Inc. has doubled in size to about 6,000 employees to handle all the new work. Even the bullish Rashtchy acknowledges that "Google is a black box for most people."

So what's the plan? World domination? Keep throwing money at everything and see what works? Google isn't making friends along the way, taking on the likes of Microsoft (desktop software), eBay (classified advertising), phone companies (the San Francisco wi-fi plan) and others. Google keeps a confidential list of the 100--yes, 100--top priorities under development. That's a long list, and investors would love to know more about it and what Page, Brin and Schmidt are thinking. But secrecy is part of the culture. Google doesn't even invite analysts in for earnings-guidance sessions, so the resulting surprises can lead to big share-price swings like the recent drop. "We don't generally talk about our strategy ... because it's strategic," says Page. "I would rather have people think we're confused than let our competitors know what we're going to do."

What's certain is that Google will keep looking for new ways to organize and search for information. It will try to make money on most of them, primarily through advertising. It will expand more overseas (Google calculates that two-thirds of the world's Internet population speaks a language other than English), and it will form more global partnerships with content providers. Here are some things Google watchers speculate it is pursuing: new ways to search for (and perhaps buy) music, an online payment service to rival PayPal, some sort of smart phone, a space elevator to transport stuff to the moon. (Don't laugh. Brin and Page can't seem to let go of that last one, at least as an idea to kick around.) To help accomplish its goals, whatever they may be, Google raised $4.2 billion late last year through a second stock offering.

It's part of the Google ethos to pretend, at least, not to care about the share price or let it affect strategy. "We're not a $100 billion company, in my mind. We're just Google," says CEO Schmidt, a soft-spoken former executive of tech firms Novell and Sun Microsystems who seems comfortable with his role as the third Google guy. (That's something like being the fifth Beatle but far more lucrative.) Indeed, inside Google, obsessing about the stock price is almost evil. Marissa Mayer, a vice president, imposes penalties on anyone she catches tracking the latest tick. "If I see someone looking at the share price, they owe the cost of one share," says Mayer. A few have had to pay up, she says. Early last week that could have meant a fine of nearly $400.

Brin and Page set the tone at Google. They are businessmen who didn't go to business school, and they believe that gives them a creative edge. Their standard attire is black T shirt, jeans and sneakers (and white lab coats for special occasions). They are at once playful--they used to take part in the regular roller-hockey games in the Google parking lot--and solemnly idealistic, as when discussing Google's new $1 billion philanthropic arm. Brin and Page are products of Montessori schools and credit the system with developing their individuality and entrepreneurship. They're often accused of being arrogant, but to the extent that they are, it may not be egotism as much as an insistence on doing things their way. (The pair sometimes celebrates big Google milestones by going out to Burger King.) "We've obviously been successful," says Brin. "But there's been a lot of luck."

Success has allowed the Google guys to retain a childlike approach. (It probably helps that although they have girlfriends, each is single.) Page, 33, grew up in Michigan obsessed with inventing things. In college he built a functioning ink-jet printer out of Lego pieces. Page's father was a computer-science professor at Michigan State; his mother taught computer programming. When he isn't working, Page spends his time staying fit (his latest passion is windsurfing) and playing with gadgets, like his new TiVo-type radio device. He's into music (he attended a recent U2 concert in Oakland) but has mostly given up the saxophone he played as a kid. Compared with Brin, Page is probably a deeper thinker and bigger nerd. I saw him preparing his keynote speech for the International Consumer Electronics Show in Las Vegas--the geek-world equivalent of the Super Bowl--nearly a month before it took place. (He ended up bringing Robin Williams onstage with him; Williams called Page "Mensa boy" and mocked how he talks: "Larry, do you realize you sound just like Mister Rogers?")

Brin, 32, has also been precocious all his life. Born into a Jewish family in Moscow, Brin fled Russia with his parents amid rising anti-Semitism in the late 1970s and settled in the U.S. Brin's father Michael teaches applied probability and statistics at the University of Maryland; his mother works at NASA. Brin from an early age was fascinated with numbers; his father gave him his first computer, a Commodore 64, when he turned 9. Brin's other love is gymnastics, and he studied flying trapeze at a circus school in San Francisco. He has lately taken up springboard diving. Michael Brin recently visited the West Coast to check in on his son, the billionaire. "Sergey was a good boy," Michael wisecracks, "when he was asleep."

Brin and Page's creation is a company that is quirky and practically shouts it out. The lava lamps and electric scooters that replaced the original Segways at the "Googleplex" headquarters in Mountain View have become iconic. There is also a sand-volleyball court, a pair of heated lap pools and, for some reason, a ball pit with dozens of brightly colored plastic balls, like the one you throw the kids into at Ikea. The dress code? "You have to wear something," says Schmidt. And even he can't explain the (phoneless) London-style phone booth that stands in one hallway--"Who bought that?!" he wonders aloud, sounding like the sole sane person in a loony bin. Above all, there is Google's fetishistic devotion to food; the company serves three excellent meals a day, free, to its staff, at several cafأ©s. In what passes in Mountain View for a crisis, Google has spent months trying to find a successor, or maybe two, to replace departing head chef Charlie Ayers, who once cooked for members of the Grateful Dead. A search committee has been meeting with candidates. We're not talking meat loaf and bug juice. In a recent tryout, the executive chef from an acclaimed area restaurant prepared sugar-pie pumpkin lasagna and cedar spring lamb chops.

What's intriguing is that this slightly goofy, self-indulgent culture has proved so adept at nuts-and-bolts business. Schmidt says he intentionally propagated the perception of Google as a wacky place to allow the company to build up its business under the radar. "With the lava lamps and scooters, everybody thought we were idiots, the last vestiges of the dotcoms," he says. "It worked until it leaked out how well we were doing." Many details didn't become known until Google had to file its financials just before going public in 2004.

Google owes much of its success to the brilliance of Brin and Page, but also to a series of fortunate events. It was Page who, at Stanford in 1996, initiated the academic project that eventually became Google's search engine. Brin, who had met Page at student orientation a year earlier, joined the project early on. Their breakthrough, simply put, was that when their search engine crawled the Web, it did more than just look for word matches; it also tallied and ranked a host of other critical factors like how websites link to one another. That delivered far better results than anything else. Brin and Page meant to name their creation Googol (the mathematical term for the number 1 followed by 100 zeroes), but someone misspelled the word so it stuck as Google. They raised money from prescient professors and venture capitalists, and moved off campus to turn Google into a business. Perhaps their biggest stroke of luck came early on when they tried to license their technology to other search engines, but no one met their price, and they built it up on their own.

The next breakthrough came in 2000, when Google figured out how to make money with its invention. It had lots of users, but almost no one was paying. The holy grail turned out to be advertising, and it's not an exaggeration to say that Google is now essentially an advertising company, given that that's the source of nearly all its revenue. What Google did was master the automation of online advertising, perfecting a model developed by GoTo.com (later renamed Overture and eventually sold to Yahoo!). Here's how the system works. If you're a company selling sneakers, you can bid to have a link to your website appear in the sponsored area whenever someone does a Google search for, say, tennis or Michael Jordan or sneakers or all of those and more. How prominently your ad will be displayed depends on how much you bid and how many people click on your ad. That means you can't just buy your way to the top; your link also has to appeal to users. You pay Google for every click you receive.

Google then had another brainstorm: extend the ad-link idea beyond search queries so that any content site could automatically run ads linked to its text. Google's technology, known as AdSense, can instantly analyze the text of any site and deliver relevant ads to it. Your sneaker company could place ads on tennis-information sites that participate in the Google network. Brin and Page signed up thousands and thousands of clients before their competitors knew what was happening. Now Google plans to apply the model in other media, and it just bought dMarc Broadcasting, whose automated systems connect advertisers with radio stations.

Unlike many competitors in Silicon Valley, Google tends to let engineers run the show. The company is almost allergic to marketing. (Name another $100 billion company that doesn't run TV ads.) Innovation tends to bubble up from those bright young minds. The challenge is keeping them all happy. The free food and laundry and the heavily subsidized massages and haircuts all help, but there also has to be enough creative work to go around. Google came up with a formula to help ensure this. Every employee is meant to divide his or her time in three parts: 70% devoted to Google's core businesses, search and advertising; 20% on pursuits related to the core; and 10% on far-out ideas. The San Francisco wi-fi initiative resulted from someone's 10% time; so did Google Talk, a free system for instant and voice messaging. If Google ever builds that space elevator, it will no doubt be during 10% time.

It may sound like a random split, but Brin, who got his undergraduate degree in mathematics, insists, without much elaboration, that 70-20-10 is scientifically based. One learns not to question his ability to make calculations. At one stage, I ask him to figure out how tall the 8 billion Web pages that Google once said it indexes would be if they were stacked pieces of paper. He quickly comes up with an answer, then keeps crunching numbers in his head as we discuss other issues. Finally, after recalculating his estimate for paper width, he blurts out: "500 miles." I ask Brin whether, as a kid, he used to play with numbers, adding digits, say, in the phone book. "No," he says. "That would be crazy."

To manage all those engineers and their ideas, Google needs gatekeepers. The workhorse is Mayer, 30, a superfast-talking, blond, blue-eyed force of nature who in high school starred on both the debate and the pom-pom teams. Mayer joined Google in 1999 as employee No. 20 and the first female engineer and now manages innovation in the search field. Several times a week, she holds university-style office hours, during which her charges come by with questions about projects in development. Mayer greets them at her desk, which is cluttered with solar-powered bobble heads and other Japanese toys. Depending on the problem, she may serve as editor, designer, coder or friend. At a session a few weeks ago, a procession of earnest young men and women arrived to discuss projects they hoped would win her approval and, eventually, Brin's and Page's. Some were whimsical. (A designer was creating an interface so that Google users searching Christmas would see a candy-cane border around the results.) Others were all business. (A female engineer took in test results that showed ad revenue could increase by tens of millions of dollars if Google simply enlarged the type size for certain sponsored links. Brin and Page will hear that one.) Other proposals were clearly sinking when Mayer invoked her mother, as in, "I'm just not sure my mom would understand this."

The clout of Google's engineers was evident when the company was developing its e-mail system, now known as Gmail. Paul Buchheit, a headstrong engineer who reported to Mayer, was creating the prototype. One night in 2001, he and Mayer discussed applying advertising links to e-mail so that if you opened a message from, say, your brother that included the line, "Mom and I played tennis yesterday," you would see links to firms selling racquets and sneakers. It's all automated; no human would be reading your mail. But, as Mayer puts it, "there's a creepy factor." The two debated until the wee hours of the morning and ultimately decided not to go ahead with the ads. Or so Mayer thought. When she logged on to the e-mail system the next day, the ads were up and running. Buchheit had hacked it together. When Mayer, Brin and Page played around with it (there were only six people using Gmail then), it didn't seem particularly evil. And so another advertising model was born; Gmail linked to ads when it ultimately launched in 2004.

To keep innovating, Google has to outwit and outspend the likes of Yahoo! and Microsoft for the best young brains. Even though few of Google's insta-millionaires have cashed in their stock options and quit since the 2004 IPO, Google is on a hiring binge, adding about 100 people a week. It applies quirky tests of talent. Google once put up a billboard on Route 101, the heavily trafficked artery that links the Valley to San Francisco, that said, in its entirety:

(first 10-digit prime found in consecutive digits of e).com

No Google logo, no recruiting pitch. Just the equation. The curious who solved it (yep, it's 7427466391.com typed the answer into their browsers and went to that Web page, which offered another, harder problem (don't ask) that finally led to an invitation to interview at Google. The company also has inserted the "Google Labs Aptitude Test" in geeky publications like Linux Journal. It poses 21 questions, ranging from absurdly complex mathematical equations to poetic queries like "What is the most beautiful math equation ever derived?"

When Google hires someone, it generally isn't for a specific job. The idea is to bring in talent that can be slotted wherever there's a need. A new Googler might be placed on a team developing search applications for mobile phones and, when that project is done, help write code for, say, a video-search prototype. Chikai Ohazama runs the team developing Google Earth, the company's mesmerizing satellite-imagery application. Ohazama, a software engineer, was a co-founder of Keyhole, the firm that developed the technology, which Google acquired two years ago. On a recent afternoon he sits with his team in a conference room brainstorming new applications. Google Earth has to be seen to be appreciated: it seamlessly brings together images of the globe taken from above. You can zoom in to see your house or pull back for a broad view of the city or the country or the world. Google is trying to figure out how to make money from the free service, and for now it is throwing engineers at the problem. It's similar to Google's origins: first perfect the technology, then figure out the business plan. Ohazama gets reports from a series of team members: a woman has figured out how to superimpose U.S. hiking trails on the images. Another is adding in ferry routes. A third reports he's struggling to get data on the terrain in Connecticut. Despite some glitches, Ohazama urges the team to press on: "It's fine to make mistakes for now," he says, "until the point where we have to turn it on."

As Google rushes forward, it's reasonable to ask whether it is making the right bets on the Internet's future. For one thing, Google has tempted Microsoft into battle by developing new Web-based software and exploring partnerships that could challenge the Seattle giant's desktop dominance. But it's Yahoo!--which has a significantly different vision--that could most threaten Google. At stake is the future of search. For Google, it is all about harnessing the vast power of the Internet to get results as quickly and accurately as possible. (Google maintains tens of thousands of servers to store all those cached Web pages it searches.)

But what if in the future, search were to become more personal, more local? We might turn more to our friends, neighbors and even strangers for opinions, recipes, travel tips and so on. That, more or less, is what Yahoo!'s bet is about. Yahoo! figures we won't be satisfied with a fat data-crunching search engine like Google's. Yahoo! is focusing instead on "social search," in which everyday Internet users pool their knowledge to create alternative systems of content that deliver more relevant results--which, of course, can be monetized.

"Yahoo! is all about the people," says Caterina Fake, co-founder of the wildly successful photo-sharing site Flickr, which Yahoo! purchased last year. Flickr symbolizes the Yahoo! approach. Its collection of tens of millions of photos is all user generated and user cataloged. Participants themselves "tag" the pictures by typing in keywords that let others search the photos. Yahoo! last year also acquired del.icio.us, a social-bookmarking website that lets users share their favorite sites, music and other findings--allowing others to effectively look over their shoulders to find interesting stuff. "We're applying the wisdom of the crowds to find information," says Bradley Horowitz, Yahoo!'s head of search technology. "It's collaborative."

Google has one other big challenge: itself. Are 100 "top priorities" too many to keep track of? Or has Google created a system that can handle it all? So far, it has managed to innovate fast enough to justify all the hiring and, arguably, even the sky-high share price. And along the way, a lot of people have become very rich. (Brin and Page are probably worth about $10 billion apiece.) But the annals of Wall Street are littered with tales of brilliant founders who created successful companies, then branched into too many areas, only to see it all come crumbling down or, just as bad, to see new guys in suits come in to run things. Schmidt's guiding hand and the 70-20-10 system are supposed to ensure that that won't happen. Brin and Page also brought in Bill Campbell, the chairman of Intuit, as a trusted management adviser.

Yet Google may also have to adapt to its new identity. It's hard to stay quirky and beloved when you're the $100 billion gorilla in the room, especially if you make unsavory deals with Beijing. And that wasn't Google's first p.r. hit. A reporter for tech-news website CNET last year set out to discover how much personal data she could find about CEO Schmidt by googling him. She uncovered his net worth, street address, whom he had invited to a political fund raiser--and put it all online. Google went ballistic, declaring it would boycott CNET for a year. After intense criticism, it dropped the ban.

Ultimately, Google's business proposition is about trust. It retains loads of our data--what we search for, what we say in our Gmails--so we need to know it won't be evil with them. That's why Google declined that U.S. government request. That's also why, unlike Yahoo!, Google doesn't want to create its own content in any significant way. Once you do that, Brin and Page reason, people will start to wonder about the search results, whether they are skewed to help Google's bottom line. And once people wonder about that, the whole model--of this innovative, seemingly trustworthy company--is compromised. Do the Google guys pay attention to what people think? You bet. During our interview, Brin pops out to look for the December copy of Wired. In 2004 the magazine had put him and Page on the cover with the adoring line GOOGLEMANIA! The recent cover, by contrast, includes the line GOOGLEPHOBIA: WHO'S AFRAID OF SERGEY? (WHO ISN'T?), touting an article about the enemies Google is making as it expands. Brin picks up the issue and shakes his head in dismay. "I find it surprising," he says. But that's what happens when you're No. 1, even if you're trying to be the good guy.

With reporting by Laura A. Locke / San Francisco


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