CHAPTER
ONE
Messing with the
Magic
With his suit and tie and closely cropped gray hair,
Mel Karmazin stood out as he crossed the Google campus in Mountain
View, California, passing people in baggy T-shirts holding their
laptops before them like waiters’ trays. On this sunny June day in
2003, Google was nearly five years old, and Karmazin was among the
first major executives from the old media to visit its
headquarters. As the CEO of Viacom, he represented the world’s then
fourth-largest media company—the owner of the CBS network, of TV
and radio stations, Paramount Studios, MTV and its sister cable
networks, Simon & Schuster publishers, Blockbuster video, and
an outdoor advertising concern, among other holdings. Short and
pugnacious, Karmazin was by his own admission “always paranoid”
about competitors. Two of Viacom’s biggest competitors, AOL and
Time Warner, had merged to forge the world’s largest media
conglomerate, and Karmazin was on the prowl for new business
partners.
The son of a Queens
cab driver, Karmazin, then fifty-nine, had begun his career at age
seventeen selling radio advertising. He was said to be so pushy
that advertisers capitulated just so he would leave their offices.
He became a master salesman who did not play golf or tennis or
tolerate long books, and whose idea of fun was pitching advertisers
and Wall Street. He was an old-fashioned, show-me-the-money guy,
and he was skeptical of Silicon Valley companies that boasted of
their traffic and page views, but were mum about their balance
sheets. At the time of his visit, Google was a private company, and
he had no way of knowing whether it was making or losing money, or
even how many employees it had. The actual financial figures—the
January before Karmazin’s visit Google’s private books revealed
2002 revenues of $439.5 million and a profit of $99.6 million—would
be unimposing figures to a man accustomed to dealing in billions.
Nevertheless, a trusted associate, an Allen & Company
investment banker, Nancy B. Peretsman, had convinced Karmazin that
Google was a wave maker. She joined him and Viacom’s then chief
financial officer, Richard J. Bressler, on the trip.
Karmazin’s
destination that day was Building 21 at 2400 Bayshore Parkway,
offices Google had acquired from the giant computer and software
vendor Sun Microsystems. The two-story building shaded by trees was
called the Googleplex, home to the company’s engineers and separate
from the building housing Google’s finance and sales staff. Just
outside the conference room on the second floor the visitors paused
before a twenty-one-inch CRT monitor resting on a small table,
which displayed a rotating three-dimensional globe flashing with
bursts of colored light, each burst representing millions of Google
searches being conducted all over the world. The screen was dark
only in places like central Africa and Siberia, where the lack of
electricity precluded searches. A second monitor showed samples of
the search queries being conducted around the globe at that moment.
“You realized the power of it,” said Bressler. “And at the same
time, you walked into this ratty conference room.”
Waiting to greet them
in the cramped Yellow Room was Google cofounder Larry Page, then
thirty. With jet-black eyebrows, short black hair pushed down on
his forehead, a permanent five-o‘clock shadow, dark eyes that often
remain fixed on the floor, and wearing a dark T-shirt and jeans, he
seemed strange to Karmazin, as he does to many who meet him for the
first time. He was stonily silent. Sitting next to Page was Google
CEO Eric Schmidt, whose shirt and tie, frameless glasses, and
relatively old age—he was then forty-eight-were more welcoming.
“Eric looked like me,” said Karmazin. Google’s cofounder, Sergey
Brin, born the same year as Page, arrived late and out of breath in
a T-shirt, gym shorts, and on Rollerblades.
Karmazin began the
meeting with what he thought was a joke: “Don’t worry, guys, I’m
not here to buy you!” Over the next several hours, the three
computer scientists and the mogul sat in mismatched chairs on a tan
and soiled shaggy carpet, discussing their respective businesses.
Schmidt and Brin did most of the talking, and they spent as much
time speaking of Google’s culture—engineers who always worked in
teams and were given a sense of freedom, three free and healthy
meals a day, free massages, hair-cuts, and medical attention—as
about technology.
As they adjourned for
lunch, Karmazin, walking past offices crowded with engineers and
dodging colored physio balls used for stretching or as chairs for
staff meetings, saw the evidence. Lunch was served in the employee
cafe—six white Formica tables surrounded by metal folding
chairs—where free buffet meals were dispensed daily by Charlie
Ayers, whom the Google founders proudly introduced as the former
chef for the Grateful Dead. To Karmazin, a corporate belt-tightener
who had endeared himself to Wall Street by selling the Picassos off
the walls of CBS headquarters, the perks seemed extravagant.
Google’s corporate mission statement proclaims an aim “to organize
the world’s information and make it universally accessible and
useful.” It quickly became apparent that Sergey Brin and Larry Page
saw themselves as missionaries. Karmazin’s only corporate mission
is to make money.
Schmidt and Brin
explained that Google was a digital Switzerland, a “neutral” search
engine that favored no content company and no advertisers. Their
search results were “objective,” based on secret algorithms, and no
one could bribe his way to the top of a search. They explained how
search worked. The speed of each search—now averaging about a half
second to answer each query—relied on an elaborate infrastructure.
Google in 2002 had scanned or indexed 3.1 billion Web pages, about
80 percent of what was then the World Wide Web. (By early 2009,
there were an estimated 25.2 billion Web pages.) These pages were
stored in a giant database and indexed by subject. Google software
distributed each query among many hundreds of thousands of PCs and
servers that are stacked in data centers and which work in tandem,
simultaneously collecting different document links. The search is
accelerated because Google stores on its servers three copies of
its previous searches. Thus, Google does not have to scan the
entire Web each time the same question is asked.
When a question is
typed into the Google search box, the task is to divine the
searcher’s intention: when you wrote “Jobs” in the query box, did
you mean employment or Steve Jobs? The query may produce thousands of
links, but the promise of Google—what Google considers its secret
sauce—is that the ones that appear near the top of the search
results will be more relevant to you. The company’s algorithms not
only rank those links that generate the most traffic, and therefore
are presumed to be more reliable, they also assign a slightly
higher qualitative ranking to more reliable sources—like, for
instance, a New York Times story. By
mapping how many people click on a link, or found it interesting
enough to link to, Google determines whether the link is “relevant”
and assigns it a value. This quantified value is known as PageRank,
after Larry Page.
All this was
interesting enough, but where the Google executives really got
Karmazin’s attention was when they described the company’s
advertising business, which accounted for almost all its revenues.
Google offered to advertisers a program called AdWords, which
allowed potential advertisers to bid to place small text ads next
to the results for key search words. Nike and Adidas might, for
example, vie for ad space adjacent to keywords such as sneakers or basketball.
All auctions for ads are run online, through an automated system.
The highest bidder gets to place a small text ad appearing at the
top of a gray box to the right of the search results; up to ten
lower bidders win ad space below the coveted top listing. The
minimum bid per keyword is set by Google. A commonly searched word
or phrase like eBay or Jet Blue might cost only a penny or two, while a
more esoteric phrase like helicopter
parts might fetch fifty dollars per click. In a second
advertising program, AdSense, Google served as a matchmaker,
marrying advertisers with Web destinations. If Intel wanted to
advertise on technology blogs or a hotel in London wanted to
promote itself on travel sites, Google put them together via a
similar automated system. In both auctions, there were no ad reps,
no negotiations, no relationships. Unlike the ads Karmazin and
traditional media had sold for more than a century based on the
estimated number of people reading a newspaper or watching a
program (called CPMs, or cost per thousand viewers), Google’s
system (CPC, or cost per click) ensured that advertisers were
charged only when the user clicked on an ad.
It was Google’s
ambition, Schmidt and Page and Brin liked to say, to provide an
answer to the adman’s legendary line “I know half of my advertising
works, I just don’t know which half.” To help them sort through the
digital clicks, Google and other new media companies relied on what
are called cookies, software files that reside on a user’s browser
and keep track of their activities online: search questions asked,
Web pages visited, time spent on each Web page, advertisements
clicked on, items purchased. Because of these cookies, Google’s
searches improve with use, as they become more familiar with the
kind of information the user seeks. Although the cookie doesn’t
identify the user by name or address, it does assemble data
advertisers crave and couldn’t get from traditional media companies
like Karmazin’s.
And unlike
traditional analog media companies, which can’t measure the
effectiveness of their advertising, Google offered each advertiser
a free tool: Google Analytics, which allowed the advertiser to
track day by day, hour by hour, the number of clicks and sales, the
traffic produced by the keywords chosen, the conversion rate from
click to sale—in sum, the overall effectiveness of an
ad.
Thus, the several
hundred million daily searches Google performed in 2003 (today the
number is 3 billion) provided a tantalizing trove of data. Google
helped advertisers target consumers not just by age, sex, income,
profession, or zip code, but by personal preferences for leisure
time activities, frequently visited locations, product preferences,
news preferences, etcetera. Google took much of the guessing out of
advertising. “Our business is highly measurable,” Schmidt said. “We
know that if you spend X dollars on ads, you’ll get Y dollars in
revenues per industry, per customer.”
Karmazin was aghast.
Most of the American media—television, radio, newspapers,
magazines—depended for their existence on a long-entrenched
advertising model. In the old method, at which Karmazin excelled,
the ad sales force depended on emotion and mystery, not metrics.
“You buy a commercial in the Super Bowl, you’re going to pay two
and one-half million dollars for the spot,” Karmazin said. “I have
no idea if it’s going to work. You pay your money, you take your
chances.” To turn this lucrative system over to a mechanized
auction posed a serious threat. “I want a sales person in the
process, taking that buyer out for drinks, getting an order they
shouldn’t have gotten.” What would happen if advertisers expected
measured results from the $3 million spent for each thirty-second
ad for NBC’s 2009 Super Bowl, or for the approximately $60 billion
spent on television advertising in the United States each year? Or
the estimated $172 billion spent in the United States on
advertising, and the additional $227 billion spent on marketing,
including public relations, direct mail, telemarketing, and sales
promotions? “That’s the worst kind of business model in the world,”
he said—the worst, that is, if you’re an old-school ad man. “You
don’t want to have people know what works. When you know what works
or not, you tend to charge less money than when you have this aura
and you’re selling this mystique.” For sixty years, network
television sold much of its advertising in an “up-front” each
spring and summer after the new fall shows were announced. Even as
audiences were declining, executives created a cattle-stampede
mentality by convincing advertisers they’d get shut out of the hit
shows if they didn’t buy early. Karmazin and the networks continued
to charge ever-steeper rates because, he said, “advertisers don’t
know what works and what doesn’t. That’s a great
model.”
The Google executives
were equally appalled. They thought Karmazin’s method manipulated
emotions and cheated advertisers; just as egregiously, it wasn’t
measurable and was therefore inefficient. They were convinced they
could engineer a better system.
By then, Karmazin
knew there was little he and Google could do for each other. “I was
selling twenty-five billion dollars of advertising,” he said. “Did
I want someone to know what worked and what didn’t?” Like the aging
Falstaff, he had “heard the chimes at midnight.” Karmazin trained
his eyes on his Google hosts, his hands folded on the table, his
cuff links gleaming, and protested, only half in jest, “You’re
fucking with the magic!”
DAYS LATER, that line
was still echoing in the halls of the Googleplex. Every Friday
afternoon, Google employees assemble for what they call TGIF. They
nibble on snacks and drink beer or soft drinks and sit in a
semicircle as Schmidt and the company founders make surprisingly
candid disclosures—about the latest financial results, visitors
who’ve come that week, deals pending—and answer employee questions.
Marissa Mayer, who joined the company in 1999 as an engineer and is
today vice president, search products & user experience,
remembered the meeting vividly. Schmidt, flanked by Page and Brin,
said, “Mel Karmazin, the head of Viacom, came and found us
interesting. They really don’t know what to think of us. We really
don’t know what to think of them.”
“The choice quote
that characterizes the whole meeting,” Brin chimed in, “was when
the head of Viacom said, ‘You’re fucking with the magic!’” For
Googlers, as they often refer to themselves, Karmazin’s deference
to tradition was anathema; they questioned everything. Mayer said the Google founders always
asked, “Why does this have to be the way it is? Why can’t you ‘fuck
with the magic?’”
Since Google’s birth
in 1998, as Schmidt acknowledges, Google has set out systematically
to attack the magic. “If Google makes the market more efficient,
that’s a good thing,” he said. Unlike Karmazin, Google engineers
don’t make gut decisions. They have no way to quantify
relationships or judgment. They value efficiency more than
experience. They require facts, beta testing, mathematical logic.
Google fervently believes it is shaping a new and better media
world by making the process of buying advertising more rational and
transparent. In its view, the company serves consumers by offering
advertising as information. It invites advertisers to bid for the
best price, and invites media companies to slim their sales forces
and automate part of their advertising and to reach into what
author Chris Anderson dubbed “the long tail,” in this case to those
potential clients who rarely advertised but would if it was
targeted and cheap to do so. Google also invites users to freely
search newspapers, books, and magazines in what it sees as both
free promotion and an opportunity for publications to sell
advertising off this traffic. It invites television networks and
movie studios to use YouTube, which Google acquired in 2006, as
both a promotional trampoline and as a new online distribution
system for their products. It invites advertisers to use
DoubleClick, the digital advertising service company they acquired
in 2007, for their online ads.
Still, Page told me,
he does not see Google as a content company. Google’s computers can
“aggregate content; we can process it, rank it, we can do lots of
things that are valuable. We can build systems that let lots of
people create content themselves. That’s really where our leverage
is.” That leverage, inevitably, makes it easier for audiences to
migrate away from old media. This will cause some distress, but
satisfying everyone, including traditional media companies, is not
Google’s goal, he said; serving users is. “You don’t want to do the
wrong things in a way that is causing real damage to the world or
to people. But you also need to make progress, and that’s not
always going to make everybody happy.” Armed with this conviction,
Page and Google’s engineers have made many media companies very
unhappy indeed.
It wouldn’t happen
all at once. In the early days of the new century, few old media
companies had yet lapsed into panic mode. Newspapers saw their
circulation and ad revenues slipping. From a peak daily newspaper
circulation of sixty-three million in 1984, circulation slid an
average of 1 percent each year until 2004, when the drop became
more precipitous. Publishers did speak of moving aggressively to
create digital newsrooms, and in the nineties the Tribune Company
and Knight Ridder, among others, made digital investments. But the
chains that owned most newspapers were predominantly interested in
getting bigger in order to gain more leverage. There was little
urgency to move to the Web; online newspapers were usually
stepchildren of print editions, not allowed to break stories or
employ their own separate staff, not allowed to look or feel much
different from a print newspaper.
Network television
viewing had similarly been eroding. On a typical night in 1976, 92
percent of all viewers were watching CBS, NBC, or ABC; today, those
networks (along with Fox) attract about 46 percent of viewers. The
networks responded to the decline by cutting costs, buying local TV
stations and cable properties, producing and syndicating more of
their own shows, and—like the movie studios—putting their faith in
hits like NBC’s Seinfeld, to save
them.
The media buzzwords
were convergence and synergy. The common credo was that the advantage
accrued to vertically integrated corporate giants—to Viacom, AOL
Time Warner, News Corporation, Disney, Gannett, Tribune—those able
to control every step in the process from an idea to its
manufacture to its distribution. The synergies would come not from
partnering with other companies but from owning content and the
means to distribute it. With that in mind, media companies pushed
to blur the borders between traditional industries: broadcast
networks acquired cable networks; telephone companies acquired
cable distribution companies; cable system owners invested in
content companies and telephone services; Hollywood studios bought
broadcast networks along with music and game and book companies;
newspapers bought local cable and radio.
Advertising agencies
were also convinced size equaled leverage, so they acquired one
another, consolidated their media-buying services, and purchased
public relations and direct mail and marketing firms, aware that
marketing and public relations spending was double the money spent
on traditional advertising. Four giant worldwide firms now insisted
on being called marketing companies.
Meanwhile, music
companies, rather than marketing singles as they once did,
continued to push the sale of entire albums; as Napster and its
clones delighted young fans by offering free digital downloads of
their music, they refused to make a deal, choosing instead to
prosecute not just Napster but its users—the music companies’ own
customers.
For their part, movie
executives continued to spend profligately and were distracted by
piracy in China. Like music executives, they often blamed their
flattening sales on the failure to come up with a hit like
Titanic or on outside mischief. They
believed content was King. Cable and telephone companies swallowed
their smaller peers and vied to expand their broadband wires,
convinced that he who controlled distribution was King. Book
publishers merged while sales sputtered and bookstores closed,
dwarfed by chains like Barnes & Noble. Publishers resisted
electronic books, as a decade earlier they had resisted
CD-ROMs.
Old media companies
were trapped in the “the innovator’s dilemma,” what Clayton M.
Christensen described in his book of that name, as well-managed
companies that, confronted by new technologies or new business
models, floundered by fiercely defending their existing business
models and not changing fast enough. Christensen described how
Xerox became defensive about its large, high-volume copying centers
and missed the market for desktop photocopy machines, and how IBM
was late to move from its lucrative large mainframe computer
business and delayed entering the minicomputer business, and how
Sears, Roebuck and Co. pioneered chain stores and catalogue sales
but was eclipsed by discount retailing.
Old media faced
excruciating choices. “Your choices suck,” Karmazin said. “Either
you keep your head in the sand and say, ‘No, no, I’m only going to
make my content available on my network.’ Or you listen to your
employees, who say ‘Why don’t we go on the Internet?’ And then you
go on the Internet and see yourself more fragmented and you see
yourself not able to charge as much for your advertising because
your audience is down.” The money generated by the Internet, and
its promotional value, does not compensate for this loss. “There
are no easy answers.”
Defensiveness mixed
with fear fueled resistance to change. In a 1994 speech to the
National Press Club in Washington, Viacom chairman Sumner Redstone
proclaimed, “I will believe in the 500-channel world only when I
see it....” The Web, he said, was just another “distribution
technology,” more “a road to fantasyland” than a game changer. He
envisioned that traditional media—movies, television, books, all
content—would remain “King,” concluding: “To me it seems apparent
that the Information Superhighway, at least to the extent that it
is defined in extravagant and esoteric applications, is a long way
coming if it comes at all.”
In 1995, Craig
Newmark launched craigslist.org, a Web site where people could post
apartments for rent, job openings, services for hire, products for
sale, dating invitations. In retrospect, it seems clear that this
posed a threat to newspaper classified sections, which produced
about a third of their ad revenue. But newspapers usually saw
craigslist as a quaint Web bulletin board. Vinod Khosla, a founder
of Sun Microsystems and later a thriving Silicon Valley venture
capitalist, once told Vanity Fair of a
meeting he convened in 1996 with nine of the ten major American
newspaper companies, including the New York Times, Washington Post,
and Gannett. To save their classified business from the Internet,
Khosla urged them to join New Century Network to sell advertising
on the Web. His advice was rejected. “They couldn’t convince
themselves that a Google, a Yahoo, or an eBay ... could ever
replace classified advertising.” Newspaper classified advertising
plummeted from nearly eighteen billion dollars in 2005 to about
nine billion dollars in 2008.
Like Google’s
founders, Newmark was an engineer who devised a really cool free
service. Drowning newspapers was not Newmark’s intent; creating a
more efficient system for consumers was, as it was Google’s.
Newmark likens the digital revolution to “a tsunami, which when
you’re in the ocean is only a foot high but when it hits shore it’s
bigger.” Vastly bigger.
TRADITIONAL MEDIA
COMPANIES did not see themselves as potentially superfluous
middlemen. They fervently believed relationships mattered—with
advertisers, with Hollywood talent, with writers. They believed in
professional storytellers, not amateurs producing “user-generated”
content. They tended to believe most digital devices were too
complicated, too unfriendly to consumers. They clung to a
conviction that people prefered to lean back rather than lean
forward to be entertained, to relax on a couch rather than sit
upright at a desk. They believed few of their customers would read
a newspaper, magazine, or book online or on a handheld device. It
was too hard on the eyes, screens were too small, desktop computers
were not portable. They believed consumers would gravitate toward
their bundled services, pleased to receive a single bill for a
variety of offerings. They knew Google had bested many of the
search firm pioneers—Excite, Alta Vista, Inktomi, Infoseek, GoTo,
Lycos. But to most old media executives, Google was an exotic
search service with puny text ads and a cute corporate
motto.
They were wrong about
how a new generation interacted with their electronic devices. And
they were wrong about Google. Technology moved fast, and was no
friend to entrenched media companies. Only a dozen years before
Karmazin’s 2003 visit, there was no World Wide Web, no DVDs, no
satellite TV, no mobile phones or PDAs, no Tivos or DVRs, no
digital cameras, no iPods, no PlayStation or Wii games, no blogs.
By May 2009, Nielsen reported that 230 million Americans had
Internet access, 93 percent had high-speed access (broadband) and
digital cable service, and 228 million used a mobile phone.
Advertising dollars for newspapers, broadcast television, and radio
were receding. In 2008, more Americans got their national and
international news from the Internet than from any other medium
save television, according to a national survey by the Pew Research
Center. More choices meant a shrinking mass audience. The number
one network television program in the 1988—1989 season was
The Cosby Show, which was watched by 41
percent of all households owning television sets; twenty years
later, the top show was American Idol,
and it reached just one-fifth of those watching
television.
Information and
entertainment were rapidly democratizing, as technology empowered
consumers not just to unearth any fact from a Google search but to
copy and share it, to access a variety of opinions, to watch
television on their own schedule, to program their own music,
publish their own blogs, shop online, carry portable devices
untethered to a wire, bypass the post office or the Yellow Pages,
communicate instantly with an associate or a loved one. By April
2009, an estimated 1.6 billion people worldwide connected to the
Internet, less than one-quarter of whom were located in North
America.
While digital
companies burgeoned, between 2000 and 2007 traditional media
companies lost 167,600 jobs, or one out of every 6. Newspapers,
which traditionally claimed nearly a quarter of the just under two
hundred billion dollars spent on advertising in the United States,
by 2007 were watching their share of ads plunge below 20 percent,
and this number was projected to soon fall to 15 percent or lower.
These shifts do not lead to the conclusion embraced by many in
Silicon Valley that the digital age is the most liberating and
meaningful period of technological change the world has yet
experienced. Even if one were to discount fire, the wheel, Guten
berg’s printing press, or the combustion engine, what about Mr.
Edison? Without electricity, there would be no Internet, no
computers, no wireless devices, no subways, not to mention no
lightbulbs, no air-conditioning, no telephone, radio, or
television. But what does set this era
apart from others is velocity. It took telephones seventy-one years
to penetrate 50 percent of American homes, electricity fifty-two
years, and TV three decades. The Internet reached more than 50
percent of Americans in a mere decade; DVD penetration was faster,
taking just seven years. Facebook built up a community of two
hundred million users in just five years. Because the digital realm
is made up of bits, it does not run out of supplies or have space
constraints.
Events were moving so
rapidly that even the smartest people were guessing, and often
guessing wrong. In the nineties, Rupert Murdoch, among others, was
convinced his News Corporation could grow by acquiring more local
TV stations; Bill Gates of Microsoft asserted that the Internet
would kill television networks, which it didn’t; Time Warner
mistakenly bet that television, not the Internet, would be the
preferred interactive medium; telephone companies rushed to acquire
cable companies, only later to sell them; investors clamored to bet
on companies that later faded, such as Excite, Netscape, Wang
Laboratories, Commodore, Lycos. Israeli entrepreneur Yossi Vardi,
whose company was behind the invention of instant messaging,
compiled a chart of thirty-four technology stocks that were ranked
as premier growth stocks in 1980. By 1999, only one, Intel, was a
consistent growth company, while twenty-three had drowned and the
others were treading water.
Meanwhile, as
traditional media was slicing employees, Google in early 2008 was
receiving 1 million job applications per year, adding 150 employees
per week, and employing nearly 20,000. After the company went
public in 2004, its ledger sheet astonished the media. Its
revenues, which were $3.2 billion in 2004, zoomed to $16.6 billion
in 2007; in that same span, its net profits climbed from $399
million to $4.2 billion. Defying a worldwide recession, its 2008
profits were $4.2 billion and its revenues rose to $21.8 billion
(97 percent of it from advertising).
Google had become a
juggernaut; it now produced two-thirds of all Internet searches in
the United States and nearly 70 percent worldwide. Its index
contained one trillion Web pages in 2008, and according to Brin,
every four hours Google indexed the equivalent of the entire
Library of Congress. In early 2009, users were clicking on and off
billions of pages per day and receiving tens of billions of daily
advertising impressions. Google’s wingspan was also getting wider.
In 2006, it acquired YouTube, the largest user-generated video Web
site, with an estimated twenty-five million unique daily visitors
in November of that year. In 2007, it acquired DoubleClick, the
foremost digital marketing company; that year, DoubleClick posted
seventeen billion display ads daily. Google now hogged 40 percent
of both the twenty-three billion dollars spent to advertise online
in the United States, and the fifty-four billion dollars worldwide
online advertising. Google’s ad revenues in 2008 matched the
combined advertising revenues of the five broadcast networks (CBS,
NBC, ABC, Fox, and the CW). By 2011, Web advertising in the United
States was expected to climb to sixty billion dollars, or 13
percent of all ad dollars. This meant more dollars siphoned from
traditional media, with the largest slice probably going to Google.
And Google had started initiatives to sell advertising for
television, radio, and newspapers, which could boost its market
share. Google also introduced other services: Gmail, Google News,
Google Earth, Google Maps, Google Video, Picasa for sharing digital
photographs, Google Books to search every book ever published,
Orkut, a social network site, or additional “cloud computing”
applications such as Desktop or Docs.
By 2008, Mel Karmazin
was no longer alone in questioning Google’s intentions. Nor were
those intentions obscure. In the disclosure documents it filed with
the SEC in 2008, Google declared, “We began as a technology
company, and have evolved into a software, technology, internet,
advertising and media company all rolled into one.” When Google
adds mobile phones and a full menu of software applications to its
cloud computing, and if it figures out a way to monetize YouTube,
Eric Schmidt told me, he thinks it is conceivable that Google can
become the first media company to generate one hundred billion
dollars in revenues. It irritated media executives to hear Schmidt
say, “We are in the advertising business,” yet hear Google
employees constantly say they were on a quest to bring information
to the masses, as if they toiled for a nonprofit that awarded no
bonuses.
Marc Andreessen,
thirty-eight, who transformed the Internet into a mass medium by
helping invent what became the Netscape browser when he was a
student and who is today a successful Internet entrepreneur seeking
to build his third billion-dollar-plus company, is suspicious of
Google’s intentions: “Their game plan is to do everything. Google
is Andy Kaufman. The whole thing with Andy Kaufman is you could
never tell when he was joking. Google comes out with a straight
face and said, ‘We’re just going to be a search engine. We’re not
going to be doing any of this other stuff”—competing with
advertising agencies, with telephone companies by getting into the
cell phone business, with Hollywood, with publishers, with
newspapers. “But I am quite sure they’re joking.”
THERE IS A DISCONNECT
between the way Google is often perceived and the way it perceives
itself. “I sometimes feel like I live on another planet and speak a
different language from traditional media companies,” Eric Schmidt
said. And in a sense, Google does live on a separate planet. When
it moved to its first Mountain View campus in August 1999, the move
reflected the determination of its two young founders to keep
employees focused inward. The current Googleplex in Mountain View
is a collection of two-and three-story buildings with outdoor
tables and park benches shaded by trees, a vegetable garden, and
walkways pulsing with people and bicycles. Employees enjoy free
meals and luxurious snacks (at a cost to Google of about seventy
million dollars per year), and are offered bicycles to travel
between buildings containing massage rooms and gyms staffed with
trainers. Employees eat at large cafeteria tables, take breaks in
lounges with pool tables and espresso machines. No need to leave
campus for a car wash or oil change; they’re available on
Thursdays. Also available are barbers, dry cleaners, day care, dog
care, dentists, and five physicians to dispense free physicals and
medical care. Comfortable, Wi-Fi-equipped, biodiesel commuter buses
transport employees to and from campus from as far away as San
Francisco, and they run from early morning to late at night. No
need to buy laptop computers; employees choose their own for free.
Maternity leave consists of five months off at full salary, and new
dads can take seven weeks off at full pay.
Most employees are
alloted a day a week, or 20 percent of their time, to work on
projects they feel passionate about. This has produced more than a
few of Google’s technological breakthroughs. Just as important, it
conveys a sense of freedom. “It’s a way of assuring people that
they are scientists and artists,” said Indian-born engineer Krishna
Bharat, who used his 20 percent time to invent Google News. It’s
also a way to encourage engineers to push the envelope, to assume
that their mission is to disrupt traditional ways of doing
things.
There is at Google a
utopian spirit not unlike that found at Burning Man, the annual
anarchic-animistic retreat in Nevada’s Black Rock Desert that
culminates in the burning in effigy of a giant wood and desert
brush “man.” It does not go unnoticed by their friends that Brin
and Page have been regular attendees at this weeklong retreat in
August, whose Woodstock-like spirit is captured in Burning Man’s
ten stated principles, which include a devotion “to acts of gift
giving”; creating “social environments that are unmediated by
commercial sponsorships, transactions, or advertising”; and “a
radically participatory ethic” that can lead to “transformative
change.” “Google is a cross between a start-up and graduate
school,” said Peter Norvig, Google’s director of research, who
joined the company in 2001 and wears bright Hawaiian shirts and
sneakers with laces left untied. “Formal rules don’t matter.
There’s still a loose feel. The disadvantage of being a start-up is
the fear that you will run out of money. There is stress. Google is
more like graduate school in that you don’t have that stress. You
expect one day that the guys in suits will take over. That hasn’t
happened.” The engineers remain in charge. Google aims to be
nonhierarchical. Stacy Savides Sullivan, who joined the company in
December 1999 and said she was its fiftieth employee, is Google’s
chief cultural officer. She described the culture as “flat,” and
said her mission is to ensure that it stays that way. The reason
the founders “smashed together” employees—making them share offices
and work in teams on projects—is to “create a company everyone
wants to work at,” to impose a team culture. She described her task
this way: “My role is to help facilitate and orchestrate the
culture.” It is no accident, many Googlers believe, that in 2007
and 2008 Fortune magazine christened
Google the best U.S. company to work for.
Google is both
egalitarian and elitist. Salaries are modest, and there are no
executive dining rooms. The two founders and CEO Schmidt (all now
billionaires) have insisted on being paid $1 a year and have
declined stock option grants since 2004; they were each paid
bonuses of $1,700 in 2007 and declined bonuses altogether in 2008.
The top salary of $450,000 was paid equally to the other members of
the executive committee, who in most cases received bonues equal to
150 percent of their salary. Most employees are invited to share
the riches. Google projected that stock option grants to employees
in 2008 would total $1.1 billion. These grants confer millionaire
status on many Googlers. Google’s approach to users is also
egalitarian, from its reliance on “the wisdom of crowds” approach
to search results to its demonstrated faith in “open source”
systems.
It is a close-knit
culture. Google is not egalitarian about sharing information with
outsiders. Ask just about any Googler basic questions—How many
searches does Google perform each day? How many of its employees
are non-Americans? What is the starting salary of engineers?—and
you’ll receive a robotic, “We don’t disclose those numbers for
competitive reasons.” Google has deliberately set out to build a
team culture composed of elite performers, and an inevitable
consequence is that it can be an opaque and insular
culture.
Google’s hiring
practices are certainly elitist. On the first day of work at
Google, new employees attend an all-day orientation session at
which they are told how few of the more than one million yearly
applicants were hired at Google. They are reassured that more
applicants are accepted by Harvard (about 7 percent) than are hired
by Google (about 1 percent). The screening process relies on
measurable things, like grades and SAT scores.
The applicants most
scrutinized are the engineers and technical employees, who make up
half of Google’s work force. “It’s an engineering-driven and
-focused culture,” said a former Google executive who did not wish
to be identified. “The founders don’t value marketing”—or most
nonengi neering disciplines. Larry Page is aggressively disdainful
of marketing and public relations. In early 2008, Page instructed
Google’s public relations department, which consisted of 130
people, that he would only give them a total of eight hours of his
time that year for press conferences, speeches, or
interviews.
The thirst to
quantify everything drove several visual designers to quit Google
in early 2009. Douglas Bowman, who was hired as Google’s first
visual designer in May 2006, wrote a blog explaining why he left.
“When a company is filled with engineers, it turns to engineering
to solve problems,” he wrote. Google wanted to test market every
color, every design. Unlike Apple, Google was more concerned with
functionality than taste, elegance. Management, said Bowman, pushed
to “reduce each decision to a simple logic problem. Remove all
subjectivity and just look at the data.... And that data eventually
becomes a crutch for every decision, paralyzing the company and
preventing it from making any daring design
decisions.”
Google honors its
engineers as creators, treating them the way the legendary
management consultant Peter Drucker suggested a half century ago
that companies should treat “knowledge workers,” said Hal R.
Varian, Google’s chief economist. But an engineering-dominated
culture has drawbacks. “In some ways, they have not done enough to
communicate what they are doing internally or externally,” said
Paul Buchheit, Google’s twenty-third employee, the one who coined
their “Don’t be evil” motto and who left with three other Googlers
to launch a social network, FriendFeed, in 2006. “Part of the
culture is not to communicate. That’s what we did when we started
Gmail. We put it out without an announcement.” In beta testing new
products, Google does get feedback from users. But something else
is at work here as well. Engineers are rarely accomplished communi
cators. Google is a culture dominated by a belief in science, in
data, and facts, not instinct or perception or opinion. This
reflects not just a disdain for public relations, but also a whiff
of arrogance.
Whether the employee
is an engineer, a manager, or a marketer, a belief in the company’s
virtue is central to the Google culture. From day one, Google
forfeited advertising revenues by refusing to run ads on its home
page and by refusing to allow advertisers—as competitors like GoTo
did—to pay to get their products ranked higher in search results.
Google could run more ads than it does, but instead discards ads
that don’t attract clicks or are not deemed “relevant” to users as
information. At the core of the Google value system, said engineer
Matt Cutts, is the belief that the user experience matters most,
and if the user experience is simple, and fast, and uncluttered
with ads, and if Google makes no attempt to steer users to its own
sites, a bond of trust will form. “We maintain a church/state wall”
between the information a Google search provides and advertising,
said Larry Page, who likened what Google does to how newspapers
strive to keep the influence of advertisers away from the reporting
of news because “there is an inherent conflict between the
two.”
Google won friends
among users by being free; it won friends among advertisers by
charging only if users clicked on the text ad; it won friends among
news readers with Google News, which is both free and until early
2009 was ad-free; it won friends among Web sites and small
businesses by generating advertising dollars and new customers.
From its second auction program, AdSense, Google said it pockets 20
percent of the revenues, giving the rest to these Web sites, or
what Google calls its business partners. (Actually, said several of
those partners, Google also charges 10 percent of “overhead” costs,
so partners net about two-thirds.) Google, in 2008, provided a
total of over five billion dollars to its hundreds of thousands of
“partners.” Little wonder, then, that Google was often seen as a
savior by those dependent on the Web. Jason Calacanis, who
cofounded Weblogs, Inc., a company that publishes blogs, said
AdSense generated in 2008 a total of four thousand dollars a day in
advertising income for his bloggers.
Google does its part
to address global warming. It places on its roofs the largest
installation of solar photovoltaic panels of any corporate campus
in the United States, generating sufficient electricity to power
one thousand homes. It has solar-powered stations in its outdoor
parking lots to charge its fleet of hybrid cars, and offers
subsidies (five thousand dollars at first and now three thousand)
to any employee who purchases a hybrid that gets at least
forty-five miles per gallon (one thousand employees have received
this subsidy). The company earmarks 1 percent of its profits to its
philanthropic arm, the Google Foundation. CEO Schmidt sometimes
lapses into speaking of Google as a “moral force,” as if its
purpose were to save the world, not make money.
Al Gore, who has
served as a consultant and adviser to Google since soon after he
left the White House in 2001, likes to talk of Google’s “great
values.” He told me he believes these values are spreading to other
companies. Those who attribute Google’s success to its algorithms
or “the law of increasing returns,” he said, fail to fully
appreciate “the extent to which Google’s superior talent
recruitment stems from its unusual empowerment of employees and the
attention they pay to the quality of the employee experience at
Google.” The best engineering schools produce a few near geniuses
each year, and the reason he said Google is “getting more than
their fair share of the most talented” is that they target them.
“I’ve called college seniors for them,” he said, adding, “It’s not
only in the recruiting and retention of the higher-quality
employees. It also has to do with their alignment with community
values, with trying to make the world a better place. People unlock
a higher fraction of their creative potential when they feel that
what they’re doing is about more than making a buck, or more than
enhancing the business scorecard and building the value of the
company. When they think that what they’re doing is something that
makes the world a better place, I don’t think that’s just
touchy-feely stuff.”
THE REST OF THE
world, particularly the media part of it, doesn’t always have a
“touchy-feely” view of the company. Google has been sued by Viacom
for allegedly allowing YouTube to pirate its television programs,
by publishers and the Authors Guild for digitizing their books
without permission, and came close to being sued by the Associated
Press for linking to its stories without paying compensation.
Newspapers and magazines are alarmed that Google News and Google
search link to their content and don’t pay for it. Hollywood frets
that YouTube enlarges its own audience and diminishes theirs.
Advertising companies are alarmed that Google and DoubleClick
retain so much information that their advertising clients might
turn to Google to purchase their online advertising, and maybe
design their ads. Telephone companies are alarmed that Google is
pushing into their mobile phone business. All feared Google would
devise a navigation system for their media akin to what search was
for the Web, and thus would be poised to become the traffic cop for
all media.
Schmidt said he,
Brin, and Page often ask themselves: “How can you grow big without
doing evil?” He believes Google has become a lightning rod,
particularly for old media. “In our society bigness is often
associated with bad,” he said. “There is no question that a company
with the ambitions of Google will generate controversy, will have
people upset with us. The question is: Where does it come from? Is
it coming from a competitor? Is it coming from a business whose
business model is being endangered by the Internet? Or is it
because we’re behaving badly?”
Schmidt believes the
hostility comes from threatened competitors who scapegoat Google.
“When you have a technology that is as engrossing as the Internet,
you’re going to have winners and losers,” he said. “I’m not trying
to sound arrogant. I’m trying to sound rational about it. The
Internet allows people to consume media in a different way. They’re
going to do it.” Schmidt acknowledged that, in his own naivete,
Google has probably fanned paranoia. “Google is run by three
computer scientists,” he said. “We’re going to make all the
mistakes computer scientists running a company would make. But one
of the mistakes we’re not going to make is the mistake that
nonscientists make. We’re going to make mistakes based on facts and
data and analysis.”
Schmidt’s summation
understates the mistakes Google will make, and has made, because
its computer scientists live on their own planet and often harbor
disdain for the way others think. Terry Winograd, who was Larry
Page’s graduate school mentor at Stanford, and who still serves as
an engineering consultant to Google, recounted a discussion at a
TGIF he attended where an employee raised the question of one day
splitting Google’s stock and asserted that a stock purchased at,
say, four hundred dollars a share that was now selling at forty
dollars per share because it had been split, would be perceived as
not a good thing for employees because the perception would be that
their stock was worth less. Page erupted, “It’s stupid. If you own
ten shares at forty dollars and one share at four hundred dollars,
it’s the same thing! You just need to know how to
divide.”
This is “logically
true,” said Winograd. “But there is an emotional issue here. He
felt that those who disagreed were not thinking logically, were
being stupid.”
Logic, however, is
not always universal. The planet is occupied by humans, who often
make decisions under the guise of a logic that others deem stupid.
Great leaders have the empathy to factor this wisdom into their
deliberations. They know Robert Louis Stevenson understood a
broader truth when he wrote: “No man lives in the external truth
among salts and acids, but in the warm, phantomagoric chamber of
his brain, with all the painted windows and storied wall.” That
Larry Page and Sergey Brin—and many Google employees—are brilliant
is a conclusion cemented by the tale of Google’s rise. Whether they
are also wise is not as clear-cut.