In Searching the Web, Google Finds Riches

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In Searching the Web, Google Finds Riches

April 13, 2003
By JOHN MARKOFF and G. PASCAL ZACHARY




 

MOUNTAIN VIEW, Calif.

IN the last few years, Google has risen as a force on the
Internet by offering its smarter, faster searches as a free
public service. Now the band of technoinsurgents who run
the company are striking a blow against the business
strategies of giant Web portals like America Online, Yahoo
and Microsoft's MSN by rewriting the rules of Internet
advertising. 

Emerging as a powerful new marketing medium, Google has
found a route to profitability that stands apart in a
Silicon Valley that is still crippled by the dot-com crash.


Its rivals are responding by trying to out-Google Google
for leadership in a technology - searching for information
- that they once dismissed as an easily bought commodity.
But Yahoo, Microsoft and others are discovering that it
will not be easy to unseat Google, which has mastered an
enormous private computer network that stores a snapshot of
much of the Web and allows searchers to find digital
needles in haystacks of data.

Google, a private company, does not disclose revenue or
profit. But it says it has been profitable for nine
consecutive quarters. Moreover, its executives have
privately told the board that revenue will soar from less
than $300 million in 2002 to $750 million or more this
year, with gross profit margins of 30 percent, according to
a Google executive and several people who have knowledge of
the company's financial situation.

That cash is flowing from the likes of Ge'Lena Vavra, an
importer of Italian suits in Las Vegas who is among more
than 100,000 advertisers to flock to Google in the last
year. Last May, she decided to pay from 21 cents to $1.50
each time her ad for discount Italian suits was clicked
after a search for words like "Armani" or "Hugo Boss."

One form of Google advertising allows companies to buy two
lines of text that appear above the results of each search.
A newer ad program, the one used by Ms. Vavra, displays
boxed text ads on the right side of a search result.
Depending on popularity, advertisers pay anywhere from
pennies to dollars when a searcher clicks on the ad.

Both advertising programs rely on Google's software to make
the ads relevant to Web surfers' search requests. They are
limited to text; graphics are not allowed, a limitation
that Google says is crucial to its popularity with users,
who are irritated by pop-up and video ads.

Before Ms. Vavra advertised with Google, she was selling
about 10 suits a month over eBay. Then she bought 50 Google
keyword ads using her Visa card. The next morning, she
said, sales took off. The business has continued to grow;
she now sells almost 120 suits a month. She expects to
spend $60,000 this year on Google search ads.

"Our business exploded from Google, and Google alone," she
said. 

Google has created a buzz in Silicon Valley that has not
been heard since Netscape Communications, the original
leader among Web browsers, took the stock market by storm
in 1995 with its initial public offering. Despite hopes
among investment bankers, Google says it has no plans to
sell stock to the public this year. Still, its emergence as
a star (giving rise to the pop culture term "googling")
validates the notion that, even during a grim technology
downturn, Silicon Valley retains some of its unique allure.


In an effort to capitalize on that allure, Yahoo - which
has long relied on Google's search technology - last Monday
introduced a search tool that closely imitates Google's
idea. In the future, Yahoo intends to draw heavily on
technology obtained in a recent acquisition of a unit of
Inktomi, once a leading Google rival.

Yahoo denies that its new initiative is a declaration of
war on Google. Eric E. Schmidt, 47, Google's chief
executive, also says the two companies are still allies.
But relations are strained.

Google's newfound power as arbiter of much of the world's
digital information, meanwhile, is posing concerns about
privacy and fairness, not only from competitors but also
from social policy experts and even librarians. Some worry
that the company may have become too central in an age when
so much vital information is available online.

Google says that it goes to great lengths to maintain the
privacy of its users and that it refuses to allow
advertisers to influence the results of its regular
searches. 

"They're the traffic cop at the main intersection of the
information society," said Jonathan Zittrain, co-director
of the Berkman Center for Internet and Society at Harvard
Law School. "They have an awesome responsibility."

Google's rise initially flowed from a single software
innovation: a formula to retrieve pages ordered by their
relevance to a Web surfer's request.

The basic idea, known as "link analysis," was not new. But
in 1996, Sergey Brin and Larry Page, then graduate students
in computer science at Stanford, began applying it to the
global links that connect Web pages. Their idea was to
exploit existing human intelligence by tracking the
popularity of billions of different Web pages. Two years
later, the two men would found Google.

Applied to the explosively growing thicket of electronic
pointers that make up the World Wide Web, the approach -
simultaneously being explored at an I.B.M. research
laboratory in San Jose, Calif. - created a technical
breakthrough. 

Google now employs 800 people, yet it handles 200 million
searches of the Web each day, a staggering one-third of the
estimated daily total. To keep up with that torrent, Google
has essentially built a home-brew supercomputer that is
distributed across eight data centers.

Unlike most supercomputers, which are used by the
government for tasks like predicting complex weather
patterns or simulating nuclear explosions, Google's system
is designed to answer hundreds of thousands of queries
simultaneously from all over the globe, each in less than
half a second. 

The company stopped giving updates on the size of its
computing resources in 2001. But several people with
knowledge of the system said it consists of more than
54,000 servers designed by Google engineers from basic
components. It contains about 100,000 processors and
261,000 disks, these people said, making it what many
consider the largest computing system in the world.

The computers run a jealously guarded set of software
programs that try to return the most relevant Web pages in
response to surfers' questions, while separately displaying
advertisements that are closely matched to the requests.

? 
THE immense size of the system helps explain why taking
on Google will not be easy. "Managing search at our scale
is a very serious barrier to entry," Mr. Schmidt said.

Google's ascendancy is a back-to-the-future throwback to an
earlier Silicon Valley, when companies built businesses on
solid technological advances before going public.

Intel in the 1970's, Apple Computer and Sun Microsystems in
the 1980's and Oracle and Cisco Systems in the 1990's
illustrated the Valley formula of seizing lucrative markets
with a compelling technological package and posting profits
consistently. 

That formula was abandoned in the mid-1990's with the
launching of thousands of dot-coms that went public before
they were profitable - and then mostly crashed and burned.
But Google, in the tradition of other great companies that
started here, has scientists with advanced technical
degrees and idiosyncratic ideas about how to run a
business. 

Mr. Schmidt, a former executive at Sun Microsystems, is a
low-key computer scientist who must discipline Google's
flamboyant, self-indulgent culture, without wringing out
the genius. 

When Edward Zander, Sun's former president, first visited
Mr. Schmidt at Google not long ago, he was stunned. "I
found dogs running through the halls, a piano in the lobby
and all these food goodies around," he said. "I'm thinking
to myself, `It's like chaos here.' "

Indeed, it seems that there is nothing normal about
Google's corporate routine.

Not long after arriving at the company in 2001, Mr. Schmidt
found that he was contending with a squatter in his office.


One of Google's top engineers, Amit J. Patel, who was
sharing space with five others in Google's chronically
crowded quarters, decided that he could find relative
solitude in Mr. Schmidt's tiny, 8-by-12-foot office. The
chief executive would travel and attend meetings often, Mr.
Patel reasoned, offering privacy during the intervals.

When Mr. Patel sought permission, Mr. Schmidt turned the
decision over to his vice president for engineering, hoping
that the request would be denied.

It wasn't. 

"We were trying to drive home the point that we needed more
office space," said Wayne Rosing, the vice president, a
veteran of Apple and Sun.

Mr. Schmidt got the point. In an example of Google's
eccentric culture, he let Mr. Patel share his office for
several months. He now says that there was an upside to the
odd arrangement: Mr. Patel is a master data miner, and Mr.
Schmidt soon had instant access to better revenue figures
than did his financial planners. (Ultimately, the company
expanded to a fourth building.)

Mr. Brin and Mr. Page, the co-founders, spent nearly a year
searching for a chief executive before settling on Mr.
Schmidt almost two years ago. In the words of Mr. Brin, who
is now 29, "He was the only candidate who had been to
Burning Man," a counterculture techno-arts festival held
annually in the Nevada desert.
? 
WHILE Mr. Schmidt's no-nonsense business approach to
business is welcome, the founders remain highly influential
- so much so that Mr. Schmidt recently had to scramble to
convince them that there was no immediate reason for Google
to enter the space-tethering business, a popular techie
idea for low-cost space launchings.

Recently, Mr. Page, a 30-year-old software designer, sought
to declare the company's newest office building off-limits
to telephones, under the belief that it would improve
programmer productivity. He almost succeeded. He relented
just a week before the building was to open, when someone
pointed out that the law required a phone in the elevator.
The building now has a phone system.

With its recent explosion as a business, Google has ignited
a scramble for position in what was once a niche
overshadowed by ad-heavy portals, Web sites that offer full
menus of online services and digital content.

The shift to the supremacy of search engines indicates how
swiftly business realities can change in Internet commerce.
Giant portals have long tried to fence in Web surfers and
keep them pacified. Google is exploding that strategy by
taking advantage of the basic strength of the Internet: the
ability to go instantly from one place to any other at no
cost beyond the basic connection.

Yahoo, the Web's most popular portal, priced a $750 million
bond issue this month. The move led some analysts to say
the company was considering either buying or making an
equity investment in Google's chief rival for search
advertising, Overture Services of Pasadena, Calif., which
pioneered the ad idea. Either move would further strain
relations with Google.

Microsoft has also taken notice of Google and is improving
the Web search engine that powers its MSN site. The
company, which uses Overture to handle its keyword ads,
acknowledges that the surge in search-related advertising -
from an estimated $400 million in 2000 to $1 billion in
2002 and even higher this year - demands a response.

"We see Google as a competitor with their search services,"
said Lisa Gurry, a product manager at MSN. "Our search is
strong and will continue to improve our time."

While Yahoo and Microsoft may slow Google's growth, there
is a widespread belief among industry analysts that the
company's tools appeal to the democratic spirit by
lessening the control of advertisers who try to thrust ads
indiscriminately in the face of Web users.

"We are learning that old-fashioned interruption marketing
just isn't working," said Hans Peter Brondmo, a
technologist who is an executive at Digital Impact, a
direct-marketing firm in Silicon Valley. Examples of
interruption marketing are banners, pop-up advertising and
ads that take over the screen for several seconds, along
with unwanted e-mail, or spam.

Google's approach to Internet advertising also means that
it appears positioned to avoid a repeat of the Netscape
story. After becoming the most successful initial public
offering ever in 1995, Netscape was overwhelmed in a
head-to-head competition with Microsoft. Its market
strength shattered, Netscape ultimately became a unit of
AOL. 

Less clear is whether Microsoft will try to add commercial
searches directly to its Windows operating system - a
strategy that would echo its attack on Netscape during the
browser wars of the 1990's.

"Netscape antagonized Microsoft," Mr. Brin said. "We are
not putting ourselves in the bull's-eye as Netscape did."

Perhaps. But Google's problem is much more general,
according to Marc Andreessen, a co-founder of Netscape, who
is now chairman of Opsware Inc., a Sunnyvale, Calif., maker
of software for corporate data centers.

"When you create a new market, huge new revenues stream
in," he said. "The dynamics of the market change. A year
later, everyone in the world is shooting at your head with
high-powered ammunition."

Still, Google hopes that by helping Web rivals gain more
advertising revenue and by bringing them new users through
its search references, it can avoid costly attacks on its
booming business. 

"In every case where we've done a deal with a portal," Mr.
Schmidt said, "their traffic has gone up."

? 
AS Google rises, some of its new challenges are in the form
of imitation. Yahoo and Ask Jeeves, a search engine, have
tried to match the spartan simplicity of Google's home
page. Other companies are trying to offer Web surfers new
ways to look at information. Vivisimo, for example, breaks
down searches into clusters of categories. Tiny start-ups
like Groxis and Kartoo organize information visually.

Google executives believe that the company can hold off
these threats if it stays focused on Web searches while
investing heavily in new hardware and software.

But because search quality is so difficult to measure, the
company acknowledges that it is constantly at risk from a
new competitor or a new feature from an existing rival.

Google is quietly betting on techniques from the world of
artificial intelligence. The company is trying to improve
its search quality beyond its original ranking formula by
developing software that can infer what a questioner wants
by mining a database of millions of queries.

Still, in the fickle world of Web surfing, there is no
guarantee that Google has any permanent claim to its
throne. 

"Even though Google is shining, it's still hard to say it
is a sure bet 10 years out," said Mr. Zander, the former
president of Sun. "Google has done a heck of a job
dominating a category. Now it has to watch the hype
factor."? 


http://www.nytimes.com/2003/04/13/technology/13GOOG.html?ex=1051256130&ei=1&;
en=bf156e5168d1f53a



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