“We don’t have a million dollars!” said Schmidt.
“Sure we do,” said Brin.
“I didn’t give a precise answer”-a couple of hundred thousand dollars, said Schmidt, chuckling. (Susan Wojcicki remembers that he alloted them a marketing budget of two hundred thousand dollars.)
Weeks later, Schmidt asked Brin, “Sergey, how much money did you spend?”
“A million and a half dollars,” said Brin.
“Sergey, you said one million!”
“No, you didn’t give me a precise figure!” said Brin.
“What does that tell you about them?” Schmidt said of the founders. “He had the idea. He assembled the activity. He figured out who his opposition was-which was me, in a friendly way. He told me about it because he wanted my support. And he evaded my guidance. And as a result, built a multimillion-dollar business.” (By 2004, AdSense would produce about half Google’s revenues.) Schmidt paused to chuckle again, then said, “You see why I work with these people!”
The chuckle is appropriate, for Google would not have succeeded without a measure of luck. As Larry Page confessed to a Stanford class, discovering the advertising formula that would work “probably was an accident more than a plan.” A reminder that timing, serendipity, luck-not just a smart strategy or brilliant execution-sometimes determines success. With programs like AdSense, Google did not aim to build a huge Web-based political constituency, but it did. As its advertising dollars rained on Web sites, Google was hailed as a benefactor. Not only was Google not evil, it was beneficent. Google would call these content Web sites partners, and give them about two-thirds of the ad dollars, with Google pocketing the rest. Many small businesses would be discovered and thrive. It was largely overlooked at the time that automated AdSense cut out the advertising middleman. Or as Wojcicki told me, “It changed the way content providers think about their business. They know they can generate revenues without having their own sales team.” In the online world, Google was potentially dis-intermediating not just the media buying agency but the sales forces of content companies.
AdWords and AdSense would solve the mystery of how Google could monetize its search engine. For the first time, in 2001, Google turned a profit: $7 million on revenues of $86 million. The next year, revenues more than quadrupled to $439 million, and profits jumped to $100 million. Google’s search index included three billion Web documents. Not surprising, among the top ten searches on Google in 2001 were these: World Trade Center, Osama Bin Laden, anthrax, and Taliban.
In 2002, Urs Hölzle, who is now Google’s senior vice president of operations, was undecided whether to return to his tenured faculty position at the University of California at Santa Barbara. AdWords made that decision simple. Google had finally found a way to make money. “Now we could fund all these things we couldn’t fund before,” he said, “2002 was when we said, ‘We can afford to spend more on machines!’” This was also the year Google discovered, as Eric Schmidt would tell me several years later, “We are in the advertising business.” Ignited, the Google rocket took off.
CHAPTER FIVE. Innocence or Arrogance?
(2002-2003)
Eric Schmidt now fully shared Page and Brin’s faith in Google’s ascendancy. What set Google apart, he came to believe, is that while people like him always assumed “Google would be an important company, the founders always assumed that Google would be a defining company.” The scope of Google’s ambition was presaged by something Page said when he and Schmidt spoke before a Stanford class in 2002. “If we solve search, that means you can answer any question,” Page said. “Which means you can do basically anything.”
Their audacity was displayed in May 2002 when Google made its most ambitious-and riskiest-deal yet. With its new AdWords in place, Google was eager to start syndicating ads, and even though it was doing about 150 million searches a day, it wanted to do more. AOL would be their vehicle. Because AOL later went into a tailspin, it’s often forgotten how dominant the company was. Webheads would sneer that using AOL was “the Internet on training wheels.” Yet it was AOL’s user-friendliness that helped popularize the Web-and which attracted thirty-four million paid subscribers in 2002. For Google, AOL was a ripe target, a giant portal with an enormous audience. But search rival Overture was doing AOL’s searches and advertising, and besides, as AOL’s then executive vice president, Lynda Clarizio, said, “No one knew who Google was.” Overture’s contract ended in May 2002, and the founders were determined to snare it.
“I want us to bid to win!” Page declared at an executive staff meeting, according to Susan Wojcicki.
“You’re betting the company if you do that,” Kordestani warned.
“We should be able to monetize the pages,” Page responded. “If not, we deserve to go out of business.”
With $10 million in the bank, Google promised AOL 85 cents of each advertising dollar collected, and guaranteed a minimum annual payment of $150 million in revenues. “We could have gone bankrupt,” Brin said.
“Overture offered more money,” said former AOL president Robert Pittman. But Google offered a better search engine, a more inventive approach to reaching smaller advertisers, and higher minimum guaranteed payments.
Google won the bid, to the surprise of many industry watchers. It was a milestone, “probably the biggest” deal Google has ever done, Brin said. “Every time you did a search on AOL, it said ‘Powered by Google,’” recalled Nick Grouf, CEO of Spot Runner, an Internet based advertising agency. “By cutting a deal with Google, what AOL did was surrender the front door to its walled garden” of consumer data. The deal “affected how we thought about doing partnerships and deals,” said Tim Armstrong. And the partnership would become a huge moneymaker for both Google and AOL.
The deal enlarged Google’s appetite. Schmidt remembers the day in 2002 he walked into Page’s office and Page surprised him by showing off a book scanner he had built. It had been inspired by the great library of Alexandria, erected around 300 B.C. to house all the world’s scrolls. Page had used the equivalent of his own 20 percent time to construct a machine that cut off the bindings of books and digitized the pages. “What are you going to do with that, Larry?” Schmidt asked.
“We’re going to scan all the books in the world,” Page said. For search to be truly comprehensive, he explained, it must include every book ever published. He wanted Google to “understand everything in the world and give it back to you.” Sort of “a super librarian,” he said. “Where are all the books?” Page asked.
“The Library of Congress,” Schmidt said.
“Good, we’ll do a deal with the Library of Congress!” Page said.
“You’re Larry,” Schmidt said. “Nobody gives a shit about you.”
“Well, how can we get to the Library of Congress?” Page asked.
They arrived at the answer simultaneously.
“We call up Al Gore,” Schmidt said. “He’s friends with the guy who’s in charge of the Library of Congress.” At the same time, Page proposed to his alma mater, the University of Michigan, that Google would pay to digitize the seven million books in its library. After Page had the university’s consent, he flew to Washington to make a deal with the Library of Congress. Google would soon sign up Stanford, Oxford, and the New York Public Library, among others. They established an internal team under the joint direction of Dan Clancy, who had a Ph.D. in artificial intelligence and had worked at NASA, and Adam Smith, a former investment banker who had served as vice president of new media at Random House. Clancy offered another reason to support the effort: to promote reading among young people who did their reading online. “I sampled college students and asked, ‘How many of you went to a library in the last year?”’ Only half raised their hand. “There’s so much information on the Web that students accept secondary sources.” He hoped to combat this. Adam Smith saw their effort “as a book-promoting vehicle,” bringing the work of authors to a wider audience. About 90 percent of the more than twenty million books ever published were out of print, and Sandler and Smith had a goal of digitizing ten thousand books each day.