Tech Brew Ride Home - (IHP) The History Of Google Parts 1 And 2

Episode Date: May 28, 2023

When Larry and Sergey first met, they didn’t like each other much... (Originally aired April 2017 in two parts) BIBLIOGRAPHY: In The Plex: How Google Thinks, Works, and Shapes Our Lives The Google Story How Google Works The Search: How Google and Its Rivals Rewrote the Rules of Business and Transformed Our Culture Googled: The End of the World As We Know It The Google Guys: Inside the Brilliant Minds of Google Founders Larry Page and Sergey Brin I’m Feeling Lucky: The Confessions of Google Employee Number 59 http://www.newyorker.com/magazine/2000/05/29/search-and-deploy http://archive.fortune.com/magazines/fortune/fortune_archive/1999/11/08/268521/index.htm Learn more about your ad choices. Visit megaphone.fm/adchoices

On April 4th, 2023, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. Welcome to the Internet History Podcast. As always, I'm your host, Brian McCullough. This is a special episode of the podcast because September 4th is the 20th anniversary of Google's incorporation as a company.

I've actually heard from people that work at Google many times that there's no firm or hard agreement on when Google's birthday actually is inside the company because, you know, the original backrub and page rank algorithms were developed in 96-97. the domain google.com was actually registered on september 15th, 1997, but I'm going to take and run with the company's official incorporation on September 4th, 1998, as Google's official birthday. In honor of that, I went back and recut the two chapter episodes I did on Google to mush them all together into one big Dan Carlin style mega episode. And of course, everything you'll hear in this episode is a preview of the Google sections of my fourth. coming book, although the book will have them in a drastically different format, as when I recorded these episodes, this was very much the first draft, of course. By the way, if you haven't pre-ordered the book, please do so wherever fine books are sold. It's called How the Internet Happened by Brian McCullough. There is an audiobook version. You can pre-order as well. I know that it has a page on Audible,

but I don't know about other venues anyway. Happy birthday, Google. Please enjoy this history of Google through its IPO. Welcome to the Internet History Podcast. I'm your host, Brian McCullough. When Larry Page and Sergey Brin first met, they didn't like each other very much. In the summer of 1995, Larry Page was considering a transfer

to Stanford University's graduate program in computer science. Sergei Bryn was already two years into that same program. It just so happened that he had signed up to be a tour guide of sorts to potential students. So one summer day, Bryn showed Paige and a group of other potential Stanford students around the Bay Area. Page would later say of his guide, I thought he was pretty obnoxious. He had really strong opinions about a lot of things, and I guess I did too.

Bren would later agree, saying, we both found each other obnoxious. And yet, it wasn't hatred that the two shared, as much as it was the coming together of two strong, fiercely proud intellects. The pair might have stepped on each other's toes a bit, but at the same time there was a degree of frisson to the encounter. Brin would recall later, we spent a lot of time talking to each other, so there was something there. We kind of had a bantering thing going. On the surface, it might not have seemed like Page and Brin would have anything in common.

Page was a Midwesterner, born in East Lansing, Michigan on March 26, 1973, while Brin was born in Moscow, in the Iron Curtain era USSR on August 21, 1973, only emigrating to the United States when he was six years old. Page was reserved, quiet, contemplative. Bryn was outgoing, gregarious, loud. Page was a deep thinker, a visionary, and Bryn was a problem solver, an engineer's engineer. But the two had more in common than anyone knew that first day. For one thing, they both came from academic families. Hage's father was a pioneering computer science professor at Michigan State University,

where his mother was also a computer programming instructor. Bryn's father was a mathematics professor at the University of Maryland, and his mother, a researcher at NASA's Goddard Space Flight Center. Larry and Sergei both grew up to respect research, academic study, mathematics, and especially computers. And it turned out that they both had inquisitive minds that believed in the power of knowledge to overcome any obstacle, intellectual or practical. Each had been inculcated into this spirit of intellectual fearlessness at a young age. Early Google employee Marissa Mayer has famously insisted, quote, You can't understand Google unless you know that both Larry and Sergei were a Montessori kid.

In a Montessori school, you go paint because you have something to express, or you just want to do that that afternoon, not because the teacher said so. This is baked into how Larry and Sergey approach problems. They're always asking, why should it be like that? It's the way their brains were programmed early on, end quote. For both Larry and Sergey,

their intellectual fearlessness overlapped in such a way that their conflicting personalities actually ended up complementing each other. When Page officially joined Stanford for the 95-96 academic year, he and Bryn ended up becoming close. Friends took to calling the duo Larry and Sergey, all one word, suggesting that they were somewhat inseparable. The pair would end up debating endlessly on topics ranging from philosophy to computing to movies to equally matched polymaths, thrilling to the intellectual joust.

Bryn's particular hobby or project was creating a software program that could provide movie recommendations based on the tastes and viewing habits of other people who had seen similar films. Sounds not unlike what Netflix later. perfected. And Page's particular obsession was dreaming of a system of networked, autonomous cars that would ferry people around. So it's probably no coincidence that Google nowadays is working on driverless cars. Even though they were the same age, Bryn was academically two years ahead of

page because he had completed his undergraduate computer science degree at age 19 and had gone on to ace all of Stanford's required doctoral program exams on the very first try. But despite this head start, and despite being the recipient of a National Science Foundation Fellowship, which would allow him to basically do anything he wanted, Bryn had stalled out in his quest to nail down a dissertation topic. Of course, the newly arrived page would also need to decide on his dissertation at some point, so it ended up that fate pushed the pair even closer together. In January of 1996, Larry and Sergei ended up working in the same office, room 360 in the just-completed William Gates computer science building on Stanford's campus. That building was a

of course, named for the founder of Microsoft, who had donated $6 million to the building's construction. All of his career, Bill Gates repeatedly predicted that one day, some student somewhere would found a company that would challenge Microsoft for dominance of the tech industry. His prediction turned out to be true, and that company would come from two students working in a building with his name on it. The World Wide Web had, of course, been a watershed for computer scientists, but also for data scientists, information scientists, mathematicians, the list is endless. For any number of fields, the web was an incredible boon, just from a research perspective.

For a wide range of disciplines, the web now presented billions upon billions of data points for their research, all available and accessible for free, a corpus of information that was seemingly infinite. Larry Page would turn to the web to find a dissertation, not because he wanted to build a search engine, but because, for a mathematically inclined computer science graduate student, the web was where it was at in 1996. Page was struck by a fundamental truth about the web that is glaringly obvious when you just say it out loud. The web is built on links. One page linking to another, one idea linking to another. But what occurred to Larry Page was that, as of yet, no one had bothered to analyze the structure of the link ecosystem in a,

comprehensive way. For example, it was possible to know that Web Page A linked to Web Page B, because you could see the link, you could follow it. But what about the reverse? What pages had linked to Web Page A? There was no way to know. You couldn't follow a link stream backwards, only forwards. And that might seem trivial to consider, but Page began to wonder, if you analyzed all of the backlinks, if you mapped out the link structure of the entire web,

what sort of insight might that sort of data give you? Page's intuition was that this might be more than just an interesting theoretical question. As he mauled over the idea with Bryn, their shared upbringing as the children of academics kicked in. Larry and Sergei knew the power of the academic citation. After all, their parents had published academic papers. They themselves intended to publish academic papers in order to earn their PhDs. And they knew that any academic paper worth its salt built its arguments by citing other academic

papers and studies. In the world of academia, those citations acted like an accumulated number of votes from paper to paper and served to over the years accrue value to given ideas, to essentially rank ideas based on the number of citations. The most cited papers were understood to be the most authoritative. As Pagewood, later say, quote, it turns out people who win the Nobel Prize have citations from 10,000 different papers, end quote. Well, what was a web link, but a digital citation? If you analyze the links, analyze the citations, you might be able to make inferences about the relative value of a given web page, and possibly even determine which page was more authoritative by analyzing the

backlinks in the same way that counting the citations told you which academic paper was the definitive one. Larry Page wanted to map out the value of the web's connections by going backward through the link chain. Page went to his academic advisor, Terry Weinograd, and asked for the money and machines that would allow him to map the web's links. He dubbed the initial project Backrub. When asked how much of the web he intended to map, Page replied, the whole web. Page would later say, in a sense, the web is this.

Anyone can annotate anything very easily just by linking to it. It seemed kind of cool to gather all the web. the links on the web and then reverse them. So in March of 1996, Larry Page launched backrub by sending his search bots, known as spiders, out into the web to find all the links. He started with a single page, the Stanford Computer Science Department homepage, and then fanned out following link after link, cataloging them all, and then ranking web pages based on these link citations. And it was that ranking, that mathematical complexity, the complicated problem of determining which page was more valuable based on a combination of accumulated links,

as well as the authority passed through from pages that linked to other pages, that drew Sergei Bryn to join the project. Larry and Sergey called their combined citation ranking system page rank, either as an ode to page himself or as an obvious descriptor of what the system was intended to do. Brin would later say, quote, the idea behind page rank was that you can estimate the importance of a web page by the web pages that link to it. We actually developed a lot of math to solve that problem. Important pages tended to link to important pages. We convert the entire web into a big equation with several hundred million variables, which are the page ranks of all the web pages, and billions of terms, which are all the links, end quote.

Page would say, it's all recursive. In a way, how good you are is determined by who links to you, and who you link to determines how good you are. It's all a big circle, end quote. Larry and Sergei suddenly had a project that would make for a pretty interesting dissertation, and as soon as the pair looked at their results, they realized their intuition was dead on. The citation analogy worked beautifully. If you wanted to know what was the most authoritative page about a topic such as, say, windsurfing, backrub slash page rank could tell you. you would know based on the accumulated links, of course, the sheer number of votes from other sites,

but also from the authority passed on from other authoritative sites. Thanks to Bryn's math, largely linear algebra and something about the eigenvector of a weighted link matrix, for those of you that know what that means, citations from obviously important websites were more valuable. than others. A link from some random person's personal web page might be valuable, but a link from a professional windsurfer would be judged to be even more valuable. And a link from, say, Yahoo's homepage would be even more valuable still. It was at this point that the really interesting application for this little math project became obvious. Page would say later, quote,

it was pretty clear to me and the rest of the group that if you have a way of ranking these things based not just on the page itself, but based on what the world thought of that page, that would be a really valuable thing for search, end quote. It turned out that the reason search engines had never really worked very well prior to page rank was not because they were broken, but because they were missing the key innovation that page and Brin had stumbled upon. Relevancy. If in 1997 you did a search for automobile company on even the best search engine at the time,

which was most likely Alta Vista, you'd find yourself probably disappointed because the websites of Ford, General Motors, or Toyota may or may not actually show up on that first page. It's not that Alta Vista couldn't find those sites, it most certainly had. Ford.com or GM.com or Toyota.com were most likely in the list of tens of thousands of results that Alta Vista had found. It was just that Alta Vista had no way of surfacing the most relevant results to the top. So maybe the Ford webpage was on page three of the search results or page 300. PageRank solved this problem of relevancy, and that was the key. PageRank knew which sites were the most authoritative automobile sites already,

and so when you combined its algorithmic prowess with the traditional tricks of information retrieval that all the search engines were already using, suddenly it all just worked. Indeed, as PageRank, Brin combined backrub and page rank with traditional search methods like analyzing on-page text, web page titles, or meta-tags, and especially parsing the so-called anchor text of a link. For example, someone who makes a link out of the words, Flower Shop, and then points it to a

given website is really trying to tell you something. When they did that, they realized that page rank was incredibly powerful. A search for New York. New York newspaper, say, could now return you the New York Times or the New York Post as the very first listings, not just any random newspaper website or the website for a New York-based cycling club or something. And in fact, Page and Bryn discovered that their algorithm was indeed recursive, meaning that the more data they fed it, the more web pages it analyzed, the better it got. By tweaking the math even more, Larry and Sergey's search tool could reliably find people, locate the most obscure fact or data, and even answer questions.

PageRank wasn't finding new things exactly, it was merely finding things in a better way. The earlier search engines were already getting the same results. They were already answering every query correctly, but it was finding the needle in the haystack and putting it at the top of the list, that PageRank did better. As Rajiv Matwani, who was Brin's academic counselor, said, quote, it wasn't that Page and Brin sat down and said, let's build the next great search engine. They were trying to solve interesting problems and stumbled upon some neat ideas, end quote.

It was a good thing that Page and Brin had not set out to build the next great search engine, because at the time, no one was really clamoring for one. In the late 90s, about the time that Page and Bryn began refashioning backrub slash page rank into a search engine, they were living in a universe of major search players. Yahoo, Excite, Lycos, Alta Vista, Asgives, MSN, and on and on. In a time when Yahoo had a $100 billion market cap, who needed another entrant into an already crowded space, no matter how superior that entrant might be. Fortunately, Hage and Bren were not immediately business-focused.

They were still teaching computer science classes and the hours that they weren't working on their project. They were academics, far more interested in defending a dissertation and publishing a paper on their research then starting a company around their idea. And so they produced that paper, called The Anatomy of a Large Scale Hypertextual Web Search Engine, which was presented at a conference in Australia in May of 1998. And even when they published the paper, it wasn't immediately obvious that PageRank itself was a world changer,

as often happens in the history of inventions and inventors, other search researchers had had similar eureka moments at around the same time. A computer scientist at Cornell named John Kleinberg hit upon a similar authority-focused eigenvector-based algorithm in late 1996 while working as an IBM Research Fellow. Also, in 1996, an engineer named Robin Lee developed an algorithm named Rank Decks while working for Dal Jones. Lee would eventually return to his native China and use what he learned to eventually create Baidu, which is to this day the most popular search engine in that country. But if Page and Brin initially stayed true to their chosen academic paths, that did not mean that they were blind to the financial possibilities inherent in their work.

How could they have been? They were, after all, students at Stanford University, which had already incubated two quite successful search companies in Yahoo and Excite. And this was the late 90s. The dot-com bubble was in full swing. Students studying computer science in the heart of Silicon Valley couldn't help but notice what was going on all around them. As Tamara Munzer, one of the students sharing room 360 of the Gates building with Page and Bren would recall, it was a hard time to stay in grad school. Every time you went to a party, you had multiple job offers, and they were all real.

I had to re-decide every term not to leave, end quote. The obvious move was to license page rank to one of the existing players. And indeed, this is what Page and Bryn attempted to do. They met with everyone from the Yahoo founders, Jerry Yang and David Philo, to another search pioneer, info seeks Steve Kirsch. And none of them were interested. The closest Larry and Sergey came to making a deal was when Page wrote up an extensive proposal to Excites leadership, suggesting that they replace Excites existing algorithms with his.

Doing so, he calculated, would generate an additional $47 million in revenue for the search engine each year. With my help, Paige wrote in his proposal, this technology will give Excite a substantial advantage, and will propel it to a market leadership position. All he asked for in exchange was a seemingly reasonable $1.6 million in cash and excite stock, a nice little payday, and then he and Bryn would return to finishing their doctorate work. Excite countered with $750,000, which Page and Brin rejected. The failure on the part of the incumbent search players to scoop up the page-rank technology has become infamous in business lore as one of the great missed opportunities of all time.

Larry Page has, on a few occasions, suggested that the search companies were simply myopic. Pages said, quote, they were becoming portals. We probably would have licensed it if someone gave us the money, but they were not interested in search. They did have horoscopes, though. End quote. As we know, because you've listened to episode 41, Excite CEO George Bell has a slightly different recollection,

but one that is more than a little illuminating from episode 41. Here's Bell saying, quote, the thing that Larry insisted on that we all do recall is that Larry said, if we come to work for Excite, you need to rip out all the Excite technology and replace it with our search. And ultimately, that's, in my recollection, where the deal fell apart, end quote. This was Page and Brin's intellectual fearlessness demonstrating itself for the first time in a competitive setting. The pair believed knew that they had a superior way of doing things. and so they thought nothing of going to an established search company and telling them that their existing products sucked.

This brashness had the effect of basically insulting Excite. I mean, Excite was a company founded by brilliant Stanford computer scientists. As Bell points out, quote, we had hundreds of engineers at that point, end quote. Why should the company furlough their engineers just because to other engineers had come along with claims to be more brilliant. Bell claims that there was no way he could justify upsetting this existing talent, especially when some of them were founders of the company. Ultimately, I couldn't stomach the cultural risk that Larry insisted on, Belle has told us. But if Page and Bryn were confident, almost to the point of being arrogant, they certainly

had plenty of reason to back up their brashness. In order to fine-tune their algorithm, the pair had needed plenty of real-world feedback, real-world data. So, starting in 1997, they had made the search engine available first on the Stanford network to other Stanford students and researchers, and then to the general public. Through nothing but word of mouth, the service grew increasingly popular, serving more than 10,000 queries per day by late 1998. Page and Brin monitored the server logs and made tweaks to their algorithm based on the data that this provided. They eventually named their search service Google, a play on the word Google, which is a one, followed by 100 zeros. The idea was to suggest that there

search engine would be capturing the whole web, basically everything in existence. The name reflected the scale of what we were doing, Bryn said later. Google was not available, so Google became the URL of the public service. And the popularity of that service, combined with the vast computing resources eaten up by all the spidering and indexing and cataloging and ranking of webpages it required, meant that the Google project was rapidly outgrowing the scope of a simple research project. Even when it was housed on a single machine in a Stanford dorm room, Google was hogging large amounts of the university's bandwidth.

Stanford was, as ever, incredibly accommodating to an idea that was born within its walls, but the institution's generosity had a practical and obvious ceiling. Larry Page would later say, quote, we're lucky there were a lot of forward-looking people at Stanford. They didn't hassle us too much about the resources we were using, end quote. But it was clear that if they wanted the Google experiment to continue, Paige and Bren would need more resources, more computers, more bandwidth, more people to actually work on the algorithm. And this all meant more money than a research budget, even a generous one, could provide. So, the pair turned to another Stanford faculty advisor named David Charraton.

Charitin introduced the pair to Andy Bechtelheim, a successful entrepreneur who had founded Sun Microsystems, while also a Ph.D. student at Stanford. And one morning in late 1998, Hage and Bryn met with Bechtel Shime at Charraton's home. Page would recount the meeting later this way. David had a laptop on his porch in Palo Alto with an Ethernet connection. We did a demo, and Andy asked us a lot of questions. Then he said, well, I don't want to waste time. I'm sure it'll help you guys if I just write a check.

Pectal Shime made out a check for $100,000 in the name of Google Inc. but the check sat in Page's dorm room for a number of weeks before Google Inc. was actually incorporated on September 7, 1998. Page and Bren would raise an additional $1 million when David Cheriton kicked in some more money, as well as a few others, including former Netscape executive Ram Shryam and Jeff Bezos of Amazon. Depositing Bechtel Shime's check was an act that, that finally turned Google from a research project into an actual startup. When Page and Brin hired a fellow student by the name of Craig Silverstein to be Google's first official employee, they realized that Sergei's dorm room was not going to be large enough

for the three of them to work in. And so Google's first official office became the garage of Susan Wojcicki and Dennis Trooper at 232. Santa Margarita Avenue in Menlo Park. By renting out her garage for $1,700 a month, Wojcicki would grant Google the uniquely Silicon Valley bragging right of starting out its life in the same circumstances as companies ranging from Hewlett Packard to Apple. In the bargain, Wajiski would eventually end up as one of Google's earliest and longest serving employees, and her sister Anne would eventually become Sergei Brin's wife.

Page and Brin were now entrepreneurs, if perhaps still a little reluctantly, but they were not entrepreneurs in the mold of so many others in the dot-com era. Rather than blowing Google's funds on lavish launch parties or marketing campaigns, they stayed grad students at heart and instead invested all the money they had raised, on continuing their project. And they did so with the efficiency of graduate school engineers. Instead of building out their system by buying software from Microsoft, they use the free Linux operating system instead.

And also instead of splurging, say, $800,000 on setups from IBM or Oracle, they spent a mere $250,000 to cobble together a rack of 88 computers that they would use to meet their number crunching need. At Stanford, they had begged, borrowed, and almost quite literally stolen the computers they needed to keep Google running, but now they simply switched to buying computers off the shelf from Frize,

the famous Silicon Valley electronics store. And then they fashioned these computers into a strung-together system of their own design. Part of this was simple frugality, the habit that would serve them well when the dot-com bubble burst in a few short years. But a lot of it was Page and Brin's ingrained Montessori philosophy. They never met an engineering problem that they couldn't solve themselves.

Google didn't take pages from the established Silicon Valley Playbook because, in a way, they had never bought into it. They didn't try to get big fast. Instead, Page and Brin were almost maniacally focused on endlessly iterating and improving upon their one big idea, making sure that it was the most comprehensive, reliable, and most importantly, speedy search engine in the world. Nothing that Google did in its first years distracted the company from improving on that core product.

And more than cockiness, this confidence that they could do everything better proved in the coming years to be something of Google's secret sauce. not only did Google's search engine continue to be superior to any rival in existence, but it slowly but surely widen the gap between itself, its version of search, and the competition. By having the confidence to do everything their way, Page and Brin were able to chart their own destiny, and their frugality paid off in efficiency. Some observers would later estimate that, quote, for every dollar spent, Google had three times more computer power than its competitors, end quote. Grigality and efficiency were not just virtues. They were also philosophical and aesthetic differentiators.

Google's homepage was simply the Google logo, a text field to enter a search query, a search button to execute that query, and also a button that said, I'm feeling lucky, which automatically took you to the first result, return. If you went to the search results page, you only got a list of links, and that was it. No ads, no banners, no weather, no stock quotes, no horoscopes. All the rest of Google was just copious white space. In an age of portals where every other search site was a sea of distractions meant to keep you from, you know, actually getting to the page you were looking for and thereby leaving the portal,

Google very much stood out from the crowd with its single-minded purpose and simplicity. Of course, that simplicity was entirely intentional. By keeping the pages almost exclusively text, Hage and Bryn could ensure that their pages loaded quicker than the search pages of their competitors, and expensive processing power wasn't wasted loading graphics. This all paid dividends many times over in Google's steady growth. By 1999, usage of the search engine was increasing by as much as 50% a month from 100,000 searches a day at the beginning of that year.

By the end of 99, Google was averaging 7 million searches per day. Overall traffic to the Google homepage was peanuts compared to the numbers at a site like Yahoo. But in the case of Google, its users came from word of mouth alone. not a dime was spent on marketing or promotion. Rave reviews from the media turned people on to the service. The New Yorker said Google was the default search engine of the digital in-crowd. Time Magazine Digital said Google is to its competitors as a laser is to a blunt stick. And ordinary users simply told one another about how great and useful Google was.

More often than not, once they gave it a try, users would become Google converts for life. An early article about Google in Fortune Magazine from November of 1999 summed up many a new user's experience. Describing the site as inscrutable magic, journalist David Kirkpatrick offered this anecdote. Quote, on the day of a recent American League playoff game, I typed in New York Yankees' 1999 playoffs into both Google and Alta Vista. The first listing at Google took me directly to data about that night's game. The first two at Alta Vista linked to info about the 1998 World Series.

Only at the third Alta Vista link, via yet an additional link, did I get to that day's game? Kirkpatrick's conclusion, quote, Google really works, end quote. In that same article, Sergey Brin was quoted as boasting, we're building a way to search human knowledge. Again, there was that fearless faith in the power of ideas that Page and Brin had bonded over, but now it was shaping the scope of Google's ambition as a young company.

That brashness continued to manifest itself when Google needed to raise yet more money. If Google was meant to organize all information in the world, it would need resources on a global scale. Despite the glut of search companies already on the market, Google by this point had gotten the attention of venture capitalists, and they were now ready to invest in these two refugees from academia. But supremely confident as ever,

Page and Bryn gave off the impression that they didn't really need anyone's help or money. In meetings with potential backers, the pair refused to divulge even basic details about how their service was operating. Their stonewalling even led one prominent venture capitalist to storm out of their office in anger. Salar Kamangar was an early employee who bore witness to Google's general evasiveness during the fundraising process. Salah remembered, quote, Larry and Sergey didn't have the language to say things nicely. They'd be kind of blunt and say, we can't tell you, and the VCs would get very frustrated. The truth was, Paige and Bryn did not want to take money from just any old VC. They only wanted the best.

So they reached out to the two most prominent VC firms in the world, Kleiner Perkins and Sequoia Capital. The pair proposed that each firm, the blue chips of Silicon Valley Venture, take a co-equal stake in Google. Such a thing was not typically done, of course. There is usually only one lead investor in a round of startup financing, and quite frankly, both KP and Sequoia had enough clout on their own that they had never before deigned to share the spotlight on a round with another firm. Hage and Brin wanted the firms to split the round because that would allow them as the founders to maintain a majority share in the company and thereby retain control of their own destiny. They even had the temerity to issue an ultimatum. Either both firms would invest an equal $12.5 million in Google for a total of $25 million, take it or leave it, or Google would walk.

On June 7, 1999, the VCs took the deal, and Kleiner's John Doer and Sequoia's Mike Moritz joined Google's board of directors. The only concessions the moneymen had been able to ring out of Page & Brin was a promise to hire some experienced, quote, adult supervision to take over as CEO of the company at some point in the near future. This huge round of financing not only put Google firmly on the technology world's map, but it also went a long way towards ensuring the company's long-term survival. This war chest of money coming just before the dot-com bubble burst,

combined with Larry and Sergei's frugal ways, to mean that Google would survive the coming nuclear winter. Had Google waited a further year to raise money, it might not have been able to. And by virtue of being flush with cash when the rest of Silicon Valley was seemingly going belly up, Google was able to have its pick of talent when the dot-com layoffs began. Just as it had been frugal when others were profligate, Google also bucked prevailing dot-com habits when it came to hiring. The company put off drafting an army of sales and marketing people, as the other dot-coms tended to do, until much later. Instead, in 1999 and 2000, Google staffed up with what else? Brainiacs. Larry and Sergey hired software engineers, hardware engineers, network engineers, mathematicians, even neurosurgeons. Just as with every other facet of their company, Page and Bryn wanted only the very best.

They wanted PhDs and scientists. Google would become notorious for the rigorous way that it intervened. viewed and screened potential hires for its exacting selectiveness. For many years, every new employee was personally vetted by Bryn and Page themselves, who expected candidates to measure up to their own intellectual standard. We just hired people like us, Paige said, without a trace of false modesty. Google was able to attract talent because it was nothing short of beloved in Silicon Valley. here was an internet company that had solved a universally recognized problem through smart thinking alone.

This created a reputational halo that was only enhanced by Larry and Sergei's increasingly bold and public enunciation of Google's mission, which was eventually formalized as, quote, an attempt to organize the world's information and make it universally accessible and useful, end quote. While so many dot-com companies claimed to be changing the world by offering cheaper dog food online, here was a company that truly seemed revolutionary in the most expansive sense of that word. Ultimately, I view Google as a way to augment your brain with the knowledge of the world, Sergey Brin said. It helped that Google positioned itself as the anti-dot-com startup. Glitz, hype, and excess were out.

Grugality, hard work, and earnestness were in. And when Google came up with its famous corporate motto, Don't Be Evil, everyone in technology read between the lines and believed that Google was staking a claim to be the anti-Microsoft. Google did pick up a few habits from its dot-com brethren, but in typical Larry and Sergey fashion, it did so with a twist. By the time Google moved to its first truly professional digs,

an office park and Mountain View that would be dubbed the Googleplex, a system of perks for Google's workers were put into place, but they were instituted with an eye towards productivity. The food in the cafeteria would always be free, with an in-house gourmet chef, private bus lines picked up workers from around the valley to shuttle them to work, Massuses roamed the hallways, and there were free fitness classes and gyms, and on and on. But every one of these perks were self-consciously provided as a way to keep workers motivated and productive.

They weren't just freebies. The cafeteria meant that Google employees didn't have to leave the office in the middle of the day and could get back to work with ease. The shuttle buses had Wi-Fi on them, so employees could be productive on the way to and from the Googleplex. Healthy, clear-headed workers could do better coding, or that's how the thinking went. All of this combined to make Google the technology company to join right as the dot-com bubble burst. If you got hired at Google, it elicited envy from your peers, not only because they felt you were

doing the most interesting work in technology, but because it meant you were among the best and the brightest. Anyone could get hired at a dot-com towards the end of the decade, but not everyone, even the smartest of the smart, could make the cut at Google. And when the bubble burst, and it was seemingly the only company still hiring, it was almost like the dream of the 90s was alive in the Googleplex and nowhere else. And here's part two. In our previous episode on the history of Google, we remarked that Google very much fashioned itself as the anti.com. But there was one important trait that Google shared with the dot com. It wasn't making very much money. It's somewhat forgotten now, especially given what would come later, but Google actually existed

for several years without much of a business plan. The Vision, Larry, and Sergey had sold the venture capitalist on involved a three-pronged strategy. First, Google would license its search technology to the major portals. Second, the company would sell its search technology as a product to enterprises. And third, there were some vague promises made about selling ads against the searches on Google's own website. The young company actually made major progress towards the first goal, by finally convincing some of the portals to use Google's results on their search pages. The first deal in this regard was struck with Netscape for its NetSenter portal, but the really big coup came when Yahoo was finally convinced to use Google for its search results.

Previously, a company named Ink to Me had been Yahoo's search partner. The partnership with Yahoo was announced in June of 2000. and was an enormous deal for Google at the time. Part of the arrangement allowed for a powered by Google logo to appear on Yahoo's search pages, thereby introducing the Google brand to millions more mainstream web users. Daily searches served by Google swelled from 18 million a day before the Yahoo deal to 6 million a day afterwards. By early 2000, Google would pass.

the 100 million searches per day milestone for the first time, answering 1,000 queries a second. Yahoo seemed not to mind that Google was essentially usurping its search audience because, at the time, Yahoo didn't feel that search was a core product. It was still pursuing its portal strategy. Yahoo did, however, purchase a $10 million equity stake in its new partner, thereby tying Yahoo and Google together in ways that would later become quite important. What Yahoo didn't know was how important the partnership would prove to be for Google's overall product. Remember that Google's algorithms improved in direct relation to how many searches it performed and how much data Google's computers could hoover up.

The flood of queries coming from Yahoo users not only took Google to the next level in terms of search market share, but many Google engineers would later credit the Yahoo traffic for fine-tuning Google's search engine into its mature state. Google was essentially improving itself on the back of its biggest partner. But the problem for Google was that the Yahoo deal simply wasn't lucrative enough. The fees that Yahoo coughed up were barely enough to cover the increased processing and bandwidth costs Google incurred to service the traffic.

The Yahoo deal taught Google that licensing alone wouldn't be a big enough home run to build a company around, at least not a very big company. The second leg of Google's original strategy stool was at the same time proving to be a little better. Google actually produced a hardware device known as the Google Search Appliance, which was a rack-mounted box meant to be installed in corporate data centers. It was designed to provide corporations and other organizations with large amounts of data, the ability to organize, index, and search that data, the same way that Google did with the web.

But even though Google continued to produce the search appliance all the way through this year, 2017, it never proved to be a breakout hit. The truth was, by the end of 2000, Google was in a bit of a crisis. With a monthly burn rate of more than $500,000, the $25 million from Kleiner Perkins and Sequoia was starting to run low, especially as Google was launching international versions of its website and continued to hire, taking total headcount past 100. Google board member and investor Mike Moritz admitted later,

quote, there was a period where things were looking pretty bleak. We were burning cash, and the enterprise was rejecting us. The big licenses were very hard to negotiate, end quote. And since Google had yet to earn a dime on the average of 70 million daily searches it was getting on its own site, by January of 2001, Google's out-of-control growth was actually becoming a problem. While the service was becoming so popular that its very name was becoming a common verb, no suitable business line had gained enough traction to cover the costs of all that analyzing, sputtering, indexing, and ranking.

Early Google investor Ram Shiram says, quote, there was genuine concern at the board level about where the revenues were going to come from, end quote. To make matters worse, it appeared to Google's venture backers that the company's founders were reneging on their commitment to bring in a grown-up CEO. If Page and Bren didn't recruit someone who could turn Google into a real company with real prospects to generate cash, there were rumblings that either Kleiner or Sequoia or both might actually pull out of the investment. Of course, advertising, that third leg of Google's theoretical business model, was still an option, but in early 2001, the existing advertising model of throwing banner ads at the top of every web page had imploded. Web advertising in general was in a deep freeze, the overall online ad market plunging down to

$6 billion in 2002, down from $8.2 billion in 2000. All of the surviving portals were suffering because of the state of affairs. In the midst of the free fall in its stock price, Google's erstwhile partner, Yahoo, was forced to lower its revenue guidance to Wall Street by 25% twice in a single quarter, as the dot-coms went bankrupt and advertisers ponied up 50% less, online ads. So advertising didn't look particularly promising. But then Google had never really experimented with ads at that point because the company's founders were firmly against the idea. In their 1998 academic paper introducing backrub page rank, Page and Bryn had attacked the very

notion of search companies relying on advertising to generate revenue because it made them, inherently biased towards the advertisers and away from the needs of consumers, end quote. In other words, ads guaranteed bad search results. But at that very moment of crisis, a revolution in online advertising was taking place that would ultimately prove to be Google's salvation. In the late 1990s, there was a brief vogue for what were known as incubators, sort of startup factories that churned out business ideas and business plans in the hope of launching new companies on an industrial scale.

Often these incubators had no meaningful revenue themselves, instead relying on the value of the shares they held when their progeny went public. One such incubator was Idealab, founded by the serial tech entrepreneur Bill Gross. Idealab was responsible for many classic.com companies like Etoys.com, PetSmart.com, and NetZero. But by far the biggest success Idea Lab had was when it experimented in online search. Launched at the TED conference in February of 1998, GoTo.com was a company conceived of by Gross and IdeaLab, as a completely new type of search engine. Instead of search results generated by spitering the web

and returning pages based on an algorithm, GoTo2 returned results that were almost exclusively provided by sponsors. GoTo served up text ads, designed to look like search results, but which were paid for by advertisers who bid for position. So for any given keyword, could agree to pay whatever it costs to rank first for that search term. If you wanted to show up first on a search for, say, flowers, you could bid 10 cents a click. If somebody bid seven cents,

they could be listed second. Bitting a nickel might get you third place and so on and so on. If you wanted to go crazy and bid $100 a click, you could theoretically rank number one for every search term in existence. The idea of a search engine that only returned ads was extremely distasteful to most people. Indeed, Gross was nearly hissed off the TED stage during his presentation. But advertisers loved the idea and signed up in droves because they quickly intuited the first important thing that GoTo was pioneering. Search as an invaluable tool for driving commerce.

Bill Gross had stumbled upon one of the greatest advertising models in the history of the world because page search represents a uniquely powerful nexus point for advertisers to insert themselves into. No user uses a search engine lest she wants to actually find something. You don't perform a search like hotels in Marietta, Georgia, without having at least some passing interest in booking a hotel in that, city in the near future. Ad buyers didn't have to try to guess where potential customers for their products might be. The customers were coming to them. Brand advertisers didn't have to chase down consumers and try to make a meaningful impression on their mind and then hope that that

impression lasted when it finally came time for the consumer to spend. Advertising around search allowed marketers to reach consumers at the very point of intentionality, at the very moment they were either researching a purchase or actually looking to buy. It was almost like they could now advertise their products right when a consumer walked in the shop door. Note that an important component of this entire process was the ability to pay per click, as opposed to paying based on the number of people who theoretically viewed your ad, as every other online advertiser did in the dot-com era. This was the second key innovation.

With the go-to model, an advertiser only paid for performance. If no one clicked on your ad, you paid nothing. This was a radical but extremely enticing option, especially at a time when click-through rates on banner ads were actually plummeting. clicks were actions and actions were measurable. An advertiser would know that, as an example, 200 people clicked on their ad yesterday, and 17 of those clicks actually turned into sales.

The effectiveness of cost-per-click advertising could be calculated down to the nearest cent. In a previous chapter, we mentioned John Wanamaker's famous quote about wondering which portion of an ad spend was wasted. Well, with the GoTo model, nothing was wasted. You knew exactly what worked and what didn't, and could make adjustments accordingly in almost real time. Bill Gross had intended for GoTo to become a shopping destination, thus the active tense of the name. And yet even though advertisers eagerly signed up to huck their wares, the consumers didn't actually follow,

at least not in numbers that rivaled the portals. undeterred, Gross had the brilliant idea of chasing the traffic that he needed. GoToo approached nearly all the extant portals and search engines and offered them what was essentially free money. GoToo would syndicate its paid search results so that for almost any keyword on a site like AOL search, the first three or four results would actually be GoTo's text links, which, though they looked like the other search results, would actually be ads. When searchers clicked on these paid links, GoTo2 would share the ad revenue with the portal, thereby instantly monetizing the search traffic that up until that point had only been

indirectly monetized in the form of banner ads. GoTo succeeded in signing deals with all of the major portals, and at a stroke, turn search, which had been a loss leader for portals throughout the 90s, into a cash cow. By 2002, GoTo had changed its name to Overture, to better reflect its true business model of introducing customers to advertisers, and was earning more than $78 million a year

on $668 million in revenue, all from paid clicks syndicated to the likes of Yahoo, AOL, and MSN. Overture saved the portals by fixing a fundamental flaw in their business model. Portals had sprung up in the first place because they needed stickiness. None of the early search sites could make money when users actually went out onto the web like they were supposed to, sent there by the portal search engines. So instead they attempted to hoard all those eyeballs, keeping them on site in order to create impressions for banner ads. That's what all the things like horoscopes were about.

But now, clicking itself was finally worth something. As the writer John Battelle has put it, Overture could generate billions of dollars, one click, one nickel at a time. Overture came along at a very opportune moment for the Internet. As the bubble burst and the advertising market cratered, paid search stepped into the breach to replace the lost revenue from all those bankrupt.com advertisers. In the case of Yahoo, by the summer of 2002, the paid links it was getting from overture

accounted for more than 10% of the ailing portal's total revenues and almost all of its much diminished profits. It's not an exaggeration in the least to say that overture and paid search save the portals and the search industry in general. And so, fortuitously enough for Google, there was a very much for Google, there was a lot of now a very lucrative new advertising model that it could copy. And what was more, this new model of ad had proven the immense value of Google's core product, which was search. But since Larry and Sergei never met an idea they didn't think they could improve upon, Google was not interested in

merely copying overture's business model. If Google was going to have ads, the ads would have to be better than traditional ads. They would have to actually be useful. Google first experimented with advertising in January of 2000 when it began showing unobtrusive text links above certain keywords. Text, of course, was the medium Google preferred because instead of flashy banners, text was low bandwidth. But the ads were still priced like banner ads on the traditional CPM or cost-per-impression model. Advertisers paid $15 per thousand impressions on the first listed link, a $12 CPM for the second, and a $10 CPM for the third.

Promoted via a small New York-based Salesforce headed by Tim Armstrong, a hotshot digital advertising executive recruited from Disney's.com-era online efforts, at first, Google's ads only enticed around 350 advertisers. But Page and Bryn had never really wanted a sales team to begin with, of course. In their vision, they were looking for something more scientific, more automated. They liked how anyone could buy an ad through overture simply by using an online form. And so in October of 2000, they launched what was called AdWords, which allowed any advertiser no matter what the size of their operation to purchase online ads in a matter of minutes

using a simple credit card. As GoToSlaught Overture had discovered, advertisers were quite eager to get in front of Google's burgeoning search traffic, and the first influx of AdWords advertisers put an end to Google's immediate money issues by bringing in $85 million in 2001 alone. And yet, since these ads remained CPM-based, advertisers were still paying for impressions, not for actual clicks. So Google was missing out on the performance-based advertising revolution, and it showed. Overchurch's 2001 revenues were $288 million, compared to Google's $85 million, and that number was growing at a faster rate than Google's. So in February of 2002, Google unveiled a new version of AdWords that copied Overture's cost-per-click and auction pricing model.

But in typical Google fashion, its Overture clone had a key innovation that made all the difference in the world. The new version of AdWords was cost-per-click, and the advertisers bid against competitors' ads. but Google's system was not strictly pay for placement. Ever enamored with math and the power of algorithms, Google introduced an important new ranking factor for the ads that it called a quality score. In essence, Google's system took into account how much an advertiser was willing to pay per click, of course,

but in addition, it counted how often that ad was actually clicked on. So each time a search was run and AdWords results were generated alongside the search results, the ranking of the eventual ads took into account how relevant the ads actually were, how successful they were at getting clicked on. This prevented deep-pocketed but ultimately irrelevant advertisers from dominating every keyword. You could no longer guarantee to rank highly just by being willing to pay the most. your ad also had to be clicked on the most in order to rise up the rankings. Almost counterintuitively, this had the result of successful advertisers

actually paying less per click, but ranking higher. If your ad was of good quality and tended to get clicked on more often, AdWords trusted that it was more relevant for that search phrase and would therefore rank you higher, even if you didn't increase your bid. Google did this because it knew that it could actually make more money per search over time if the ads were ranked this way. Over time, more money would come in from a five-cent ad so long as that ad were clicked on 25 times on average, versus a dollar ad that was only ever clicked on once. From a searcher's perspective, the miracle was that the ads felt less annoying.

and more relevant. To a certain extent, Google's AdWords began to seem almost as useful as the organic search results themselves for certain keywords, because the quality score kept them germane to the searcher's original query. And on the advice of early Google advisor Yossi Vardy, the bulk of AdWords appeared on the right-hand third of the search results page. This had the consequence of increasing the amount of ads that could actually be delivered per each search, all while seeming to make them less intrusive because the original organic search results still filled the main two-thirds of the page, pristine and completely untarnished by the ads. When Google ran limited control experiments where it actually showed one group of searchers

results with the ads, and another group search results without. the ads, the users who saw the ads actually searched more. It became a classic win-win-win. Google started making more money per search than Overture did. Advertisers felt like they were paying less per click while reaching more potential customers, and users felt like they were getting supplemental search results in the form of ads that were often quite useful. Over night, Google's fortunes were completely transformed. Led by a new hire named Cheryl Sandberg, AdWords became the blockbuster success that Google had been looking for all along. Sandberg would later say of the AdWords miracle, quote,

We just started growing. It went unbelievably well, end quote. It helped considerably that Google had what overture didn't, its own highly trafficked search destination. Google didn't have to cut deals with other portals in order to get traffic for its ads since its own website was already servicing hundreds of millions of searches per day. Google didn't have to cut deals, but it did anyway, especially its Blockbuster Partnership with AOL, announced in May of 2002. Google would provide not only the organic search results for AOL, but the paid search results as well, stealing the business away from Overture, which had previously provided AOL's paid links. The AOL deal was risky, coming mere months after the AdWords system had been

redesigned, and because AOL demanded tens of millions of dollars in guaranteed revenue, whether the ads paid off for Google or not. Sergey Brin would later admit the AOL deal was a really big bet for our company. Susan Wojcicki would remember, there was real risk. We could make $40 million on the deal, or we could lose $40 million. At the time, we only had $10 million in the bank. End quote. The AOL deal turned out to be quite lucrative, and Google's automated AdWords system proved able to scale adequately to the flood of new traffic.

But even if it hadn't, Google still had all that traffic to its own homepage to fall back on. And so 2002 would become Google's first profitable year, with $440 million in sales and $100 million in profits. By 2003, Google's profits were more than $185 million, and the AdWords program could boast more than 100,000 advertisers, all without a commensurate rise in Google's sales team had count because the entire AdWords sales system was automated. Just a year later, Google's revenues would approach a billion dollars, and just as Overture had discovered, Google learned that search marketing was more lucrative than banner ads had. ever been. In retrospect, going into advertising actually played well into Google's deepest strengths. For a company full of data-obsessed alpha-nerds, advertising provided a vast new ecosystem of complicated math problems to solve. The original premise of web advertising had always been to turn marketing into an exact science to be able to drill down and identify your potential

customers in a precise, exacting way and then target them effectively. This original promise had been fumbled during the dot-com era when web advertisers had simply taken the centuries-old CPM advertising model from old media and refashioned it for the web. Some early advertising companies like DoubleClick were pioneering new methods of measurement and targeting, but it took Google, a company obsessed with data. obsessed with metrics to truly bring the science of advertising into the 21st century. In this regard, it maybe helped that Google didn't have any previous experience with ads,

so it didn't know what it shouldn't do. Google looked at advertising as just another math problem that smart algorithms could solve. Indeed, serving the appropriate ads alongside the organization, results, running these auctions in real time for billions of searches, and re-ranking the ads in real time according to their performance, became an even more complicated algorithmic trick than even search had been. But then Google's entire infrastructure was devoted to crunching numbers and organizing vast amounts of data like this, so it was maybe uniquely positioned to get this sort of thing exactly right.

Just as it happened with WebSeach, when Google turned on its new advertising system, it found that the system itself scaled with the mountain of new data. The ads got better over time, so much so, that Google's computers could eventually predict with stone-cold accuracy which ads would work and which wouldn't. It turned out that Google had been right not to hire a vast advertising sales force because its automated systems were better at placing ads than Mad Men ever could have been. It really made more sense for advertisers to turn over their entire ad strategies to Google's algorithm.

Naturally, not everyone believed this at first. Even as automated AdWords took off like a rocket ship, the old CPM-based ads, known as AdWords Premium, were still operating quite successfully in the background. But when the Google AlphaNerds crunch the numbers and found that the automated cost-per-click ads were far and away more effective, the decision was made to discontinue the old CPM ads. This decision came despite the fact that traditional brand advertisers from the Fortune 500

were far more comfortable with the old methods. Tim Armstrong would marvel later, quote, We were doing 300 million a year in CPM ads, and now we're going to turn this other model on and cannibalize that revenue, unquote. Few companies would have had the audacity to do such a thing, to kill a cash cow before it had been fully milked. But Larry and Sergei felt that the numbers proved their new model was superior, and as ever, they were more than willing to have faith in the math.

So over the protests of the advertisers that Armstrong had carefully cultivated, all of Google's ads were soon switched over to the automated cost-per-click auction model. And it turned out that Larry and Sergey were right. The ads reached more people for less money, and so the advertisers were soon converted to Google's way of thinking. In the first decade of the 21st century, advertising would increasingly move to digital at the expense of traditional advertising media like television, radio, and especially magazines and newspapers. And to a large degree, this was the direct result of Americans spending increasingly greater numbers of hours per day online. As the writer Tim Wu has pointed out, advertisers always go to where our collective.

attention spans drift. But just as importantly, in the first decade of this century, advertisers would begin to go online in increasing numbers because a radically more efficient and effective advertising model now existed there. Google can be thought of as a company born from two miracle inventions, one of which it came up with itself, and the other of which was cribbed from Overture. Now, definitively solving the problem of web search is obviously the miracle that has had the largest impact on our society. It's hard even to imagine a modern information economy without functional search. The web and the internet itself are now so big that without decent search,

it's easy to imagine the whole thing would have collapsed under its own weight. But by improving on Overture's pioneering work with paid links, Google was able to achieve something just as amazing. It made the internet profitable at scale for the very first time. Think about it. With the possible exceptions of Amazon and eBay, and remembering all of those hundreds of dot-com companies with their ephemeral billion-dollar valuations,

it can really be argued that Google was the first. first company to make serious money on the internet in a meaningful way. Paid search would prove to be the greatest advertising engine yet devised by man. And automated, targeted scientific advertising would finally transform advertising itself in the way that the internet had promised to do all along. Furthermore, algorithmically served ads would support nearly every product that Google would release, subsequently. Image search, Google News, Gmail, Google Maps, Google Books. Advertising allowed the company to realize its dream of organizing the world's information because the ads would always make it profitable to do so. In a few short years, search ads would surpass traditional banner or display ads,

and within a decade, Google would be generating more than $50 billion a year in revenue, having captured nearly 50 cents of every dollar spent advertising online. Today, most advertising is automated in ways similar to what Google pioneered, and even now the largest market for online advertising remains tied to search. It turned out that the gold mine on the internet had been search all along, as Yahoo and others had first intuited, but had subsequently forgotten. By 2003, Google was a company obsessed with one thing,

keeping all of this a secret. As David Crane, one of Google's first PR hires would remember later, quote, we had cracked one of the unsolved puzzles of the Internet, making money at scale in a way that users embrace. The longer we could avoid other companies, figuring that out, the better, end quote. As ever, Google feared tipping Microsoft off to the value inherent in search. Sure, Microsoft was ailing from the recent antitrust trial fallout and was already entering

its lost decade, but the fact remained that the only technology company that had the resources, talent, and size to do to Google, what Google had done to overcharge, what Google had done to overture was probably the beast from Redmond. Helping to keep Bill Gates and company in the dark was Google's new grown-up CEO Eric Schmidt. Schmidt had been a longtime Microsoft adversary going back to the 1980s when he was an early manager at Sun Microsystems, and then briefly in the 1990s as CEO of Novell. Years of experience managing a relationship with Microsoft no doubt played a role in Schmidt's eventual selection as CEO,

especially when Page and Bryn had rejected nearly every other candidate in Silicon Valley. Schmidt was an odd candidate to begin with, given his experience and pre-existing stature in the industry. Becoming the new Google CEO would mean having to share the limelight, as well as some degree of the decision-making process with Google's founders. Indeed, the working relationship that Schmidt would go on to form with Page and Brin would become something of a triumvirate where all three had equal say, though if push came to shove, the founders could outvote the CEO. Page and Brin's dream candidate for the job had actually been Steve Jobs,

but it's hard to imagine the Apple founder being willing to take a back seat. seat to two 27-year-olds as Schmidt eventually agreed to do. Page and Bryn, on their part, came around on Schmidt because he had a background in computer science, like they did, so he was smart like they were, but also because Schmidt was the favorite candidate of John Doer, who was still holding their feet to the fire about bringing in an outside CEO. And for his part, like almost everyone else, Schmidt's first impression of Larry and Sergei was that they were, quote, just really arrogant. But as he monitored the company and continued to meet with the founders, he discovered that he came to

respect the verbal jousting and intellectual brinksmanship endemic in Google's culture, especially since it emanated from the very top of the company. Eventually, Schmidt found he couldn't turn down the opportunity to work at the company that was doing the most interesting work in all of technology at the time. The one tech company that was actually in the best position to realize the money geyser that Google had tapped into was, funny enough, Yahoo. It had seen firsthand how paid search in the form of overture's syndicated links had saved web portals, and thanks to its investment in Google, Yahoo had the best inkling as to what was really going on behind the scenes, especially on Google's bottom line.

And so in the summer of 2002, only a few months after the new version of AdWords debuted, Yahoo made a $3 billion bid to buy Google outright. Google turned the offer down, but by that point, no one could argue anymore that the company was being arrogant. because a little over two short years later, thanks to the AdWords engine, Google would pass Yahoo in total advertising revenue. The student had far surpassed the teacher. Too late, Yahoo realized that search was, in fact, the mother load of business models. So after having been spurned by Google, it canceled its organic search partnership with Google.

purchased what was widely considered to be the company with the second best search technology, ink to me, for $257 million in 2003, and paid $1.4 billion to acquire overture. The idea, of course, was to combine these two properties under the Yahoo umbrella and replicate Google's algorithms and advertising juggernaut, complete with a quality score and bidding systems that mimic AdWords in efficiency and effectiveness. Called Project Panama, this next-generation system, would not be released widely until February of 2007,

by which point Google had run away with not just the search market generally, but virtually the entire search advertising market in total. And by that point, the whole world knew what Yahoo had intuited. Google was in fact printing money. And so on April 29, 2009, 2004, Google filed for an initial public offering that would be the highest profile technology IPO since the dot-com bubble burst. When Google released a snapshot of its financials so that potential investors could evaluate the company's prospects, both the technology and financial worlds were amazed. Venture capitalist Mitchell Kurtzman

told the Wall Street Journal that Google's numbers were, quote, stunning. And Google's PR head, David Crane, remembered that the general response in the tech world was, quote, holy shit. Google had generated more than half a billion dollars in cash flow in 2003, and its operating margins stood at an astounding 60%. Those were Microsoft level number.

The online market for search ads had reached 2.5 billion in 2003, which was nearly tripling the size of the market from 927 million spent a year before, and Google had captured approximately $1 billion of that. A lot of this success was thanks to the fact that 35% of all web searches were now being done through Google, which was surpassing Yahoo's 30% market share. Grin and Page had not actually wanted to go public, having filed to do so only because financial rules would soon compel them to. But if Google was going to go public, just as with everything else, the company would do so on Larry and Sergei's terms. In the letter that the founders wrote to prospective investors, which they called an owner's manual for shareholders, in which the New York...

Times declared to be, quote, part financial document and part populist manifesto, the Google founders began with a simple statement, quote, Google is not a conventional company, and we do not intend to become one, end quote. Brin and Page went on to state that their intention was to continue to operate Google in the service of their own lofty ideals, to, quote, develop services that improve the lives of as many people as possible, to do things that matter, end quote, rather than bow to the quarterly whims of Wall Street and its expectations. Throughout the coming months, as the ramp up to the IPO began, the Google guys were accused of thumbing their nose at Wall Street and its various traditions.

Larry and Sergey demanded that the underwriters of the IPO only receive a fee of 2.8% for their services, which was about half the rate that bankers usually expect. During the roadshow, when the founders crisscrossed the country ostensibly to sell the company to investors, Larry and Sergey drew fire for flat out refusing to answer specific questions about Google's operations or future plans. And even the amount of shares Google was offering up to the public was a bit of a prank. Google intended to sell exactly $2,718,281,281,8,8288, $828828 worth of equity. Math geeks, like the Google founders, of course, knew that this number represented the first decimal places in the mathematical number E, which is, of course, an irrational number.

On August 19th, 2004, Google went public at $85 a share and rose 18% on its first day of trading to close at $100.34. The 38 million shares that Larry and Sergey each held were worth approximately $3.8 billion at the close. As a company, Google was valued at $27 billion, which was behind Yahoo's 38,000. billion market cap, but that disparity wouldn't last long. By the time Google's first quarterly report as a public company revealed that sales had doubled from the previous year, Google's stock passed $200, and it has never since returned to those levels. It's impossible to overstate how important Google's IPO was to the Internet Revolution, Silicon Valley and the stock market overall. As the New York Times said on the day after the company filed to go public, it was, quote, as if the dot-com glory days never ended, end quote.

Google's success was validation that the internet as a social, cultural, and most importantly, a financial phenomenon was not dead. The web revolution had merely been resting during the dot-com nuclear winter, regrouping, gathering steam. But Google was also proof that not only were there some of the original ideas from the dot-com era that were still valid, at the same time some new ideas might also be out there, now ready to build on the dot-com era's faded promise. Within Google itself, there were whispers of exciting new projects, like, for example, some sort of a Google phone so that searchers could get answers to queries at any moment, no matter where they were. More than anything, Google's success provided the template to make these new ideas profitable. And so, just as with the Netscape IPO, nearly a full decade before, with the Google IPO, an entire generation took notice. There was fire in Silicon Valley once again.

If you like what you've heard on this episode, please support us by subscribing to the podcast so you can get great new stories and conversations every two weeks. And please buy the book that was based on this podcast. How the Internet Happened from Netscape to the iPhone. By me, Brian McCullough. Order it now, wherever books are sold. How the Internet Happened.