We Study Billionaires - The Investor’s Podcast Network - TIP 013 : How Billionaire's Larry Page and Sergey Brin Built Google (Investing Podcast)

Starting point is 00:00:00 This is episode 13 of The Investors Podcast. Broadcasting from Bel Air, Maryland. This is the Investors Podcast. They'll read the books and summarize the lessons. They'll test the waters and tell you when it's cold. They'll give you actionable investing strategies. Your host, Preston Pish and Stig Broderson. All right.

Starting point is 00:00:27 Good morning, everybody. This is Preston Pish, and I'm accompanied by my co-host, Stig Broderson. Rodersim, and we have brought Hari Ramachandra back on the show because we are talking about something very interesting today. Google. For everybody out there, I'm sure they've used Google with their search results, but picking apart and understanding what it is that makes Google tick is something that very few people understand. So today in our show, we're going to be talking about a book that all three of us have read, and the name of the book is In The Plex. This is a best-selling book, and this is by Stephen Levy. and the subtitle of the book is that it talks about what Google thinks, works, and shapes our lives. And so that's what we're going to be discussing today as we kind of go through the essence of this book.

Starting point is 00:01:10 So for today's show, we're going to break this down into two different segments. The first segment, we're going to discuss the book, and we're going to be really discussing what it is that makes Google tick. At the end of the show, we'll move into the second segment, and we're going to be talking about our thoughts on why or why not we would own stock in Google. So we'll go around the horn and get everybody's opinion. So let's go ahead and kick this off. We'll start off with the very first point when this book opens up. And I found it just absolutely fascinating the way that this book starts because the author talks about what it is that Sergey Brin and Larry Page, who are the two founders of Google, what their overall mission and goal is for Google. and that mission is that they want Google to be the brain of the world.

Starting point is 00:01:58 And I think for a lot of people, they hear that and they're like, okay, so what in the world does that mean? And it means exactly what I said is they are trying to take Google to be the hub or the brain of every thought that's ever been captured in the world. It's been captured on the internet and harnessing that and providing that to people. So if you ever have any question whatsoever, that question can be immediately answered with your smartphone or your computer by just typing in whatever your question is. That's their goal. They want there to be no boundaries between language. So if you type something in and you want to know what that means in Korean or Russian or any language, you will get the answer no matter what. So that's a pretty lofty goal.

Starting point is 00:02:42 That's something that I think a lot of people might think, wow, I didn't really necessarily realize that that's what they were trying to do with their little one page entry point for the search where you just type one thing in and it pops up. But that's really what they're trying to do, is they're trying to harness every thought that's ever been captured in the world and making that accessible. So let's talk about how computers work and how Google works in general. So whenever you think about data, and that's what this is, it's stored data, you've got to realize that every piece of information, when you type something down on your keyboard and you save that information on, let's just say a word document, that is a file, and that file sits on your computer. And so what the World Wide Web does is it links all these different computers together so that I can have access to maybe say something that Stig wrote over in Denmark. or let's say Hari wrote something over in San Francisco and captured out on a word document through the internet. I'm able to link to that file. And what a lot of people don't realize is that the internet works a lot like our mail system, our old-fashioned type up a letter, put it in the mailbox and send it off.

Starting point is 00:03:56 So let's say that Hari types up a word document and he stores it on his computer in San Francisco. And I want to have access to that file through Dropbox or he puts it on a web page or a web server or whatever. And I want to access that. So whenever he saves that document, it's saved on his computer at a particular IP address. And I'm sure a lot of people have heard IP address before. Okay. And what an IP address is is it's no different than your physical address. So I have an address if somebody wants to send me a piece of mail or a box through the post office.

Starting point is 00:04:27 And so that IP address is exactly like that mailing address. And so if I want to go get this file off of Hari's computer, if I know his IP address, I could access that particular file by going to his computer. And that's how all this is linked together. And so what Google does, and let's get back to our discussion on Google, what Google has done is it has mapped the entire world's computers where all this information is saved. Okay. And they've mapped it. They've indexed it so that they have this all saved on computers that they've had.

Starting point is 00:05:01 It's basically like a backup, a copy of everything that's out there. And so they have these massive web server. They have these massive supercomputers and these data centers around the world. And these computers are constantly looking at everything that's called crawling the web. They're crawling the web for all this information. And then they're making duplicate copies of this information on their computers in order to know what's out there in order to provide you the best search results. So how did Google really become and rise to the top as being one of the top search results in

Starting point is 00:05:34 order to find this information, because if you think about that problem of trying to point somebody to the information that you're seeking, that's a really hard and complex problem, is everybody's typing up all this different information all over the world. So how do you point them to the article that they're actually searching for? And how do you get it right almost every single time? And so how the founders of Google, which is Larry Page and Sergey Brin did this, is they thought about the problem from a different vantage point. Whenever search engines first came out, they were based off of keyword density. So if, let's say I was looking for an article on tennis, okay, if the article had the word tennis

Starting point is 00:06:13 in it, 5,000 times, that search result would rise to the top and that would be the article that would be, you know, showed as the best result. Well, as many people caught on to this, they would hide the text in the document through the HTML and they would just type tennis about 5 billion times and then their article would naturally rise to the top. So that didn't work real well because you had really kind of bad content that was search engine optimized and that's how it rose to the top. And so what the founders of Google did is they did it a little differently and they said, let's treat this like it's a research paper. And whenever you write a research paper in academia, which both of these students were out at Stanford University and working on their doctorate whenever they founded Google and they started off with a thing called PageRank, which was what Larry Page had called his first search engine.

Starting point is 00:07:03 The way that they framed it is they said, you know, whenever you find a really good research paper, at the bottom of that research paper, it has all these works cited references to other documents to other, you know, professionals that have written about this. And so they said, well, if everybody's constantly linking or showing that the, maybe this article by this professor over in Harvard wrote the best article on tennis. Let's go back to that example. If everybody's referencing this one document, that document that's being referenced is probably the best result and shows the most authority. And so they took this idea of referencing at the bottom of the page to a different level. And they started treating that as the link to the other person's content is a clue as to what is the most important piece of information to be found. So, Stig, go ahead and I see you have a comment that you wanted to add. Yeah, so what's really important to understand is that Google wants to do its best to mimic the behavior of a real-life person.

Starting point is 00:08:08 And clear the problem is if you want to map the whole world, you can't have a person or hundreds, a thousand people doing that. That's simply impossible. So what they're doing is that they are adapting the algorithm to act the most like a human being. And one way to do that as president is saying is looking at how many people are referencing, what we also call backlinking. So how many people are backlinking and saying that this page is relevant or this site is relevant for what you are searching for? A fantastic point on how their algorithm works there, Stig. So just a little background. So whenever Larry Page and Sergey Brin founded the company at Stanford, they were just starting off.

Starting point is 00:08:47 And it was really a research project that they were doing. And so they were using the servers and the computers at Stanford whenever they were doing it. And they started getting so much traffic coming to their site. because their results were populating such good quality results that the servers there at Stanford started getting overused. They started buying more computers, and it just kind of evolved into this massive monster of computing power. And I think that at that point, it says in the book that they kind of realized that they had something fairly huge. And so they ventured off. Hari, do you know how much didn't Stanford get some of the equity of Google whenever they decided to,

Starting point is 00:09:28 you know, move outside of the campus of Stanford and found their own business. I can't remember in the book. But I thought I remembered hearing like 10% or something like that. You're right, President, I own that number. In fact, Stanford has a very good incubator program. A lot of companies in the Silicon Valley have come out of Stanford, including companies like Sun, Yahoo, and others. And Stanford professors are known to have industry connections.

Starting point is 00:09:55 And also, many of them have founded their own companies as well. Yeah. Well, even the book, the Peter Thiel book that we did, the zero to one. And he was giving the lecture at Stanford. That's where the book all came from. So, yeah, it definitely seems like there's a lot of Stanford alumni out in the Silicon Valley. So all right. So let me continue. So when we're talking about Google, a lot of people have the question, how in the world do they make any kind of money? You know, when you show up on their homepage, you see that it's just one input. There's no advertisements. There's no nothing. And for a lot of people, they're like, how is that a billion dollar company. How are they making billions of dollars? So they have a couple different engines that produce their revenue. So I'm going to talk about the first one that was in the book, and that is AdWords. So the way AdWords work is let's say that you have a business and you sell tennis rackets. I'm on a tennis kick today, so that's why I keep referencing tennis. So let's say you own a business and you want to sell tennis rackets. What you could do is you could open an account with AdWords, which is owned by Google,

Starting point is 00:10:54 and you could say anybody who searches for buy tennis racket or tennis racket or you list all these different keywords and you list them into your account and you say, I'm willing to pay $1 for every person that clicks on my advertisement if Google places it wherever Google places it.

Starting point is 00:11:11 And so you're in your bidding. So this isn't just like you have this one agreement with Google. There's other people that are bidding for those same keywords that are wanting to own the search result which will populate as an advertisement. And after you initiate your search, it'll populate there in the first position or it could

Starting point is 00:11:29 populate on page five, depending on where you're willing to pay and where the bids fall. But it's one big giant auction and you're competing with other people that are wanting that same keyword. And so every time that somebody clicks on that link or it depends on if you're running advertisements per thousand or million or whatever, and those are the two different options. You can pay by click or you can pay per thousand advertisements. But every time that somebody clicks on that, Google makes money and the person who, you know, conducted the advertisement gets their benefit is that you drove somebody to your website. So AdWords was a major shift in search because as this started to develop, there was a lot of people that had concern over, well, is Google just providing me the search result based off of who's paying me the most money?

Starting point is 00:12:20 or are they actually giving me the results that are showing me the best web page to land on? And so there was a lot of discussion in the book about that. And it obviously raises some concern over the conflict of interest that you might see by running something like that. So, Hari, I saw you had a point that you wanted to add here. You brought up a good point, Christian. In fact, if you are wondering how Google makes money, you are not alone. You're in good company. In fact, in the book, the author talks about a point in the early days of Google when the founders, Ladi and Sergei Bryn were not really interested in starting their own company.

Starting point is 00:12:58 I rather wanted to sell it off to and they approached many companies. In fact, most of them rejected their offer. And in the book, he talks about how the CEO of Excite, George Bell, rejected their offer to sell their technology, the search engine for 700,000. because he didn't know how they would make money. He thought it's a clever project by two Stanford grads. Yeah. Yeah, I thought that was hilarious at the beginning when they were talking in the book. They were talking about how they came up with this search engine, but everyone was like,

Starting point is 00:13:31 I don't understand how you're ever going to make any kind of money on this. And now you look at their revenues and they're making $60 billion in revenue a year, whatever it is. It's just quite funny. So, okay, so that was AdWords. So you're basically advertising off of keywords that you would want for your business to drive traffic to your site. Now, this is where I think Google really had some genius in how they were going to raise money. So let's say that you own a website. So Stig and I, we have

Starting point is 00:13:57 a website. Hari, you have a website. And you want to run an advertisement on your website for maybe somebody else's business. Well, that's a lot of coordination for you. You know, if you had first established the coordination with the company that you would run the advertisement on, you have to get their permission. You've got to, you know, set up the code in order to lead them to their site. You have to, it's really, the code is quite complex because that person has to know that they actually came from your site. So there has to be code associated with that. And it's a very big process for a person to run an advertisement. Well, Google came out with this brilliant idea of, hey, let's be that source. Let's just give somebody a source of code.

Starting point is 00:14:38 They take that little snippet of code. They drop it into their website and we'll do the advertising for you. We'll know what that person's looking for. what it is that they want to buy, why they're maybe on your site, and we'll run relevant ads on your site, and every time somebody clicks on it, you as the owner of that website is going to make money. And so this was called Google AdSense. And so it's just an amazing tool for anybody that owns a website. You can just go to Google, sign up for an account. They'll give you a little snippet of code.

Starting point is 00:15:09 You drop it into your website, and boom, advertisements start showing up. And every time somebody clicks on that advertisement, you start making money. Something that I found really interesting in the book was they had a big debate on how much Google should actually make from AdSense. Sergei Bryn had the opinion that they needed to not take too much money from the website owner because they didn't want to introduce a lot of competition into this field. Instead, they wanted to own this field. They didn't want anybody else out there to be able to do it. And this is a common theme that we've seen with people like Sam Walton, Jeff Bezos, where their opinion is, Let's not take too big of a margin here.

Starting point is 00:15:49 Let's own the space. Let's just dominate this space. And that way we'll never bring on competitors because if there's large margins, competitors will flock to that type of line of business. And so just something very interesting for, you know, as I was reading in the book and saw that. So as we progress forward and we kind of look at how Google grew, one of the things that I found just totally fascinating was the size of these data centers that they were building all around the world. world in order to service all their different customers that were conducting searches. One of the things that Larry Page was just really big on, and they have some really quite

Starting point is 00:16:25 funny examples in the book, is the speed at how fast he wanted these servers in order to produce results and to load on the people's computers. So much so that he'd have people come into his office and bring up certain topics, and he would be able to say, that happened in half a second or 0.6 seconds or something like that. he was timing people and people would go back and say they'd reload the page that they were showing him in the office and sure enough like he was down to like the 10th of a second on the on his estimation of how fast different pages were loading and people were just like flabbergasted that he could predict and see that that just showed people how important that aspect of the business

Starting point is 00:17:05 was to him and so building these big data centers building these these computers that could capture all this information and harvest all that information was just quite fascinating and very interesting to know. So, Hari, you had a point that you wanted to add here. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its

Starting point is 00:17:46 18th year bringing together activists, technologists, journalists, investors, and builders from all over the world, many of them operating on the front lines of history. This is where you hear firsthand stories from people using Bitcoin to survive currency collapse, using AI to expose human rights abuses, and building technology under censorship and authoritarian pressures. These aren't abstract ideas. These are tools real people are using right now. You'll be in the room with about 2,000 extraordinary individuals, dissidents, founders, philanthropists, policymakers, the kind of people you don't just listen to but end up having dinner with. Over three days, you'll experience powerful mainstage talks, hands-on workshops on freedom tech, and financial sovereignty, immersive art installations, and conversations that continue long after the sessions end. And it's all happening in Oslo in June.

Starting point is 00:18:39 If this sounds like your kind of room, well, you're in luck because you can attend in person. Standard and patron passes are available at Osloof Freedom Forum.com, with patron passes offering deep access, private events, and small group time with the speakers. The Oslo Freedom Forum isn't just a conference, it's a place where ideas meet reality and where the future is being built by people living it. If you run a business, you've probably had the same thought lately. How do we make AI useful in the real world? Because the upside is huge, but guessing your way into it is a risky move.

Starting point is 00:19:13 With NetSuite by Oracle, you can put AI to work today. NetSuite is the number one AI cloud ERP, trusted by over 43,000 businesses. It pulls your financials, inventory, commerce, HR, and CRM into one unified system. And that connected data is what makes your AI smarter. It can automate routine work, surface actionable insights, and help you cut costs while making fast AI-powered decisions with confidence. And now with the Netsuite AI connector, you can use the AI of your choice to connect directly to your real business data.

Starting point is 00:19:48 This isn't some add-on, it's AI built into the system that runs your business. And whether your company does millions or even hundreds of millions, Netsuite helps you stay ahead. If your revenues are at least in the seven figures, get their free business guide, Demycifying AI at Nessuite.com slash study. The guide is free to you at Nessuite.com slash study. NetSuite.com slash study. When I started my own side business, it suddenly felt like I had to become 10 different people overnight wearing many different hats.

Starting point is 00:20:21 Starting something from scratch can feel exciting, but also incredibly overwhelming and lonely. That's why having the right tools matters. For millions of businesses, that tool is Shopify. Shopify is the commerce platform behind millions of businesses around the world and 10% of all e-commerce in the U.S. from brands just get to the company. Getting started to household names. It gives you everything you need in one place, from inventory to payments to analytics. So you're not juggling a bunch of different platforms.

Starting point is 00:20:50 You can build a beautiful online store with hundreds of ready-to-use templates, and Shopify is packed with helpful AI tools that write product descriptions, and even enhance your product photography. Plus, if you ever get stuck, they've got award-winning 24-7 customer support. Start your business today with the industry's best business partner. Shopify and start hearing. Sign up for your $1 per month trial today at Shopify.com slash WSB. Go to Shopify.com slash WSB.

Starting point is 00:21:24 That's Shopify.com slash WSB. All right. Back to the show. Yeah, Preston. So one of the things that a lot of us underestimate is how much of technology and infrastructure is needed to serve these search results. You just see a blank page with Google logo on it and you think, hey, what's so complicated about it? In fact, it's not just the algorithms, but the infrastructure that supports it is huge.

Starting point is 00:21:56 In fact, in the book, the author talks about Google having about 24 data centers in 2009. I'm sure it will be much more now. And each one of them costing a billion dollars. He has also a vivid description of one of those. data centers, which is the size of two football fields and has about 200,000 square feet of space for servers and other infrastructure and a four-story 18,000 probably square feet facility for the cooling tower. That's humongous. Yeah. Yeah, and I found it really interesting, too, all the different things that they were talking about, you know, to cool all these,

Starting point is 00:22:39 all these computers and all this processing power, they've got to cool it. And so they're talking about putting them up in Alaska to Antarctica to having them out on ships and running sea water over top of things in order to constantly cool them and doing it at a really cheap price. I know that there's a lot of data centers that are underground in order to help dissipate the heat. It's just amazing the technology and stuff that's happening. Go ahead, Ahar. You had a second point. Yeah, and one of the things that most of us underestimate is the energy consumed by these data centers. When we talk about stuff going online, we're not buying books anymore. We think we are doing good for the environment because we are consuming less energy.

Starting point is 00:23:26 However, data shows that 1.2% of all the electricity consumed in the United States today is by the data centers. To put that in the context, it's more than 20 states in U.S. in terms of energy consumption. So we have to really think hard about the impact of these data centers on environment. And that's why energy efficiency for Google, not only from an economic, but even from an environment perspective, is very important. One of the points I wanted to bring up was just this contrarianism that we've read about in so many of these other books, I mean, almost every book. I mean, almost every book we read, it's talking about how the billionaire has this just drive to always question or counter whatever it is that the common knowledge is. And so Larry Page really kind of struck me is that person for Google and that he's just constantly trying to think beyond what most people would expect or think is normal. One of the funniest things I found in the book, they were talking about how Larry Page and Sergey Brin went over to the UK.

Starting point is 00:24:34 were having dinner with the royal family. And they brought out this, and this is really, really off topic, but it was so funny, I can't help but bring it up. And so when they were there having dinner with the royal family, they brought out what looked like a little shot of a sauce that they would put on top of their souffle that they had made for them. And so they were sitting there with the queen of England and they're having this dinner. and so both Sergei Bryn and Larry Page took this sauce, which they were supposed to pour over top of their souffle, and they just drank it and they just pounded it like it was a shot of tequila or something like that. And I guess the royal family kind of looked over at them like they were crazy and they were like, you know, as politely as they could say, they were like, you were supposed to pour that over your food over the, over the souffle. You were not supposed to drink that, you know? and their response, Larry Page's response was,

Starting point is 00:25:33 Who says? And I just, I found that absolutely hilarious to the point where it's like, who are you to tell me what I'm going to pour my stuff over? If I want to drink it, I can drink it, you know? It just shows you. That's how these guys think. If somebody tells them it can't be done, they're going to do it. And they're going to do it without even question or thought.

Starting point is 00:25:52 And I just found that story to be so funny. Christian, that was a very interesting episode. In fact, I think throughout the book, the author has given a lot of instances which shows a complete ignorance of popular culture among both these founders. And one of the things that the author points to is their background. And he talks about the Montessori education and how that has shaped the thinking of these two founders, Larry Page and Sergei Bryn. And it's interesting because my son is now in a Montessary. And I'm getting to know firsthand the philosophy behind Montessary system and how they

Starting point is 00:26:38 encourage children to think for themselves. You know, that's a fantastic point. I think a lot of people might not even realize what that is. And so in our show notes, we'll have a good write-up of what Hari's referring to and something else that Sergei had gone through with his education as a, as a, young kid. And just so everyone knows, Sergei Bryn was 19 years old when he was at Stanford working on his doctorate when he founded Google. So just to kind of give you an idea of what we're dealing with here as far as intellect with some of these people. Go ahead. Stig, you had something

Starting point is 00:27:07 you wanted to say. Yeah, there was just another funny story just to say something about the character. Because he was asked by his dad, like, shouldn't you take any advanced courses, you know, to improve your knowledge? And he was like, yeah, I'm considering advanced swimming at the end. all that father-son relationship. It's prevalent in every person's family. All right. So let me just conclude this first segment. So the last thing that I wanted to talk about is just the analytics.

Starting point is 00:27:39 So Google's at the point where they have all of this information. They've basically mapped the brain of the world if you want to refer to it as that. And whenever you do something like that, you see the traffic patterns. You see where people are going. You know how long they sit on a site. you know how often they go to a site. You know exactly what they're searching for. So the point where you go on to Google today and you start typing something, you might

Starting point is 00:28:00 only have three letters typed into the search box and it already knows what you're looking for. And so that's advantageous for a business because they can identify the next YouTube because they can see the traffic patterns. They can identify the next Google Earth because they can see the traffic patterns. And so whenever you're in that position of really knowing and having just information is what it is, just the flow of information. You are in a completely different realm than any other business out there.

Starting point is 00:28:33 And so if they're able to continue to manage this and to continue to grow this business and manage their finances, because that's where they could potentially get themselves in trouble if their margins ever started to dissipate. But as long as they continue to track that flow of information and the analytics, I find them to be a very dangerous business moving forward. And I mean dangerous in a good way in their ability to grow and just be one of those top-tier businesses for decades to come. I was really impressed by how data-driven Google is.

Starting point is 00:29:06 And clearly no one's probably surprised when I say it's data-driven. But after reading this book, I'm just so, so impressed how they use it. So, for instance, when talking about analytics, one of the founders said, the more people know, the more people will buy. That was one of his key arguments to actually start. establishing Google Analytics. And Google also internally, they use this data to so many things. At one part of the time in the book, it says that we don't have to argue.

Starting point is 00:29:32 No one has to argue at our meetings. We just need to look at the data. And I thought that was just a good analogy to see the business model that Google has put together. Oh, yeah. I think from marketing departments around the world, it's flipped everything upside down because marketing used to just be so qualitative. Well, I think that this advertisement's going to do well. and there was really no way to track the progress of how that actually worked.

Starting point is 00:29:56 But with Google Analytics and AdWords and AdSense and all these other things that they got, it's pretty obvious what the truth is and how something actually works. So let's quickly talk about the Google culture. And I want to bring Hari into the mix because I know Hari works right in that area when he's there at LinkedIn. They're building surround the Googleplex, if you will. and he's had lunch over there, eating in some of their buildings. And just so everyone knows, Google is really well known for how they treat their employees. Unlike Amazon with the Jeff Bezos model, which they don't really treat their employees all that well.

Starting point is 00:30:36 Google is the exact opposite. So let me just give you an example. So Google will do their employees laundry for them. They will have cars there. So if people want to just drive around in company cars, they can drive around company cars. They have gourmet chefs that cook for people at no cost. You don't have to pay for your lunch. You don't have to pay for your dinner.

Starting point is 00:30:56 There's a bunch of Google perks. So, Hari, can you give us some of the Google perks that you've actually seen firsthand? Sure, Kristen. You're right. In fact, I feel Google's employees are really spoiled. They will find it hard to work anywhere else. I mean, the kind of perks that get is unheard of. And Google, in a way, is setting the bar for other companies in the valley, whether it is Facebook, LinkedIn, or any other company because they have to compete for the top talent.

Starting point is 00:31:31 And Google has been striving ever since the founding of the company to have a different contrarian culture. In fact, in the book, the author talks about how both the founders never liked working when they're interned. in any other company because they just didn't like the culture. And they wanted to kind of maintain that university or college dorm kind of an atmosphere in the company even when they got big. And they have been striving to do that. And when I read this book, it was very interesting because I have visited those cafes that the author talks about.

Starting point is 00:32:10 And the author Stephen Levy has done a very good job in describing the culture, the facilities, as well as the vibe that you get when you enter the Google campus. As the company has grown, however, some amount of bureaucracy has crept in. And a lot of talented engineers have left Google to either start their own companies or to other competitors like Facebook as they have found challenges and interesting opportunities elsewhere. Having said that Google still is among the top destination. for many smart engineers, not just engineers in the valley, but around United States and around the world. So, you know, this is where I think we can transition into the second segment really well,

Starting point is 00:33:00 because as we talk about all these perks and all these cultural things that Google has for their employees, you really have to ask yourself, is that adding real value whenever you're looking at the company? And I think one of the things that immediately strikes me is this culture. and whether this culture is even sustainable. I think today it's easily sustainable just because the company has such large margins. You know, whenever you look at the fact that when you look at their top line to their bottom line, there's a 21.5% margin there, which is absolutely huge. And this is on their income statement.

Starting point is 00:33:35 So every dollar that they bring in, they're effectively keeping 21 cents of it, which that's very high. I think for most businesses around the United States, if you're making 10%, you're doing really well. So for them to be bringing in over 20% is a very high margin, and that's how they can get away with sustaining this type of culture. But my concern would be as they move five, ten years into the future as maybe more competition comes into this marketplace. How are they going to sustain that competitive advantage and how are they going to keep those margins in place in order to pay for the $70 million worth of perks that they give their employees every single year? So that's a concern that I have if I was going to own this company moving forward. The one thing that I will tell you that I do like is the brand. I think that a lot of people inherently just go on the internet and immediately search or bring up Google without any second thought entering their mind.

Starting point is 00:34:27 And I think that that's a huge burden for any competitor to overcome. And I think that that's going to be definitely a strength in owning this as their brand. I also think that their proprietary software is of enormous value. I think that their search results are better than other people. and that's going to be something that's going to be also very difficult to overcome. And I think that they're only going to get better as time marches on, too, and as they continue to develop and fine-tune that software. I obviously like the margins, but I just don't know how long we can sustain them. So the point that I have as a negative is also kind of a positive in the fact that I definitely think that their margins.

Starting point is 00:35:04 It's going to allow them to continue to grow over time a lot faster than, say, any other type of business. So the one concern that I have, and this is kind of a love-hate, relationship that I have with the leadership. I think that Larry Page is absolutely brilliant. I think that Sergei Brun is brilliant. My only concern is that they're kind of like this rich kid who's been spoiled from the start of their life or from the start of their business's life and that reality has never really set in for them to really go through some very difficult times with the amount of money that they bring in versus the profit that they make. And I'd be really interested to see how they'd be able to handle that if they did come across hard times and they weren't as profitable

Starting point is 00:35:44 as they are and how they would manage that with their business and this culture that they've bred. I think that that's going to be a very tough transition if it ever occurs, which I think it will. So then the last thing is obviously the price for me. And so whenever I look at this just generically without getting into discount cash flow models or anything like that, the P.E. on this company is close to 30. That's very high. That's definitely a premium to be paying for a company that with 20% margins. I'm not owning it right now and I'm not buying it anytime soon. But if the market would offer an

Starting point is 00:36:15 opportunity, I'd be a buyer. So that's kind of where I stand. Stig, let's hear your thoughts. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up and customers now expect proof of security just to do business. That's why VANTA is a game changer. Vanta automates your compliance process and brings compliance, risk, and customer trust together on one AI-powered platform. So whether you're prepping for a stock two or running an enterprise GRC program, VANTA keeps you secure and keeps your deals moving. Instead of chasing spreadsheets and screenshots, VANTA gives you continuous automation across more than 35 security and privacy frameworks. Companies like Ramp and Riter spend 82% less time on audits with VANTA.

Starting point is 00:37:05 That's not just faster compliance, it's more time for growth. If I were running a startup, or scaling a team today, this is exactly the type of platform I'd want in place. Get started at Vanta.com slash billionaires. That's Vanta.com slash billionaires. Ever wanted to explore the world of online trading but haven't dared try? The futures market is more active now than ever before, and plus 500 futures is the perfect place to start. Plus 500 gives you access to a wide range of instruments, the S&P 500, NASDAQ, Bitcoin, gas, and much more. Explore equity indices, energy, metals, 4X, crypto, and beyond. With a simple and intuitive platform, you can trade from anywhere, right from your phone.

Starting point is 00:37:53 Deposit with a minimum of $100 and experience the fast, accessible futures trading you've been waiting for. See a trading opportunity. You'll be able to trade it in just two clicks once your account is open. Not sure if you're ready, not a problem. Plus 500 gives you an unlimited risk-free demo account with charts and analytic tools for you to practice on. With over 20 years of experience, Plus 500 is your gateway to the markets. Visit Plus500.com to learn more.

Starting point is 00:38:24 Trading in futures involves risk of loss and is not suitable for everyone. Not all applicants will qualify. Plus 500, it's trading with a plus. Billion dollar investors don't typically park their cash in high-yields. savings accounts. Instead, they often use one of the premier passive income strategies for institutional investors, private credit. Now, the same passive income strategy is available to investors of all sizes thanks to the Fundrise income fund, which has more than $600 million invested in a 7.97% distribution rate. With traditional savings yields falling, it's no wonder private credit

Starting point is 00:39:03 has grown to be a trillion dollar asset class in the last few years. Visit fundrise.com slash WSB to invest in the Fundrise Income Fund in just minutes. The fund's total return in 2025 was 8%, and the average annual total return since inception is 7.8%. Past performance does not guarantee future results, current distribution rate as of 1231, 2025. Carefully consider the investment material before investing, including objectives, risks, charges, and expenses. This and other information can be found in the income fund's perspective. at Fundrise.com slash income. This is a paid advertisement.

Starting point is 00:39:42 All right. Back to the show. I don't own Google and I don't attend to. And it's really not because it's a bad stock. Preston talked about the price and it's probably overvalued. But it's clearly a very good company in terms of profitability and growth. One thing I do like about Google is that they have been able to apply all the profits that the company has made the last 10, 15 years,

Starting point is 00:40:09 and they have been able to do that while sustaining their margins. And that's actually very hard to do when you're growing as much as Google has. If you take a closer look at the financial statements for Google, you also start to see that the company is slowing down. And I wouldn't say I'm concerned about that. I would actually say it's quite natural for most companies at that size. They really can't keep growing at that pace. Again, if you compare to a company like Amazon, which we discussed a few episodes ago, they actually

Starting point is 00:40:40 have less revenue than Amazon has, but again, they are making very decent margins. So it's just to give you something to compare with terms of size. I think that Google has a very wide mode, especially if you compare it to other companies in the sector. I think it's very hard with all the intangible assets to go in and start making AdWords. or start making search, that requires such heavy capital expenditures that is very, very hard to enter. With that said, when you think about how Google started, and then there's a lot in the book, there's a lot of comparison to Microsoft. I'm sure you have said the same thing to Google,

Starting point is 00:41:23 like 15 or 20 years ago. How can you ever compete with Microsoft? You don't have the same amount of cash they're having. You don't have the same engineers. How is that possible? And I think the president had a good point before. If things start to turn sour, how will they respond to that? When the new competitor comes, is Google really fast enough to adapt to the new changes? As Harry was saying before, the company too bureaucratic at the moment, and will just continue to get worse as they grow. And that would probably be my main concern.

Starting point is 00:41:56 All right, Hari, let's hear your thoughts. Yeah, Stig, you brought up a very good point about. what people said about Microsoft back in the days when Microsoft was at the top of its game, and out of nowhere came Google. And I was thinking about it. It's already starting to happen to Google when Facebook started gaining prominence in the social area. And as we all know, Google has been struggling to gain a footing in the social space. But it's not in its DNA.

Starting point is 00:42:29 In fact, in an interview, Larry Page described Google as an artificial intelligence company that collects massive amounts of data and then uses the data through its algorithms to augment the collective brain of the humanity. That's their core value or core competence. But when they strayed out of their core competence and started chasing Facebook, which the author also talks about in the book, they were seen as an ugly duckling. And they came up with many products like Google Buzz, Arcut, Wave, and now Google Plus, which is known as the geekier version of Facebook. They never actually succeeded or they never were seen as the top player in the social

Starting point is 00:43:18 networking area. Having said that, after observing Google for many years, one of the things, you know, that I have understood is if I want to value Google, I should think like a venture capitalist and not like a value investor. Let me explain. If you try to value Google, Amazon, or Facebook, in a traditional sense, that is, if you're considering revenues, earnings, free cash flow, debt, margins, you're missing the big picture. These are companies with innovation in their culture, and they have less regard for revenues

Starting point is 00:43:54 and profits than most other mature companies that we see in the market. In fact, in many ways, Amazon and Google have a lot of similarities in their operating philosophies. Both companies have an obsessive focus on customers and user experience. They're not afraid of risks and experimenting with new ideas and are extremely data-driven, as you mentioned, stick. They encourage innovation from bottom stuff, that is, from their employees or engineers. and at times this might seem chaotic or disorganized or even inefficient in terms of use of capital and both have these visionary highly ambitious leader.

Starting point is 00:44:36 But if you look at these companies, they're more like a VC or a venture capital firm with a strong operating business generating cash, which they invest in R&D and developing their own new products, some of them will succeed, some of them will fail, and also by acquiring new companies. But they make risky bets. In fact, when they bought YouTube, Android, or the maker of AdSense, there was no revenue in some cases and no profits at all. But after many years, they have made a huge impact on the bottom line for Google. So if I'm trying to value Google, it's very hard because I don't know what's next. Will they lose money in their many bets and a lot of spending?

Starting point is 00:45:28 Or will there be a hidden black swan in a positive way? You know, like there might be the next YouTube in their laps. So I do believe, as Kristen mentioned, the law of large numbers will eventually catch up with Google at some point sooner or later. And there is also a risk that the founders can be overconfident and there can be a different sort of a group thing. You know, like being contrarian is a group thing at Google and the author has captured that very well. You know, if you talk about profits, if you talk about earnings, you are kind of, you know, kicked out of the room. All you have to talk about is changing the world.

Starting point is 00:46:17 And one of the things that is interesting about Google is even now, 90% or more of their revenue comes from their ads business, which is mostly search and their publisher network. None of their other initiatives has made a dent in their overall revenue or business model yet. So what I would like to say is if you're valuing Google, you have to think like Peter Thiel. And more importantly for me, I have to know whether it is in the circle of my confidence. Can I really understand how Google works, how it innovates, and what are the probabilities? If I don't, I would stay away. And in fact, I'm going to stay away from Google for now, though I admire it. that company. Wow, I was totally thinking that you were going to say that you own some. Okay, go ahead, Stig.

Starting point is 00:47:18 Yeah, because, you know, I think the way to look at Google, especially if you're pessimistic or if it's outside of your circle of competence, which, you know, in my belief, the only one I know that would be within a circle of competence, this matter would probably be hurry. But Google is definitely, I sought my circle competences. And again, the way to look at that might be to look at Microsoft, like 15 years ago because everybody was looking at Microsoft and saying it's impossible to compete with Microsoft

Starting point is 00:47:48 because they have the one and only operating system that everyone uses and they have Microsoft Office so how can we ever compete with that? And what Google did was they were just looking at the business completely different so they started to think about web applications and if you look something at Google Chrome today you almost have an operating system

Starting point is 00:48:10 within your browser. So there was just a totally different way of competing with Microsoft where Microsoft couldn't keep up. And then how do you said something about social media where Google Plus is really, you say it was like the giggy little rother or something to Facebook,

Starting point is 00:48:26 but it's definitely not working as good as Facebook or LinkedIn or some of those companies. And the thing is that, yes, it might be true that no one is able to compete with Google ever in terms of search and adverts, but no one knows if that, is where the war is to be fought in 10 or 15 years. In 10 years, we will probably use something different than social media, at least in another form.

Starting point is 00:48:49 And there's a good chance that Google won't be there to pick it up. They got lucky and they were good at picking YouTube up. They didn't pick up Facebook or LinkedIn. Who's to know when the next wave is coming if they can make money in that business? This was really fun, guys. This is awesome. I definitely think very highly of Google. I think the business is just an amazing business to kind of look at, and it's definitely different than almost everything else out there.

Starting point is 00:49:18 I'm very curious to see the direction that it goes in the future. I'm also very interested to see how IBM competes with Google as they go into these big data analytics moving forward. IBM is a company that I have money in, and I'm assuming that Stig and Hari are the same, correct? Yeah, Hari is saying yes. Stig, how about you? Do you have anything in I? Stig does not have anything in IBM. So it's kind of interested.

Starting point is 00:49:41 I'm very interested to see how kind of things progress as we move forward. The book by Stephen Levy was fantastic, a very good book. Not as business-oriented as the Everything Store that we read about Jeff Bezos. But if you're really kind of trying to understand how Google works, maybe you have an online business or something like that, I think it'd be a very useful tool for you to kind of do more research on. So we highly recommend the book. We have our show notes as usual. If you want to get the show notes, make sure. that you sign up for those show notes on our mailing list, which is on our website.

Starting point is 00:50:13 And before we sign off, we're going to go ahead and play our question from Derek Randell. He recorded his question on Asktheinvestors.com. And if you want to get your question played, make sure you go there and record your question for us. Hi, Preston and Stig. How are you? This is Derek from Moncton, New Brunswood, Canada. Thank you so much for all your work on the Investors podcast, as well as your Buffett

Starting point is 00:50:33 Books website. I've been learning a ton. So thank you very much. My question is in relation to opportunity cost. In episode nine, you reviewed the book by Charles Coke and introduced the term opportunity cost. My question is, how do you actually calculate the opportunity cost between two stocks when future returns are unknown? Anyway, thank you very much, and I hope you can answer this question. So, Derek, this is one of my favorite topics is opportunity cost. And one of the things that is opportunity costs. And one of the things

Starting point is 00:51:07 that we did on the Buffett's Books website is we built a sell calculator for whenever you want to sell stocks. We could actually call that an opportunity cost calculator if we wanted to do that as well. So we'll have a link to that in our show notes to take you to the Buffett's Book sell calculator, which I should probably rename that, and I think I will after I'm done recording this to sell slash opportunity cost calculator. but what you're able to do with that is you're coming up with an estimate of what the cash flows might look like for any particular stock. So let's say that we have stock A and we think that the cash flows might be $100 over the

Starting point is 00:51:46 next 10 years. And then we have another stock, which we'll call stock B, and let's say that we think that the cash flows might be $200 over the next 10 years. And what we do is we discount both of those cash flows back to today's present value and we come up with what we think the market price should be. Then we compare and we look at what the market price actually is, and then that'll give you a return. So let's say with stock A, we thought the return might be 10 percent, and with stock B, it might be 12 percent based off of the actual price that it's trading for. And so whenever you're looking at that difference or that delta

Starting point is 00:52:21 between the two, it's a 2 percent difference. So what you have to ask yourself is if you own stock A or you already own stock B, what is it going to cost after you pay capital gains to get out of that particular pick and move it into the other pick? And that's opportunity cost at its best. So I would highly recommend that you go there. Learn how to use that calculator. It kind of works in conjunction with our intrinsic value calculator. So you're going to really need to know how to use both. But if you have any other questions on this, feel free to send us another message or we can maybe describe it better on another show or even kind of build a page that describes how the two are worked together.

Starting point is 00:53:00 So it's more clear for people. But this is the most important thing you can really understand in stock investing because stock investing is all relative. It is all relative. The value of one thing is relative to the value of another thing. So you've got to really thoroughly understand opportunity cost. And this calculator, I personally use it all the time. So you could say that I eat my own cooking.

Starting point is 00:53:21 But this is something that I would definitely go check out. watch the video on it and watch the video on the intrinsic value. And I think you'll have a much better idea of what it is that we are talking about. All right. So that concludes our show. We really appreciate everybody joining us. We'd like everybody to go to Harri's website, bit's business.com. We really appreciate him joining us.

Starting point is 00:53:39 He's pretty much a staple here on the show. Anytime we read a good book or need to have a great discussion, we always bring Harry on to the show. So thanks for joining us, Harry. And we'll see everybody next week. Thanks for joining us. Thanks for listening to The Investors podcast. To listen to more shows or access to the tools discussed on the show, be sure to visit www.theinvestorspodcast.com.

Starting point is 00:54:02 Submit your questions or request a guest appearance to the investors podcast by going to www.org.com. If your question is answered during the show, you will receive a free autographed copy of the Warren Buffett Accounting Book. This podcast is for entertainment purposes only. This material is copyrighted by the TIP Network and must have written approval before a commercial application. Thank you.

We Study Billionaires - The Investor’s Podcast Network - TIP 013 : How Billionaire's Larry Page and Sergey Brin Built Google (Investing Podcast)

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.