Google: The One Search Engine (and Company) to Rule All OthersScott A. MooreAssociate Professor

December 7, 2009

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The plan for today

• Leaders

• Search Business

• Business Model

• Work Culture

• Technology

• Finances

• Current business model

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Leaders

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Founders: Larry Page &Sergey Brin

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The beginning

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• Search program was a PhD project run out of Stanford (beginning in 1996)

• In Aug 1998 Sun co-founder Andy Bechtolsheim wrote a check to Google Inc. for $100K

• In 1998 move to a garage in Menlo Park

The Google Office (late 1998)

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Endorsement (May 1998)

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Google’s First Press Release

CEO: Eric Schmidt

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The Googleplex(Mountain View, CA)

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Google Offices (2009)

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Search Business

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The business in the late 1990s

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• Portals were seen as the future

• Search was seen as

• A dying business

• A commodity product

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AOL(Feb 1997)

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Excite(Feb 1997)

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Yahoo (1999)

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Google (Dec 1997)

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Google (Dec 1998)

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How big is the index?• Dec 1997: 24 million

• June 2000: 1 billion

• Dec 2001: 3 billion

• Feb 2004: 6 billion (including 880 million images)

• Nov 2004: 8 billion

• July 2008: 1 trillion unique URLs

• Growing by 1 billion per day

Business Model

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Several underlying principles

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• Focus on the user

• Advertising is very bad

• Speed, speed, speed

• “Do no evil”

• (Oppose Microsoft)

• Data driven

Work Culture

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It’s a different place to work

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• A sense of playfulness

• Logos, “I’m feeling lucky”

• Try to encourage workers to stay at work

• Very academic

• “20% time”

• Food

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April Fool’s Day 2000

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Chef Charlie Ayers

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Google Moon

Technology

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A couple major areas

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• Cheap, reliable computing

• Power usage is key

• Search engine algorithm

• Advertising program

Google’s Original Storage(1996)

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Google’s servers (1997)

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Early Google

Computer Rack

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Google Data Center (2008)

Google Datacenter Complex in Oregon

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PageRank

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• Incoming links

• Importance of linking pages

• Page content

Advertising programs• AdWords

• You (or your company) can place targeted ads in response to queries

• Mostly on Google.com, but also on their partner sites

• You pay Google to be an advertising outlet for your ads

• AdSense

• You make your site available so that other companies can place ads on your pages that match the content of those pages

• You make money by allowing your site to be an advertising outlet for the ads of other companies

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AdWords

• Placing targeted (mostly text) ads on (mostly) Google.com’s results page

• You bid on keywords with a PPC (pay-per-click) value

• Ads are chosen (by Google) based on the PPC value times its CTR (click-through rate)

• So you just can’t be out-bid

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How do companies get traffic?• Organic

• People type in the URL into the browser

• Algorithmic

• Your site appears in search results

• Purchased

• You site appears in the paid search results (ads)

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AdSense

• Opening up your own Web site to ads placed by Google (other companies)

• How to make money?

• You need traffic!

• Visitors need to click on the ads.

• The higher the CPC value, the more you make when they are clicked on.

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Finances

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Stock price history

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Google Quarterly Revenues

Quarterly RevenuesQuarterly Revenues

$6,000

Q3’09 Y/Y Growth = 7%Q3’09 Q/Q Growth = 8%

5 541 5,7015,945

1 6551,680

1,6931,638

1,801

1,684$4,500

$5,000

$5,5005,186

5,3675,541 5,701

5,509 5,523

in m

illio

ns

1,686 1,655

$3 000

$3,500

$4,000

$

3,5303,811

3,4003,693 3,9563,672 3,653$2,000

$2,500

$3,000

$500

$1,000

$1,500

3

$0Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09

Google.com Network Licensing and Other

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Google US vs. International

U S vs International RevenuesU.S. vs. International Revenues

100%5,186 5,367 5,541 5,701 5,509 5,523

($ in millions)5,945

80%

90%

52% 51%51% 50% 52% 53% 53%

50%

60%

70% 52% 51%51% 50% 52% 53% 53%

30%

40%

48% 49%49% 50% 48% 47% 47%

0%

10%

20%

4

0%Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09

US International

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Google Traffic Acquisition Costs

Traffic Acquisition Costs

$1,500

$1,600 40%

Traffic Acquisition Costs

29 2%$1 100

$1,200

$1,300

$1,400

$1,500

35%

1,5591,486 1,474 1,495 1,483 1 436 1 453

27.1%26.9% 26.9% 27.2%27.9%28.4%

29.2%

$700

$800

$900

$1,000

$1,100

25%

30%

n m

illio

ns

, 1,474 , , 1,436 1,453

$400

$500

$600

$700

20%

$ in

$0

$100

$200

$300

10%

15%

5

Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09

TAC TAC as % of Advertising Revenues

Current Business Model

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Google Earnings Highlights

Third Quarter 2009 HighlightsThird Quarter 2009 Highlights• Revenue growth of 7% Y/Y and 8% Q/Q

G l ti th f 8% Y/Y d Q/Q– Google properties revenue growth of 8% Y/Y and Q/Q

– Network revenues increased 7% Y/Y and Q/Q

– International revenues were $3.1 billion

• Operational Highlights– Strong financial metrics: revenue growth, profitability, and cash flow

– Investing in Innovation: 70/20/10

• Innovation in our Core Business

Creating the Perfect Search Engine and Better Ads– Creating the Perfect Search Engine and Better Ads

• Innovation in our Emerging Businesses

– Mobile/Android

2

– Display/YouTube

– Enterprise

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These are the questions for you

• Where do they go from here?

• Where are their prospects for growth?

• What are their biggest threats?