In The Plex

by Steve Levy

  It was a fantastic vision, straight out of science fiction. But Page was making remarkable progress—except for the implant. When asked in early 2010 what will come next for search, he said that Google will know about your preferences and find you things that you don’t know about but want to know about. So even if you don’t know what you’re looking for, Google will tell you.

  What Page didn’t mention was how far along Google was on that path. Ben Gomes, one of the original search rock stars, showed a visitor something he was working on called “Search-as-You-Type.” Other internal names for it were “psychic” and “Miss Cleo,” in tribute to a television fortune-teller. As the more prosaic name implied, this feature enables search to start delivering results even before you finish typing the query. He started typing “finger shoes”—the term that people often use to describe the kind of footwear Sergey Brin often sports, rubberized slippers with individual sleeves that fit toes the way gloves fit your fingers. Of course, Google search, with all the synonyms and knowledge fed to it by billions of searchers who clicked long and those who clicked short, knew what he was talking about. Gomes hadn’t finished typing the second word before the page filled with links—and ads!—confidently assuming that he wanted information, and maybe a buying opportunity, involving “Vibram Five Fingers, the barefoot alternative.” “It’s a weird connection between your brain and the results,” Gomes said. (In September 2010, Google introduced this product as “Google Instant.”)

  “Search is going to get more and more magical,” says search engineer Johanna Wright. “We’re going to get so much better at it that we’ll do things that people can’t even imagine.” She mentioned one example of a demo being passed around. “Say you type in ‘hamburger.’ Right now, Google will show you hamburger recipes. But we’re going to show you menus and reviews of where you can get a hamburger near you, which is great for anyone living in a place where there are restaurants. I call this project Blueberry Pancakes because if I want to check those out, it’ll tell me about the pancake house in Los Altos, and I’ll go there. It’s just another example of where we’re going—Google’s just going to really understand you better and solve many, many, many more of your needs.”

  That would put Google in the driver’s seat on many decisions, large and small, that people make in the course of a day and their lives. Remember, more than 70 percent of searches in the United States are Google searches, and in some countries the percentage is higher. That represents a lot of power for the company founded by two graduate students just over a decade ago. “In some sense we’re responsible for people finding what they need,” says Udi Manber. “Whenever they don’t find it, it’s our fault. It’s a huge responsibility. It’s like we’re doctors who are responsible for life.”

  Maybe, it was suggested to Manber, however well intentioned Google’s brainiacs were, it was not necessarily a good thing for any single entity to have the answer, whether it was hardwired to your brain or not.

  “It may surprise you,” says Udi Manber, “but I completely agree with that. And it scares the hell out of me.”

  PART TWO

  GOOGLENOMICS

  Cracking the Code on Internet Profits

  1

  “What’s a business plan?”

  Google CEO Eric Schmidt called it “the hiding strategy.” It was Google’s biggest secret, maybe even better protected than the secrets behind search. Those who knew the secret—virtually everyone working at Google—were instructed quite firmly to keep their mouths shut about it. Outsiders who suspected the secret were given no winks of confirmation. What made this information easier to keep is that almost none of the experts tracking the business of the Internet believed that Google’s secret was even possible.

  What Google was hiding was how it had cracked the code to making money on the Internet. Google had invented one of the most successful products in corporate history, and the company was swimming in black ink.

  David Krane, who joined Google in 2000 as one of its first press reps, was charged with maintaining the hide and thwarting the seek. Every company he’d ever worked for previously had been more than eager to emphasize the positive when it came to financial results. But at Google, his job was misdirecting journalists away from good news. “We’d cracked one of the unsolved puzzles on the Internet—making money at scale in a way that users embrace,” says Krane. “The longer we could avoid other companies figuring that out, the better.”

  The secrecy dovetailed with Larry Page’s hardwired secret-keeping in any case, but Schmidt, who’d joined Google in 2001, had made this covertness a top priority. The new CEO was worried about Microsoft. In the 1990s, at Sun Microsystems and then as leader of the networking company Novell, Schmidt had seen what happened when the 800-pound gorilla of high tech had awakened to a threat to its livelihood, the Internet. Now the scope of Google’s success put search into that category; Microsoft just didn’t know it yet. Sooner or later the beast would awake, but Schmidt preferred it to do so later.

  The hiding ended on April 1, 2004. As a consequence of going public, the company was required to share its internal information with the bankers who would potentially handle the IPO. Google’s finance people had gathered the bankers in its headquarters, then located in Mountain View. On the eve of the meeting, chief financial officer George Reyes and Lise Buyer, the director of business optimization, came up with a plan to reveal the secret Google style.

  Opening the meeting, Reyes welcomed them. Since the bankers had taken a big gamble by signing on without seeing the bottom line, he said, he’d go straight to the numbers. Then he put up slides with some figures. “You could hear a pin drop,” Buyer would later recall. The slides indicated that Google was indeed making pretty good profits. Not earthshaking but more than respectable, especially for an Internet business offering a free service supported only by ads. The bankers listened politely, but you could tell that they’d heard chatter that things had been, well, better than good, and they were apparently doing some mental recalculations.

  Then Reyes told the bankers he was sorry, but he’d mistakenly put up the wrong slide. Could he display the real numbers? A balance sheet appeared with more than double the revenues and profits on the previous slide. It exceeded even the wildest expectations. April fool!

  “George was flawless,” says Buyer. “It was a beautiful moment.”

  As was typical with start-ups, Google was slow out of the gate in generating revenues, but sometime in 2001, net revenues jumped, finishing at $86 million, more than a 400 percent jump from 2000. Then the rocket ship blasted off. Google took in $347 million in 2002, just under a billion dollars in 2003, and 2004 was on track to nearly double that. Profits were equally impressive. The 2001 ledger was over $10 million in the black. By 2002 there was a profit of more than $185 million. From that point, profits fluctuated because of huge expenditures in hiring and infrastructure—basically, Google was building the scaffolding to become an Internet behemoth. And its dizzying revenues made it clear that it could afford to do so.

  Everyone knew how amazing Google’s search technology was. But if you were a banker in that room, you were thinking that the magical ability of Google to find obscure facts on the web was nothing compared to its much more fantastic achievement in building a money machine from the virtual smoke and mirrors of the Internet. In addition, by applying its algorithmic, datacentric approach to economics, Google had quietly begun a revolution that would transform and upheave the worlds of media and advertising.

  What was really mind-boggling was that this came from a company that had begun with no idea how to make a buck.

  When Salar Kamangar joined Google, his résumé was as threadbare as those of his just-out-of-grad-school bosses. Born in Tehran but raised in the United States, Kamangar was the son of a surgeon. He entered Stanford as a premed student, majoring in biology, but then he decided he didn’t want to become a doctor or a scientist. Instead he took courses to get a second degree in economics. Draw
ing inspiration from his Silicon Valley surroundings, he wanted to start a company. His idea was to speed the transition in classified ads from newspapers to online by setting up Internet photo kiosks. He even pitched the idea to Yahoo cofounder Jerry Yang. Ultimately, he decided that before plunging into entrepreneurial waters, he should get some actual experience in the business world. He was twenty-one years old.

  Kamangar more than compensated for his lack of experience with quiet determination. Though he appeared placid and self-contained—and loathed the spotlight—he had a steely, gnawing resolve. As a Stanford junior, he ran for president of the campus Persian Student Association. His campaign platform included boosting membership by combing old freshman picture books for Persian-sounding names; enhancing appreciation of Persian culture in the CIV (Cultures, Ideas, Values) survey courses the university required of all students; and establishing coursework in Farsi. “Stanford,” he charged in a speech before the group, “is among the few schools with the shameful record of offering no Farsi classes.” He also vowed to have more ski trips. He won the election.

  Kamangar made a short list of companies he might like to work for—brand-new start-ups that might take a chance on someone like him—and because, like many Stanford students, he had been playing with an early version of Google, he put it on his list. One day in March 1999 he saw in the Stanford Daily that Google was recruiting. He went to the Tresidder student center and found Sergey Brin in a small booth. “Unlike everyone else I’d talked to, he wasn’t using jargon. He had a very clear, very ambitious, grand—in some ways grandiose—vision for what Google could become,” Kamangar would recall. But Brin was not interested in hiring him. Kamangar was a biology major, not an engineer. Even at that stage, the Google preference was for computer science majors.

  Kamangar kept pressing. “He would walk in every day and say, ‘I want to work for free,’” says investor Ram Shriram, who was taking a day off from Amazon every week to help protect his investment in Google. Brin finally agreed to take him on part-time to do things that engineers couldn’t be bothered with, such as drawing up a business plan. “Neither founder had any interest in that,” says Shriram, “They said, ‘Yeah, we need money, but we’re not really interested in spending too much time on that. What’s a business plan?’”

  Whatever it was, Google needed one. Its original million-dollar funding had been granted solely on the basis of Google’s technology. But the company was already struggling to pay for equipment—its servers were overwhelmed by new users—and Brin and Page needed full coffers to finance their ambitious hiring plans. Venture capital could provide that. But they’d have to make a credible case that Google could one day be profitable.

  Kamangar became the point man in one of the weirder VC rounds in Silicon Valley’s history. Shriram helped him out, but Salar had a remarkable degree of responsibility. He wrote the slides for the presentations, crunched numbers for the valuation, and, of course, drew up the business plan. Though hired as a part-timer, he went full-time two weeks later, dropping his pursuit of a second degree at Stanford. “It was ten times more exciting than what I was doing at school,” he says of Google.

  Kamangar sometimes thought the team was in way over its head. He couldn’t believe the way Brin and Page would behave. They would go into VC meetings and refuse to answer questions. Even a basic query such as how much traffic was on the site would be stonewalled. What’s more, says Kamangar, “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.” One VC actually stormed out of the room. Salar would go to Page and Brin and say, “Did we really want to do that? These are major figures in the Valley, and they seem really pissed off at us. Isn’t this bad?”

  But Larry and Sergey had complete confidence. They’d tell Salar that the VCs didn’t need to know the figures unless they were going to commit the money. Page was working the “hiding strategy” even before he had something to hide.

  The elite of the elite venture capital firms in Silicon Valley was Kleiner Perkins Caufield & Byers. The head was John Doerr, a bony blond man with oversize spectacles who looked a bit like Sherman in the Mr. Peabody cartoons but loomed over Silicon Valley like Bill Russell in the Boston Celtics’ glory years. Originally an engineer at Intel, he joined KPCB in 1980 and rose to the top of the VC heap during the Internet craze, funding Amazon.com and Netscape, among others. At industry conferences, Doerr would speak so rhapsodically of technology’s potential to save the world that one might assume his work had been solely in nonprofits.

  He was indeed a businessman, though, and his judgment of the brainy, shaggy-haired supplicants who filed into his conference room in the glass-walled buildings in Menlo Park’s Sand Hill Road was astute. He’d seen plenty of smart nerds with good ideas, and was more than happy, on the recommendation of Andy Bechtolsheim, to see two more. Google’s idea, presented with Kamangar’s slides, was compelling. And its founders seemed straight out of the mold of previous winners from Stanford. The meeting was just ending when Doerr asked a final question: “How big do you think this can be?”

  “Ten billion,” said Larry Page.

  Doerr just about fell off his chair. Surely, he replied to Page, you can’t be expecting a market cap of $10 billion. Doerr had already made a silent calculation that Google’s optimal market cap—the eventual value of the entire company—could go maybe as high as one billion dollars. “Oh, I’m very serious,” said Page. “And I don’t mean market cap. I mean revenues.”

  More than a decade after that meeting, Doerr would still marvel at the conversation. “I didn’t think the guy could do it, but I was impressed,” he says. “It had to do with the tone of voice. He wasn’t saying this to impress me or himself. This is what he believed. This was Larry’s ambition, in a very thoughtful, considered way.”

  Kleiner Perkins wasn’t the only VC that made a connection with Google. Larry and Sergey had also made a big impression on Mike Moritz at Sequoia Capital. Moritz, a former journalist for Time, had made his VC bones by funding Yahoo. Like Doerr, he was inundated with pitches at the tail end of the Internet boom days. “It was 1999, so nobody had their feet on the ground,” says Moritz. “Everybody was just reacting. The parking lots were always full. There were always queues of people waiting to see us.”

  But he was primed for this meeting. He believed that the companies that could excel in search had a great future. “That and the fact that these two people were really unusual and that their early version tasted far better than Pepsi,” he says. Moritz liked Brin, who did most of the talking, but was equally impressed with Page. “There’s always one guy who doesn’t talk much, and it’s easy to pay attention to the one that talks—invariably that’s a big mistake,” he says.

  Brin and Page wanted to work with Moritz. But they also wanted to work with Doerr. According to Page, it was Andy Bechtolsheim who opined that there was a “zero percent possibility” that it would happen. That was the kind of statement that made Page want to make something happen. “We thought, ‘That would be exciting, why don’t we do that?’” Page later said. Having not one but two coequal lead funders was like a built-in insurance policy. They would have the combined connections of both firms but not be seen as too closely aligned with either. Also, Page said, an unprecedented combo like that “makes the company very notable.” It was not a choice that either Doerr or Moritz would have preferred. But both VCs recognized Google as perhaps the last big score of the Internet boom, so they agreed to the unusual arrangement, splitting the $25 million of capital that the company required.

  There were some caveats. Both Doerr and Moritz believed that at some point, Google would have to hire an experienced CEO to head the firm. “It was a very clear understanding,” says Doerr. “It’s not saying anything negative about them, but I thought we would do a much better job of building a world-class management team if they had a world-class CEO. They agreed, and we closed the
financing.” Doerr and Moritz would join the founders on the board of directors, along with Shriram. Brin was president and chairman of the board; Page was CEO.

  If the founders of Google had difficulty dealing with the $100,000 check they had received from Andy Bechtolsheim, you can imagine how Salar Kamangar felt when he was charged with processing $25 million from the VCs. “This was my first wire transfer, and I wasn’t really sure how to do it,” he says. But he figured it out, and the $25 million was crucial in building the company.

  At that point—spring 1999—Google had yet to formally announce itself to the public. Its product was still in beta. The geek world was already familiar with the search engine, and enthusiastic reviews had appeared in the press. But with news of the twin peaks of venture capital investing $25 million, Brin and Page scheduled their first press event.

  Google’s first press release was something of a battlefield. Larry and Sergey were both finicky about language. Meanwhile, the VC firms were both determined that no one would read the release and think that the other firm was the lead investor. After more back-and-forths than a long tennis volley, Sergey finally told them to stop. Page and Brin also insisted that the event be held at Stanford, at the Gates Building, where the company had begun. They sent out the map in ASCII characters, which looked cool but was of no help to those unfamiliar with the Stanford campus. The meeting had to start late because some of the reporters couldn’t find the building.

  Once under way, it went well—a half-dozen or so reporters in a classroom politely listening to Larry and Sergey, who were dressed in matching white polo shirts with the Google logo. Larry began by explaining Google’s recently refined mission: “To organize the world’s information, making it universally accessible and useful.” He talked about Google using artificial intelligence and having a million computers someday. None of this was surprising to the reporters. Start-up founders talked like that all the time. How could the press know that this was the one time when the fantastic predictions would be realized? Sticking to script, the reporters asked how Google would make its money. Brin said it was working on a means to target ads to search. Still, he cautioned, Google’s ad system, whatever it turned out to be, would respect its visitors. “Our goal is to maximize the user experience, not maximize the revenue per search,” he said.