Google: The Origin of Search

The founding and rise of Google in 1998 marked a significant shift in how search engines operated, primarily due to the Pagerank algorithm developed by Larry Page and Sergey Brin which became the cornerstone of site authority ranking.

Pagerank Algorithm Developed by Larry Page and Sergey Brin For Site Authority Ranking

Larry Page and Sergey Brin, during their collaboration at Stanford University, developed a system named Backrub that used backlinks to rank web pages' authority. Recognizing the practice of heavily weighting prestigious academic papers in citation networks, they adapted this concept for the web by treating hyperlinks like academic citations to evaluate webpage credibility and relevance.

Page wrote the initial implementation of the Pagerank algorithm and crawler in Java, but it was full of bugs. They then turned to their friend Scott Hassan at Stanford, who recoded it in Python to better effect. Despite trying to sell Backrub and their unique ranking approach, they found little interest. Larry stated, "We couldn't get anyone interested in buying Backrub. We did get offers, but they weren't for much money."

Despite the challenges, the power of the Pagerank algorithm was undeniable. It provided a novel way of discerning credible and relevant webpages by seeing links as endorsements, akin to how academic citations signal the credibility of research papers.

David Rosenthal explains how prestigious academic papers, which are more heavily cited, inspired the concept. Ben Gilbert further acknowledges the pre-existing research around academic citations, and how Page and Brin repurposed this knowledge for the web. Gilbert and Rosenthal discuss how this early approach to search ranking favored quick and relevant results for users over keeping them onsite. This fundamentally differentiated Google’s strategy from other search portals which aimed to generate advertising revenue through page views.

The project's initial focus was not to create a search engine but rather to improve web search engines in general. Google's unique approach to ranking web pages included a reliance on anchor text descriptions from hyperlinks. Gilbert mentions how Google's subsequent use of various signals such as user traffic data began to enhance its organic search ranking capabilities. Data regarding user behavior like repeated bounces from pages for certain queries could also inform relevance and page rankings.

Google's Founders Enlist Urs Holzle and Jeff Dean to Build Web Infrastructure

With an angel investment secured, Page and Brin sought out top-tier talent for their budding project. They recruited Urs Holzle from academia to handle Google’s infrastructure. At one point holding the title of "search engine mechanic," Holzle dealt with broken systems and aimed to make them dependable and scalable. His previous experience included writing a Java virtual machine for Sun Microsystems.

Jeff Dean, who joined Google from DEC, brought in a system of insights and innovations that would shape Google's technical capabilities for years to come. His contributions ranged from the initial version of AdWords, rebuilding the search pipeline, to co-developing BigTable and MapReduce, and even leading AI initiatives at Google.

Holzle proposed using cheap commodity hardware, understanding it would fail often but could still operate effectively within their system due to replication strategies. Google scaled its search capabilities with this hardware, sometimes borrowing computers from other research projects in a pinch. The infrastructure required technology to crawl the web, store parts, and manage an index that would be searched upon. Google's usage growth necessitated more infrastructure, leading to the development of a distributed computing system where data was managed across multiple machines and servers. The Google index, much too large for a single server, would exist in tractable 64-megabyte files across these distributed systems. They implemented a master server that mapped where these files physically resided, allowing queries to be processed efficiently by accessing only the necessary chunks of data.

Due to Google's reliance on commodity hardware, the system ...

Google, hailed as the "single greatest business of all time," has experienced significant shifts from research to an ad-based business model. These changes highlight Google's innovative approach and strategic decisions that ultimately cemented its status in the tech industry.

Google Launches Adwords In 2000, Initially Struggling to Gain Traction

Google's launch of AdWords in 2000 echoes its transition from a purely research-focused entity to a formidable business powerhouse.

Innovations: Second-Price Auction, Ad Quality, Relevance in Ranking Algorithm

Initially, Google's AdWords platform faced scrutiny for resembling GoTo's business model. However, it evolved to intermingle paid and organic results, which leveraged Bill Gross’s idea. Larry and Sergey regret not adopting this model earlier due to its business potential. Fall of 2000 marked a transformative period as Google seriously turned attention to hone its ad product, recognizing its ability to capture users' search intent. Intent-based ad systems proved to be monetizing traffic drivers.

Google’s ad system focused on ad quality, integrating elements of the PageRank algorithm to ensure that ads were as relevant as possible. This resulted in the concept of Ad Rank, prioritizing ad bids and performance. Despite initial struggles, Google’s ad model innovation led to their development of a second-price auction system, where the highest bidder pays only a cent more than the second highest bid, fostering advertiser trust and aligning incentives for all parties.

Google's testing proved their capacity to harness search intents to drive highly convertible traffic to advertisers. The initial launch included self-serve capabilities and ad quality components but lacked CPC or auction elements. They learned quickly when advertisers exploited the CPM payment model but iterated to include CPC and auction models in 2001, refining both advertisers' understanding and their internal systems.

Benefits Google Advertising Model For Advertisers and Users

Although not directly discussed in the transcript, it's apparent that the AdWords platform posed significant benefits to both advertisers and users. By valuing user experience, signified by the insistence on text-only ads that wouldn't harm page performance, and focusing on the users' search intents, Google maximized advertising effectiveness. Ad Rank's incorporation of click-through rates meant better-performing ads could secure prime placement for less, balancing the playing field for advertisers.

Google's 2002 Deal With Aol Boosts Adwords Business

The deal with AOL, coined as a "bet the company" move, was a strategic risk that Google embraced to amplify its fledgling AdWords business.

Aol Deal Was a "Bet the Company" Move For Google, Risking Bankruptcy if It Failed

In 2002, Google made a daring move by negotiating a deal with AOL that included a $100 million revenue guarantee. Larry and Sergey were the proponents of this gamble, strongly believing in the monetization capabilities of their ad system. Google risked $100 million—money they didn't possess at the time—taking a significant leap that, had it failed, could have led to bankruptcy.

Deal Generated $200 Million f ...

Google's market position has become seemingly unassailable due to its user-friendly reputation and high-quality, fast search results, furthering its dominance through strategic distribution deals and user acquisition practices.

Google Aggressively Seeks Distribution Deals and User Acquisition, Emphasizing Scale As Key to Their Model

Google grew its brand beyond its own site by aggressively seeking search distribution deals with companies like Netscape, Yahoo, AOL, and others. These partnerships trained a large portion of the internet to use Google's search engine, making Google the default option for many users. In the case of AOL, they were willing to offer massive revenue shares, in some cases up to 100% or even more, to establish this foothold. This strategy of securing default positions was critical in expanding Google’s user and advertiser pools, as both groups grew, Google benefited from economies of scale. These deals played a crucial role in allowing Google to amortize its fixed costs of infrastructure and employees, thus increasing the revenue per user and decreasing unit costs.

Favorable Revenue Deals Make Google Default Search Option

The strategic decision to forge deals that made Google the default search option for various services such as powering search for Netscape was based on the revenue and reputational benefits it could bring. Google even prioritized Netscape users over their own by temporarily shutting down google.com to focus on this partnership. The deals secured significant revenue and investment, especially important during times such as the dot-com bubble burst. For example, the partnership with Yahoo involved a $10 million investment from Yahoo that helped keep Google afloat.

Google Toolbar Bundling Boosts User Engagement and Lifetime Value

Google's strategic deployment of the Google Toolbar in 2000 as a browser extension significantly increased user engagement. Once installed, it led to users making seven times more searches, which in turn increased their value. The toolbar was also leveraged by bundling it with software installations such as Google Earth and by striking deals with computer manufacturers like Dell to pre-install the toolbar. The toolbar was not only a move to make search more easily accessible but also a defensive strategy against Microsoft's browser dominance. These actions led to higher average revenue per user, which in turn fueled further investments into user acquisition.

Search Ads Economics Reinforce Google's Dominance

The economic model of Google’s search advertising underpinned its dominance by reinforcing the capacity to drive and monetize user engagement. The move from a manual AdWords order system to a self-serve model scaled up the platform’s reach, allowing small and large advertisers to participate. Google's higher monetization per user allowed it to provide more favorable revenue shares than competitors, which supported the spread of the Google Toolbar and the company’s status as the preferred search engine.

Google's Growing User Base and Auction Pricing Increase Ad Impression Value

With a growing user base, Google's ad inventory increased, leading to more bidders on every keyword and better-targeted ads. This in turn ...