Google Case Study | Audio Transcript

This is Professor Michael Rappa from North Carolina State University in Raleigh, North Carolina. And I’m here to speak with you about my course, Managing the Digital Enterprise.

One of the most remarkable digital enterprises to emerge out of the dust of the dot.com boom is Google. It’s hard to imagine there hasn’t already been said everything that could be said about Google. But let me make a few observations of my own. First is to recognize that Google was started, as a relative latecomer, by two Stanford graduate students, Sergey Brin and Larry Page.

Already by 1998, 1999 search was a big business on the Internet. Yahoo had owned pretty much a good chunk of it, having taken it away from some its earlier predecessors. But looking at an organization like Yahoo – it was already a multibillion dollar operation. And so for two students to come along with a better idea, and in a relatively short period of time, and largely with the help of Yahoo, to take over a great portion of the search business on the web, is really quite remarkable.

Why they were as successful as they were, I think we could point to a few things. First, it had a lot to do with Yahoo itself. Yahoo, as I said, really was one of the major innovators in search in the mid 1990s. And their first approach was really to use people to help categorize links on the web, much like librarians catalogue books in the library. And of course the web started growing so fast, that it wasn’t feasible to have legions of people attempt such a classification. I’m not sure when it’s really possible.

But by the mid to late 1990s, it had become apparent that the only way that you could really index the web was to do it in automated fashion. And so a few companies emerged at that time, building these databases, using automated crawlers or bots to collect links and text around the internet. And Yahoo had really depended upon outsourcing that part of its search services to other companies.

Well when Google came along, they had some clever ideas how about how to do that kind of search well, in terms of how to build a database, and offered up an algorithm, a creative approach to ranking the search result returns that was really quite appealing. So part of Google’s early success was the fact that Yahoo had, in fact, turned to Google, and was porting Google’s search database into the Yahoo framework. And so by early 2000, 2001, when you went to Yahoo and were searching its directory, you were finding its own sort of human catalogued results. But in addition to that, you were actually searching Google in the background, only within the context of Yahoo.

So in no small measure then, Yahoo really had contributed greatly to the early success of Google. And it was just a few years later when Yahoo realized what it had done in really creating and greatly expanding the success of Google that it turned and bought out one of the other large search engine businesses – Inktomi – and basically cut its contract with Google, recognizing now that Google had become its major competitor.

Another factor in Google’s success, I think, was again a kind of failure of Yahoo’s, and a recognition by Google, that search was really important. And that was a reason why people were going to the web – to find things. And Yahoo, in a sense, had really begun to abandon search, in favor of trying to – to use a common phrase, “monetize their traffic” – they turned increasingly to turning Yahoo into a shopping destination, news portal, and a kind of comprehensive experience, in the hope of generating more revenue than they could simply by offering up banner ads on search pages.

And so as search was, in fact, becoming more and more important over time, Yahoo had miscued, and was really deemphasizing search in favor of a lot of other activities. One of the results of that was the Yahoo website was really becoming a kind of cluttered environment where search was not at all a prominent feature necessarily. And in that context, Google comes along, and goes completely in the opposite direction, offering up search and only search in a way that was unmistakable. If you went to Google.com, all there was, was a search box to put a few words in, and a button to hit, and the famous “I’m feeling lucky” selection. And that was it.

So Google emerges with a very uncluttered, very user friendly, very directed approach to search, combined with a superior algorithm that was yielding results that were more in tune with what people were actually searching for. I think this went a long way to Google’s early success. It’s hard to imagine. But in truth, a multibillion dollar business in search was, in a sense, stolen right out from under Yahoo’s nose, which was already a multibillion dollar organization. And I think this points to the incredible power of the web, that when someone has a better idea, there are really great opportunities still out there.

Now Google would not have been as successful, clearly, if it weren’t for the fact that they were really thinking hard about that algorithm for ranking results, and how to match up a set of links at the top of a search return, that were a closer approximation to what the searcher was actually looking for. And what they had recognized – and in hindsight, one could say, okay, that’s a fairly obvious thing, but certainly at the time, it was clever – was to use the interconnectedness of the web itself as a way of calculating the relative importance or merit of a particular destination.

And so the idea here is that the web is a vast linking structure, and that people generally, on the whole, link to other sites that have some value. And the act of creating a link is, in a sense, a vote of confidence that what you’re offering up your own users is something to follow that has value and merit for what their looking for.

And so what Google sought out to do is to say – you know if we were to build a metric around this linking structure, and for each site, calculate who links to it, and then to create a measure which even went so far as to further discriminate who’s linking to who – which is to say it’s more important that other sites who link to you are also heavily linked to themselves – so that there was some sense of a kind of authoritativeness to the web, then sites which were highly linked to, which linked to other sites, would, in a sense, provide a greater indicator of value than say, a site that had very few links to it linking to another site.

So it was in this very deep and rich understanding of the linking structure that Google began to create a metric. And that metric they called a “PageRank,” which was, in fact, named after Larry Page, one of the founders of Google, but obviously was meant to imply superiority in their ability to rank the result returns on a search.

Now today when you go to Yahoo or to another major search engine – and it’s important to understand that although there are thousands, and perhaps millions of places to search when you go to the web – search boxes pop up everywhere – that when you search the web, frequently you’re only searching a few major databases, Google being one of them, Yahoo’s Inktomi, MSN, and a couple of others.

And so today, there’s a lot of competition around improving those search algorithms, and a lot of effort being put into each. And if you searched Yahoo and searched Google, you might not see that much difference in the ranking of search results. But what you need to recognize is that back in 1999 and 2000, 2001, Google was really offering up a superior product. And it really caught on, because when people went to Google, I think they were more likely to find what they were looking for. And I think in addition to the superiority of the search algorithm, I think Google’s seriousness about search led them to do other things, which I believe gave them an advantage over the competition at the time.

Perhaps one of the other most important things that Google had done, was they became a lot more serious about how the web was crawled. So in the early days, the search engines which were crawling the web – and perhaps one of the earliest innovators was AltaVista, which has some very interesting history. But AltaVista had created an automated approach to crawling the web. But the web was a big place, and it was growing rapidly. And AltaVista was only putting so much effort into keeping up with that ever growing database of information connected to the internet. And the crawler, once it visited a site, it might not visit again for some period of months, or even longer.

And so when you went to AltaVista, what typically happened was you would search for something, and a list of sites would come back. And that ranking would typically be based on click through rates of the sites that correlated with that key term. And of course, that presented its own set of problems, in terms of the fact that the sites at the top got more click throughs, and they weren’t necessarily the most important sites.

But the other things was that many of the links, a bit too many from a user’s perspective, were coming up as dead links, because the web was constantly evolving and changing. And the automated crawler from AltaVista may have indexed a site six months earlier, and now that site was completely overhauled, or changed, or disappeared, and the link was dead. And so that was a very unsatisfactory experience – the combination between links that may not really be close to what you were looking for, and one too many dead links – that really presented a problem for those kinds of search engines.

So when Google came along, I think they became much more aggressive about crawling the web. So the so-called Google bot that indexes websites – in our own case, in our own course website, for example, the Google bot shows up literally every day to check on the integrity of the links on the site. And if it doesn’t find a page there anymore, in a matter of 24 to 48 hours, it may disappear from Google’s database search returns. And so when you go to Google nowadays, not only do you get fairly high quality search returns on a search, but you also more often than not, find any link that you follow through to be a live link. And I think this whole package adds up to a much better search experience.

Google’s success at this has, I think, energized other part of the industry to become equally aggressive in both devising search algorithms that generate relevant results, but also on the aggressiveness at which they are constantly crawling around the internet to find new sites. And also to make sure that the integrity of the links in the database are high, in terms of the fact that the sites are still operating and the pages are still there.

So having conquered the challenge of search, and taken that part of the digital world by storm, Google was really propelled into a very prominent position, and they were really thinking so creatively across the board about – now how could they convert this core competency that they have in search into value, and into something that customers would be willing to pay for. And I think they really came across some things that were emerging over the past few years that just fit very well with what search engines were all about. And in particular, what I’m alluding to here is the emergence of paid placement within the context of search.

Now Google wasn’t the inventor of paid placement. That was already in development. And in fact, really as early as the earliest days of Yahoo, Yahoo was selling banner ads that were tied to key words, so that when you searched Yahoo on a particular topic – let’s say you searched for an automobile – someone was paying to return a banner ad that might be selling their particular car, or what have you.

And so the notion of tying search into a kind of paid opportunity for advertising was something that had been around a long time. And there were some innovators like Overture Services, which was ultimately bought out by Yahoo, which began to recognize that one could discreetly offer paid results within the context of search. So they began moving away from banner ads, simply putting links within search results which were actually paid for or bid for by people wanting to advertise goods or services.

Well Google came along and recognized that of course that was a great opportunity. And they put their own spin on it with the so-called sponsor links. So if you go to Google, and you do the search, and you look at the top of the page in the right-hand side column, you’ll see that there are sponsored link sections. And this is the so-called “ad words program,” where people who want to advertise goods or services place a bid on getting a link advertisement somewhere on that page when someone searches on a particular key word or term. So this has been a huge booming business for Google.

I think a good part of Google’s success with this is that they’ve taken an upfront approach in making sure that sponsored links are labeled. But also, they don’t allow advertising to overwhelm why a person is using the site in the first place. So I think there’s a discreet element to the sponsored links, that they don’t get in the way of what the user’s trying to do. And in fact, if anything, they might be helpful in that sense. So I think there was a lot of wisdom on Google’s part to recognize that people are they predominantly to search. Don’t get in their way of doing that. To the extent that you offer up revenue generating opportunities in that context, just don’t let them interfere with what the user’s trying to do.

And for a very, very small sum, one can begin to create an account with Google, open up an ad words campaign, and begin to advertise their goods or services via a Google search. They’ve made it incredibly simple. It’s relatively inexpensive to get started. Although I think as ad words increase in popularity, what we’re going to see is that the bidding price is going to go up higher and higher, in order to get a sponsored link high on a return list. And so I wouldn’t be surprised already if some key words cost upwards of several dollars, if not more, just to get a placement high on a list.

The other thing Google had done, which I think has been adding enormous value for them, was to turn ad words around into a program called “ad sense,” where they would place sponsored links on other websites, as a service to those sites, and pay an affiliated fee for any kinds of click throughs that might come through. So they’re creating a business opportunity for other websites, and also generating business for itself. I think what’ interesting here is that if you’re operating a website, you can open up an ad sense account, and put some Google sponsored links on your site, knowing that those links are going to have a fairly high correlation with what your website is all about, whether it’s selling a good or service, or providing information and services.

The rationale here is that Google is crawling your website. It’s reading the web pages. It knows what your site is about. And therefore it can place sponsored links on your website that are very closely in tune with what your website is doing.

Beyond sponsored link advertising, ad words, and ad sense, we can see that Google is simply an organization in rapid evolution. They are continually adding new services onto their basic core competency of search, and are looking at everything and anything, experimenting with new things that they feel are going to add value to their site, to increasingly draw people to become continual users of the Google services.

And I think what’s important about all of this though is that when you look at what Google’s doing, they’re constantly trying to weave in what is core to their business. I mean they haven’t lost sight of where they’re competitive advantage really is. And so as they weave in all of these other services like Google News, and Gmail, and a host of other kinds of things that we see popping up almost monthly on Google, I think they’re constantly building on this core competitiveness they have in search, and making that continually better, and just expanding its reach.

And so in that sense, Google has been a marvel to watch. They do like to experiment with things. One can’t say that they’ve gotten everything right. There has been some controversy around some of the services that they’ve rolled out. But I think they really are an organization that learns quickly. They understand that there’s a value in experimenting, getting feedback, learning, evolving, and trying to make a better and better service. And clearly they are the organization to watch. The public offering of Google was really an incredible success, and I think has gone a long way to proving the enormous value there is to search in the digital world.

Google’s rise to prominence obviously makes it all that more important for people to understand what’s going on with respect to how we search and find things in the digital world. And those things are going to continue to evolve. And to some extent, they’re not going to be without controversy. An organization as vast, and prominent, and important as Google, that’s really providing now – along with its competitors – is providing an enormously important public service that, I think, in many ways it’s going to come under increasing observation and scrutiny by the public, in terms of how it approaches its business, and the importance of the services that it’s providing, that there is some care taken in how that service evolves into the future.

Indeed, all of us have a stake in Google and its competitors, in terms of how it offers an entrée into finding the things that we want to find in the digital world.

It’s fascinating to speculate about where Google is heading in the future. I think that one can spend a full-time job nowadays as a Google watcher, to see the kinds of things that they are constantly experimenting with. I think that one thing is certain, that Google is going to continue to have an immense impact on how and what our experience is in the digital world, in particular as it affects the way we search for things online. But I think that we’re going to continue to see an enormous amount of creativity and innovation from Google. And it will play a huge role in defining our experiences in the digital world for some time to come.

This is Professor Michael Rappa wishing you all the best, and the best of luck with your studies.

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Unedited transcript of audio podcast produced on October 19, 2005.

Audio source file: http://digitalenterprise.org/podcasts/google.mp3

Michael Rappa is the Alan T. Dickson Distinguished University Professor of Technology Management at North Carolina State University.

For more information, please visit: digitalenterprise.org