Super Cities №94 - Applied History: Google and Cash Cows

Brendan Hart

Before Google, there was BackRub, a research project at Stanford University. Larry Page and Sergey Brin, both Ph.D. candidates, were working on BackRub to organize the emerging web’s information.

Page described the problem they were trying to solve:

The web creates new challenges for information retrieval. The amount of information on the web is growing rapidly, as well as the number of new users inexperienced in the art of web research. People are likely to surf the web using its link graph, often starting with high quality human maintained indexes such as “Yahoo!” or with search engines. Human maintained lists cover popular topics effectively but are subjective, expensive to build and maintain, slow to improve, and cannot cover all esoteric topics. Automated search engines that rely on keyword matching usually return too many low quality matches. To make matters worse, some advertisers attempt to gain people’s attention by taking measures meant to mislead or “spam” automated search engines.

In 1997, BackRub became Google. A year later, after receiving its first outside investment, Google was legally incorporated. In June 1999, Google received $25MM in institutional capital led by Kleiner Perkins and Sequoia.

As they say, the rest is history.

Between 1999 and 2004, in addition to trademarking and strengthening its core search function, Google launched AdWords, Images, AdSense, and Gmail; acquired Deja and Pyra Labs, creators of Blogger; named Eric Schmidt Executive Chairman; moved into its now-famous “Googleplex”; and held its initial public offering at $85 per share.

Since IPO, Google has vastly expanded its business lines — mobile, maps, analytics, business, research — and consistently ranks as one of the best places to work.

Although it missed some big global trends, especially social, Google has become one of the most valuable companies in the world. Its market cap is now $762 billion dollars.

In 2002, Google had $400 million in revenue. By 2015, its revenue was $74.5 billion. In 2017, its revenue rose to $110 billion. Google has more than 50,000 employees all over the world.

In 2015, Page and Brin announced a new holding company, Alphabet, that would be a “collection of companies” — including Venture and Capital, its investment arms; X Labs, its “moonshot factory”; Nest, its connected home company; Fiber, its broadband provider; Calico, its biotech company; Verily, its life sciences company; and, of course, Google.

Currently, Google generates over 99% of Alphabet’s revenue.

It’s worth considering some of the big themes that led Google from a university project to $100 billion behemoth.

What does Google’s history teach us about innovation?

  • Innovation does not happen in a straight line. Google’s search business has fueled its ability to test different markets. Since going public fourteen years ago, Google has made significant, non-core investments in autonomous vehicles, life sciences, virtual reality, and other emerging fields. Many of these investments have worked out, but some have not. Because of its near-monopoly in search revenue, Google can innovate in peripheral markets. As important, Google has developed a culture of innovation — known for doing “big things,” Google attracts top talent from all over the world. At some point, Alphabet will likely have other massive wins. Like search before it, those wins will change the trajectory of Alphabet and, by extension, Google.
  • Innovation takes a long time. This truth is often overlooked. We like to believe the overnight, lightning-in-a-bottle stories behind iconic brands. But Google is just over twenty years old, and the technology behind it is much older. Great leaders — Bezos, Musk, Zuckerberg, Gates, Page, and Brin — think about innovation on multi-decade time horizons. This long-view approach challenges the psychosis of quarterly earnings.
  • Innovation is not possible without business fundamentals.Google can make significant, non-core investments because its annual revenue has gone up and to the right year-over-year (see chart above). At some point, Alphabet’s subsidiaries must generate returns to justify further investment. As these distinct lines of business mature, Google must continue to produce in a big way.
  • Innovation is about imagination. When it comes to the future, many top technologists become inspired by science fiction. Larry Page is reportedly obsessed with flying cars. Unfortunately, most of our society’s institutions — education, government, military — suppress imagination. This is a costly mistake. We should encourage and celebrate the creativity, especially in math and science, that drives innovation.

Along with Facebook, Amazon, Microsoft and a few others, Google is a zero to one company. It will continue to drive innovation over the next twenty years, inspiring a new generation of technologists.

If history is an indicator, Google in 2025 will look very different than it did in 2005, and that will be another story to tell.

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