Authors: Ken Auletta
Tags: #Industries, #Computer Industry, #Business & Economics
Googled (2 page)
PART ONE
Different Planets
CHAPTER ONE
Messing with the Magic
W
ith his suit and tie and closely cropped gray hair, Mel Karmazin stood out as he crossed the Google campus in Mountain View, California, passing people in baggy T-shirts holding their laptops before them like waiters’ trays. On this sunny June day in 2003, Google was nearly five years old, and Karmazin was among the first major executives from the old media to visit its headquarters. As the CEO of Viacom, he represented the world’s then fourth-largest media company—the owner of the CBS network, of TV and radio stations, Paramount Studios, MTV and its sister cable networks, Simon & Schuster publishers, Blockbuster video, and an outdoor advertising concern, among other holdings. Short and pugnacious, Karmazin was by his own admission “always paranoid” about competitors. Two of Viacom’s biggest competitors, AOL and Time Warner, had merged to forge the world’s largest media conglomerate, and Karmazin was on the prowl for new business partners.
ith his suit and tie and closely cropped gray hair, Mel Karmazin stood out as he crossed the Google campus in Mountain View, California, passing people in baggy T-shirts holding their laptops before them like waiters’ trays. On this sunny June day in 2003, Google was nearly five years old, and Karmazin was among the first major executives from the old media to visit its headquarters. As the CEO of Viacom, he represented the world’s then fourth-largest media company—the owner of the CBS network, of TV and radio stations, Paramount Studios, MTV and its sister cable networks, Simon & Schuster publishers, Blockbuster video, and an outdoor advertising concern, among other holdings. Short and pugnacious, Karmazin was by his own admission “always paranoid” about competitors. Two of Viacom’s biggest competitors, AOL and Time Warner, had merged to forge the world’s largest media conglomerate, and Karmazin was on the prowl for new business partners.
The son of a Queens cab driver, Karmazin, then fifty-nine, had begun his career at age seventeen selling radio advertising. He was said to be so pushy that advertisers capitulated just so he would leave their offices. He became a master salesman who did not play golf or tennis or tolerate long books, and whose idea of fun was pitching advertisers and Wall Street. He was an old-fashioned, show-me-the-money guy, and he was skeptical of Silicon Valley companies that boasted of their traffic and page views, but were mum about their balance sheets. At the time of his visit, Google was a private company, and he had no way of knowing whether it was making or losing money, or even how many employees it had. The actual financial figures—the January before Karmazin’s visit Google’s private books revealed 2002 revenues of $439.5 million and a profit of $99.6 million—would be unimposing figures to a man accustomed to dealing in billions. Nevertheless, a trusted associate, an Allen & Company investment banker, Nancy B. Peretsman, had convinced Karmazin that Google was a wave maker. She joined him and Viacom’s then chief financial officer, Richard J. Bressler, on the trip.
Karmazin’s destination that day was Building 21 at 2400 Bayshore Parkway, offices Google had acquired from the giant computer and software vendor Sun Microsystems. The two-story building shaded by trees was called the Googleplex, home to the company’s engineers and separate from the building housing Google’s finance and sales staff. Just outside the conference room on the second floor the visitors paused before a twenty-one-inch CRT monitor resting on a small table, which displayed a rotating three-dimensional globe flashing with bursts of colored light, each burst representing millions of Google searches being conducted all over the world. The screen was dark only in places like central Africa and Siberia, where the lack of electricity precluded searches. A second monitor showed samples of the search queries being conducted around the globe at that moment. “You realized the power of it,” said Bressler. “And at the same time, you walked into this ratty conference room.”
Waiting to greet them in the cramped Yellow Room was Google cofounder Larry Page, then thirty. With jet-black eyebrows, short black hair pushed down on his forehead, a permanent five-o‘clock shadow, dark eyes that often remain fixed on the floor, and wearing a dark T-shirt and jeans, he seemed strange to Karmazin, as he does to many who meet him for the first time. He was stonily silent. Sitting next to Page was Google CEO Eric Schmidt, whose shirt and tie, frameless glasses, and relatively old age—he was then forty-eight-were more welcoming. “Eric looked like me,” said Karmazin. Google’s cofounder, Sergey Brin, born the same year as Page, arrived late and out of breath in a T-shirt, gym shorts, and on Rollerblades.
Karmazin began the meeting with what he thought was a joke: “Don’t worry, guys, I’m not here to buy you!” Over the next several hours, the three computer scientists and the mogul sat in mismatched chairs on a tan and soiled shaggy carpet, discussing their respective businesses. Schmidt and Brin did most of the talking, and they spent as much time speaking of Google’s culture—engineers who always worked in teams and were given a sense of freedom, three free and healthy meals a day, free massages, hair-cuts, and medical attention—as about technology.
As they adjourned for lunch, Karmazin, walking past offices crowded with engineers and dodging colored physio balls used for stretching or as chairs for staff meetings, saw the evidence. Lunch was served in the employee cafe—six white Formica tables surrounded by metal folding chairs—where free buffet meals were dispensed daily by Charlie Ayers, whom the Google founders proudly introduced as the former chef for the Grateful Dead. To Karmazin, a corporate belt-tightener who had endeared himself to Wall Street by selling the Picassos off the walls of CBS headquarters, the perks seemed extravagant. Google’s corporate mission statement proclaims an aim “to organize the world’s information and make it universally accessible and useful.” It quickly became apparent that Sergey Brin and Larry Page saw themselves as missionaries. Karmazin’s only corporate mission is to make money.
Schmidt and Brin explained that Google was a digital Switzerland, a “neutral” search engine that favored no content company and no advertisers. Their search results were “objective,” based on secret algorithms, and no one could bribe his way to the top of a search. They explained how search worked. The speed of each search—now averaging about a half second to answer each query—relied on an elaborate infrastructure. Google in 2002 had scanned or indexed 3.1 billion Web pages, about 80 percent of what was then the World Wide Web. (By early 2009, there were an estimated 25.2 billion Web pages.) These pages were stored in a giant database and indexed by subject. Google software distributed each query among many hundreds of thousands of PCs and servers that are stacked in data centers and which work in tandem, simultaneously collecting different document links. The search is accelerated because Google stores on its servers three copies of its previous searches. Thus, Google does not have to scan the entire Web each time the same question is asked.
When a question is typed into the Google search box, the task is to divine the searcher’s intention: when you wrote “Jobs” in the query box, did you mean
employment
or
Steve Jobs
? The query may produce thousands of links, but the promise of Google—what Google considers its secret sauce—is that the ones that appear near the top of the search results will be more relevant to you. The company’s algorithms not only rank those links that generate the most traffic, and therefore are presumed to be more reliable, they also assign a slightly higher qualitative ranking to more reliable sources—like, for instance, a
New York Times
story. By mapping how many people click on a link, or found it interesting enough to link to, Google determines whether the link is “relevant” and assigns it a value. This quantified value is known as PageRank, after Larry Page.
employment
or
Steve Jobs
? The query may produce thousands of links, but the promise of Google—what Google considers its secret sauce—is that the ones that appear near the top of the search results will be more relevant to you. The company’s algorithms not only rank those links that generate the most traffic, and therefore are presumed to be more reliable, they also assign a slightly higher qualitative ranking to more reliable sources—like, for instance, a
New York Times
story. By mapping how many people click on a link, or found it interesting enough to link to, Google determines whether the link is “relevant” and assigns it a value. This quantified value is known as PageRank, after Larry Page.
All this was interesting enough, but where the Google executives really got Karmazin’s attention was when they described the company’s advertising business, which accounted for almost all its revenues. Google offered to advertisers a program called AdWords, which allowed potential advertisers to bid to place small text ads next to the results for key search words. Nike and Adidas might, for example, vie for ad space adjacent to keywords such as
sneakers
or
basketball.
All auctions for ads are run online, through an automated system. The highest bidder gets to place a small text ad appearing at the top of a gray box to the right of the search results; up to ten lower bidders win ad space below the coveted top listing. The minimum bid per keyword is set by Google. A commonly searched word or phrase like
eBay
or
Jet Blue
might cost only a penny or two, while a more esoteric phrase like
helicopter parts
might fetch fifty dollars per click. In a second advertising program, AdSense, Google served as a matchmaker, marrying advertisers with Web destinations. If Intel wanted to advertise on technology blogs or a hotel in London wanted to promote itself on travel sites, Google put them together via a similar automated system. In both auctions, there were no ad reps, no negotiations, no relationships. Unlike the ads Karmazin and traditional media had sold for more than a century based on the estimated number of people reading a newspaper or watching a program (called CPMs, or cost per thousand viewers), Google’s system (CPC, or cost per click) ensured that advertisers were charged only when the user clicked on an ad.
sneakers
or
basketball.
All auctions for ads are run online, through an automated system. The highest bidder gets to place a small text ad appearing at the top of a gray box to the right of the search results; up to ten lower bidders win ad space below the coveted top listing. The minimum bid per keyword is set by Google. A commonly searched word or phrase like
eBay
or
Jet Blue
might cost only a penny or two, while a more esoteric phrase like
helicopter parts
might fetch fifty dollars per click. In a second advertising program, AdSense, Google served as a matchmaker, marrying advertisers with Web destinations. If Intel wanted to advertise on technology blogs or a hotel in London wanted to promote itself on travel sites, Google put them together via a similar automated system. In both auctions, there were no ad reps, no negotiations, no relationships. Unlike the ads Karmazin and traditional media had sold for more than a century based on the estimated number of people reading a newspaper or watching a program (called CPMs, or cost per thousand viewers), Google’s system (CPC, or cost per click) ensured that advertisers were charged only when the user clicked on an ad.
It was Google’s ambition, Schmidt and Page and Brin liked to say, to provide an answer to the adman’s legendary line “I know half of my advertising works, I just don’t know which half.” To help them sort through the digital clicks, Google and other new media companies relied on what are called cookies, software files that reside on a user’s browser and keep track of their activities online: search questions asked, Web pages visited, time spent on each Web page, advertisements clicked on, items purchased. Because of these cookies, Google’s searches improve with use, as they become more familiar with the kind of information the user seeks. Although the cookie doesn’t identify the user by name or address, it does assemble data advertisers crave and couldn’t get from traditional media companies like Karmazin’s.
And unlike traditional analog media companies, which can’t measure the effectiveness of their advertising, Google offered each advertiser a free tool: Google Analytics, which allowed the advertiser to track day by day, hour by hour, the number of clicks and sales, the traffic produced by the keywords chosen, the conversion rate from click to sale—in sum, the overall effectiveness of an ad.
Thus, the several hundred million daily searches Google performed in 2003 (today the number is 3 billion) provided a tantalizing trove of data. Google helped advertisers target consumers not just by age, sex, income, profession, or zip code, but by personal preferences for leisure time activities, frequently visited locations, product preferences, news preferences, etcetera. Google took much of the guessing out of advertising. “Our business is highly measurable,” Schmidt said. “We know that if you spend X dollars on ads, you’ll get Y dollars in revenues per industry, per customer.”
Karmazin was aghast. Most of the American media—television, radio, newspapers, magazines—depended for their existence on a long-entrenched advertising model. In the old method, at which Karmazin excelled, the ad sales force depended on emotion and mystery, not metrics. “You buy a commercial in the Super Bowl, you’re going to pay two and one-half million dollars for the spot,” Karmazin said. “I have no idea if it’s going to work. You pay your money, you take your chances.” To turn this lucrative system over to a mechanized auction posed a serious threat. “I want a sales person in the process, taking that buyer out for drinks, getting an order they shouldn’t have gotten.” What would happen if advertisers expected measured results from the $3 million spent for each thirty-second ad for NBC’s 2009 Super Bowl, or for the approximately $60 billion spent on television advertising in the United States each year? Or the estimated $172 billion spent in the United States on advertising, and the additional $227 billion spent on marketing, including public relations, direct mail, telemarketing, and sales promotions? “That’s the worst kind of business model in the world,” he said—the worst, that is, if you’re an old-school ad man. “You don’t want to have people know what works. When you know what works or not, you tend to charge less money than when you have this aura and you’re selling this mystique.” For sixty years, network television sold much of its advertising in an “up-front” each spring and summer after the new fall shows were announced. Even as audiences were declining, executives created a cattle-stampede mentality by convincing advertisers they’d get shut out of the hit shows if they didn’t buy early. Karmazin and the networks continued to charge ever-steeper rates because, he said, “advertisers don’t know what works and what doesn’t. That’s a great model.”
The Google executives were equally appalled. They thought Karmazin’s method manipulated emotions and cheated advertisers; just as egregiously, it wasn’t measurable and was therefore inefficient. They were convinced they could engineer a better system.
By then, Karmazin knew there was little he and Google could do for each other. “I was selling twenty-five billion dollars of advertising,” he said. “Did I want someone to know what worked and what didn’t?” Like the aging Falstaff, he had “heard the chimes at midnight.” Karmazin trained his eyes on his Google hosts, his hands folded on the table, his cuff links gleaming, and protested, only half in jest, “You’re fucking with the magic!”
DAYS LATER, that line was still echoing in the halls of the Googleplex. Every Friday afternoon, Google employees assemble for what they call TGIF. They nibble on snacks and drink beer or soft drinks and sit in a semicircle as Schmidt and the company founders make surprisingly candid disclosures—about the latest financial results, visitors who’ve come that week, deals pending—and answer employee questions. Marissa Mayer, who joined the company in 1999 as an engineer and is today vice president, search products & user experience, remembered the meeting vividly. Schmidt, flanked by Page and Brin, said, “Mel Karmazin, the head of Viacom, came and found us interesting. They really don’t know what to think of us. We really don’t know what to think of them.”
“The choice quote that characterizes the whole meeting,” Brin chimed in, “was when the head of Viacom said, ‘You’re fucking with the magic!’” For Googlers, as they often refer to themselves, Karmazin’s deference to tradition was anathema; they questioned
everything.
Mayer said the Google founders always asked, “Why does this have to be the way it is? Why can’t you ‘fuck with the magic?’”
everything.
Mayer said the Google founders always asked, “Why does this have to be the way it is? Why can’t you ‘fuck with the magic?’”
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