In the last few years, Google has risen as a force on the Internet by offering its smarter, faster searches as a free public service. Now the band of technoinsurgents who run the company are striking a blow against the business strategies of giant Web portals like America Online, Yahoo and Microsoft's MSN by rewriting the rules of Internet advertising.
Emerging as a powerful new marketing medium, Google has found a route to profitability that stands apart in a Silicon Valley that is crippled by the dotcom crash.
Its rivals are responding by trying to out-Google Google for leadership in a technology -- searching for information -- that they once dismissed as an easily bought commodity. But Yahoo, Microsoft and others are discovering that it will not be easy to unseat Google, which has mastered an enormous private computer network that stores a snapshot of much of the Web and allows searchers to find digital needles in haystacks of data.
Google, a private company, does not disclose revenue or profit. But it says it has been profitable for nine consecutive quarters. Moreover, its executives have privately told the board that revenue will soar from less than US$300 million last year to US$750 million or more this year, with gross profit margins of 30 percent, according to a Google executive and several people who have knowledge of the company's financial situation.
That cash is flowing from the likes of Ge'Lena Vavra, an importer of Italian suits in Las Vegas who is among more than 100,000 advertisers to flock to Google in the last year. Last May, she decided to pay from US$0.21 to US$1.50 each time her ad for discount Italian suits was clicked after a search for words like "Armani" or "Hugo Boss."
Other ad options
One form of Google advertising allows companies to buy two lines of text that appear above the results of each search. A newer ad program, the one used by Vavra, displays boxed text ads on the right side of a search result. Depending on popularity, advertisers pay anywhere from pennies to dollars when a searcher clicks on the ad.
Both advertising programs rely on Google's software to make the ads relevant to Web surfers' search requests. They are limited to text; graphics are not allowed, a limitation that Google says is crucial to its popularity with users, who are irritated by pop-up and video ads.
Before Vavra advertised with Google, she was selling about 10 suits a month over eBay. Then she bought 50 Google keyword ads using her Visa card. The next morning, she said, sales took off. The business has continued to grow; she now sells almost 120 suits a month. She expects to spend US$60,000 this year on Google search ads.
"Our business exploded from Google, and Google alone," she said.
Google has created a buzz in Silicon Valley that has not been heard since Netscape Communications, the original leader among Web browsers, took the stock market by storm in 1995 with its initial public offering. Despite hopes among investment bankers, Google says it has no plans to sell stock to the public this year. Still, its emergence as a star (giving rise to the pop culture term "googling") validates the notion that, even during a grim technology downturn, Silicon Valley retains some of its unique allure.
In an effort to capitalize on that allure, Yahoo -- which has long relied on Google's search technology -- last Monday introduced a search tool that closely imitated Google's idea. In the future, Yahoo intends to draw heavily on technology obtained in a recent acquisition of a unit of Inktomi, once a leading Google rival.
Yahoo denies that its new initiative is a declaration of war on Google. Eric E. Schmidt, 47, Google's chief executive, also says the two companies are still allies. But relations are strained.
Google's newfound power as arbiter of much of the world's digital information, meanwhile, is posing concerns about privacy and fairness, not only from competitors but also from social policy experts and even librarians. Some worry that the company may have become too central in an age when so much vital information is available online.
Google says that it goes to great lengths to maintain the privacy of its users and that it refuses to allow advertisers to influence the results of its regular searches.
"They're the traffic cop at the main intersection of the information society," said Jonathan Zittrain, co-director of the Berkman Center for Internet and Society at Harvard Law School. "They have an awesome responsibility."
Google's rise initially flowed from a single software innovation: a formula to retrieve pages ordered by their relevance to a Web surfer's request. The basic idea, known as "link analysis," was not new. But in 1996, Sergey Brin and Larry Page, then graduate students in computer science at Stanford University, began applying it to the global links that connect Web pages. Their idea was to exploit existing human intelligence by tracking the popularity of billions of different Web pages. Two years later, the two men would found Google.
Attracting attention
Applied to the explosively growing thicket of electronic pointers that make up the World Wide Web, the approach -- simultaneously being explored at an IBM research laboratory in San Jose, California -- created a technical breakthrough.
Google now employs 800 people, yet it handles 200 million searches of the Web each day, a staggering one-third of the estimated daily total. To keep up with that torrent, Google has essentially built a home-brew supercomputer that is distributed across eight data centers.
Unlike most supercomputers, which are used by the government for tasks like predicting complex weather patterns or simulating nuclear explosions, Google's system is designed to answer hundreds of thousands of queries simultaneously from all over the globe, each in less than half a second.
The company stopped giving updates on the size of its computing resources in 2001. But several people with knowledge of the system said it consisted of more than 54,000 servers designed by Google engineers from basic components. It contains about 100,000 processors and 261,000 disks, these people say, making it what many consider the largest computing system in the world.
The computers run a jealously guarded set of software programs that try to return the most relevant Web pages in response to surfers' questions, while separately displaying advertisements that are closely matched to the requests.
The immense size of the system helps explain why taking on Google will not be easy. "Managing search at our scale is a very serious barrier to entry," Schmidt said.
Google's ascendancy is a back-to-the-future throwback to an earlier Silicon Valley, when companies built businesses on solid technological advances before going public.
Intel in the 1970s, Apple Computer and Sun Microsystems in the 1980s and Oracle and Cisco Systems in the 1990s illustrated the Valley formula of seizing lucrative markets with a compelling technological package and posting profits consistently.
That formula was abandoned in the mid-1990s with the launching of thousands of dotcoms that went public before they were profitable -- and then mostly crashed and burned. But Google, in the tradition of other great companies that started here, has scientists with advanced technical degrees and idiosyncratic ideas about how to run a business.
Balancing act
Schmidt, a former executive at Sun Microsystems, is a low-key computer scientist who must discipline Google's flamboyant, self-indulgent culture, without wringing out the genius.
When Edward Zander, Sun's former president, first visited Schmidt at Google not long ago, he was stunned. "I found dogs running through the halls, a piano in the lobby and all these food goodies around," he said. "I'm thinking to myself, 'It's like chaos here.'"
Indeed, it seems that there is nothing normal about Google's corporate routine.
Not long after arriving at the company in 2001, Schmidt found that he was contending with a squatter in his office.
One of Google's top engineers, Amit J. Patel, who was sharing space with five others in Google's chronically crowded quarters, decided that he could find relative solitude in Schmidt's tiny, 8-by-12-foot office. The chief executive would travel and attend meetings often, Patel reasoned, offering privacy during the intervals.
When Patel sought permission, Schmidt turned the decision over to his vice president for engineering, hoping that the request would be denied.
It wasn't.
"We were trying to drive home the point that we needed more office space," said Wayne Rosing, the vice president, a veteran of Apple and Sun.
Schmidt got the point. In an example of Google's eccentric culture, he let Patel share his office for several months. He now says that there was an upside to the odd arrangement: Patel is a master data miner, and Schmidt soon had instant access to better revenue figures than did his financial planners. (Ultimately, the company expanded to a fourth building.)
With its recent explosion as a business, Google has ignited a scramble for position in what was once a niche overshadowed by ad-heavy portals, Web sites that offer full menus of online services and digital content.
The shift to the supremacy of search engines indicates how swiftly business realities can change in Internet commerce. Giant portals have long tried to fence in Web surfers and keep them pacified. Google is exploding that strategy by taking advantage of the basic strength of the Internet: The ability to go instantly from one place to any other at no cost beyond the basic connection.
Microsoft has taken notice of Google and is improving the Web search engine that powers its MSN site.
"We see Google as a competitor with their search services," said Lisa Gurry, a product manager at MSN.
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