On Tuesday, September 4th, 2018, Google celebrated its 20th birthday. If anything, it is hard to imagine a brand that has become one of the handful best known in the world alongside the likes of Coca-Cola and McDonalds, is only two decades old. But over its relatively brief 20-year existence, Google has become much of the world’s default gateway to the internet and the age of information it represents that has changed the way we work and live in such as profound way.
In a remarkable global monopoly, over 72% of all online search queries made through a laptop or desktop computer internationally use Google. That rises to almost 85% on mobile devices such as smartphones. Even Baidu, despite accounting for 70% of the Chinese market, is dwarfed by Google’s international dominance, with 13.4% of searches made through mobile searches and 14.1% on laptops and desktops globally. Across the 15 nations with the highest GDPs in the world, excluding only China and Russia, Google dominates and has around or over 90% share of the search engine market in most.
Nowadays of course, Google is one brand, or unit, of a larger holding company called Alphabet, set up in 2015 to reorganise the giant conglomerate that had grown out of the world’s dominant internet search engine. Most still, however, refer to the company as Google and Alphabet is almost always qualified as ‘Google-parent Alphabet’ or some other reference to the brand that has made it the fourth most valuable company in the world at the time of writing, worth around $850 billion (£630.75 billion). And despite the now sprawling nature of Alphabet’s interests, from web services to driverless cars and life sciences, the company is still centred around Google – both as a brand and as a result of the lion’s share of the holding’s revenue that the search engine brings in through online advertising.
But just how did Google grow from the company established by Larry Page and Sergey Brin just over 20 years ago now with a $100,000 in seed investment into one of, if not the most, influential in the world today? And what does the future hold in store for a brand that, as well as a verb, has become forever synonymous with the rise of the information age and the latest technology in the digital world?
20 Years of Google – From Stanford Research Project to Gateway to a New Digital World
The early years: though Google’s official birthday, the day the company was incorporated, was last Tuesday, that wasn’t the real ‘beginning’ beginning. Before becoming Google, Google was BackRub – a research project started by Larry Page in 1995 as a computer science graduate at Stanford in California – the Ivy League university whose proximity to Silicon Valley can be to a large extent credited with the area’s role as the world’s most renowned hub of tech innovation.
Page had met Sergey Brin, another computer science student but one with a noted expertise in math, after arriving at Stanford. He had already been exploring a new kind of search engine based on the linking behaviour between pages on the still immature World Wide Web. This research was combined with math input from Brin to create the prototype for the PageRank algorithm, a clever nod to both co-founder Larry’s surname and website ‘pages’ that would define Google’s USP over existing and subsequent search engine competitors.
The new search engine methodology was first launched in Stanford’s private internet network in August of 1996. The next two years saw the duo continue to tinker with their PageRank algorithm, rename the brand Google, after the math term googol which refers to a 1 followed by a hundred zeros, and, by 1998, attract $100,000 seed investment from Andy Bechtolsheim of Sun Microsystems.
Having incorporated Google at the time of that investment, by 1999 the company had its first ‘office’, operating out of the Menlo Park, California, garage of future YouTube CEO Susan Wojcicki, in whose home the duo had rented a bedroom. Additional funding was also regularly being secured, including from Amazon founder Jeff Bezos, and before the end of the century, Google had secured $25 million in investment at a valuation of $100 million, had employees and moved into its own offices in Palo Alto. The company’s biggest campus, the Googleplex, is still located in neighbouring Mountain View. Page and Brin had also, somewhat reluctantly, come to the conclusion they had to drop out of their schooling at Stanford to focus on their blossoming company full-time.
However, having raised $25 million in investment, much of it from prominent Silicon Valley VCs, there was now pressure on Google to start generating revenues. Until then the company had been surviving by eating up investment cash. The company’s new board members pushed for banner advertisements, which the two co-founders resisted. They came up with an alternative revenue model based on big companies paying Google to be featured in the results the algorithm came back with for particular search terms – paid listings. Initially, however, this was a hard sell and the company was burning through cash without yet a clear path to financial sustainability.
Pay-Per-Click – Google’s Breakthrough
Google’s breakthrough to a sustainable revenue model was the first example that Page and Brin had added hard edged business ruthlessness to their ‘geek’ smarts. Repeat entrepreneur and investor Bill Gross had GoTo.com, a search engine rival to Google, as part of his stable of companies. GoTo.com had developed a pay-per-click (PPC) and live auction bidding process for the price of a click as its revenue model. Gross believed that adding a cost to search engine results was the best way to counteract the poor quality of spammy-sites that were at the time ranking highly on search engines by using primitive tricks such as invisible keyword stuffing of text against a background of the same colour. So the GoTo search results were based on companies paying for position.
Things were going well for GoTo.com financially, much better than was the case for Google. But to keep revenues growing, Gross needed more eyeballs on his paid-for search results than the search engine’s own traffic could provide. The answer was to strike partnerships with other major search portals to syndicate GoTo results. AOL were signed up and Gross decided to retire the search engine so that big partners that were bringing in more money than GoTo itself would not feel like they were competing with it for traffic. GoTo was renamed Overture and became the white label back-office software and broker for PPC advertising for major Google competitors such as Yahoo, MSN as well as AOL.
While still GoTo.com, Google were also approached as a syndication partner but talks stalled over Page and Brin’s refusal to be associated with mixing organic search results based on their PageRank algorithm with paid advertising. However, a matter of months later, Google introduced the AdWords PPC platform. Overture sued for patent infringement but had done a poor job on protecting its IP and had not protected its PPC mechanism and its live auction sales system in a way that thwarted Google’s AdWords alternative. Overture lost both the legal proceedings and AOL as a client, which instead signed up with Google. The rest is history with Google largely being credited with the invention of the PPC online advertising model. Overture and Gross’s pain was, however, softened by the 2003 acquisition by Yahoo for a princely $1.63 billion.
The Building of an Empire
Having finally cracked (albeit in a way that involved questionable business ethics) a sustainable, and highly lucrative, means to monetise its rapidly growing search traffic, Google started to cook on gas as a company. Together with Yahoo and MSN, the Google search engine was now part of the oligopoly that most of the World Wide Web’s traffic was being funnelled through.
In March 2001, Eric Schmidt was recruited as first Google’s chairman before becoming CEO in August of the same year. For the next decade, he was to provide the crucial business acumen and ‘adult supervision’ to compliment Page and Brin’s own talents. Schmidt proved a shrewd choice and led Google through its 2004 IPO and the all-important subsequent several years of the company’s development.
Just a year after Schmidt took up his role, Yahoo, at the time still the market leader among search engines, approached Google with a view to a $3 billion acquisition of its quickly growing competitor. The co-founders and board turned the offer down in the belief that the company was by then worth at least $5 billion. In 2017, what remained of Yahoo was sold to U.S. telecoms company Verizon for a little under $5 billion. Along with MSN it had long since dropped off the radar as a serious competitor to Google’s, by then, almost complete dominance of the search engine landscape.
Content aggregation service Google News was launched the same year as the Yahoo approach and went on to shape how digital media was published and distributed online, with Google as the gateway to its consumption and its algorithms dictating the level of exposure it would receive. A 2003 move into the Googleplex campus followed for the growing company as did the 2004 launch of Gmail. The freemium email client gained rapid traction by blowing away competitors such as MSN’s Hotmail by providing a starting 1GB of storage and superior search functionalities.
Google went public in 2004, launching on the Nasdaq at a valuation of $27 billion and raising $1.7 billion through the sale of shares priced at $85 (they are currently worth circa. $1177). That capital took Google onto a whole new level and products such as Google Maps, one of the company’s most significant developments, quickly followed, as did the acquisition of YouTube. The video streaming site allowed the company to corner the online market for user-created online video content and has profoundly shaped the culture of a generation.
Google’s success in building out the dominant international digital empire on the proceeds of its PPC AdWords platform should not be understated. Without timely and perceptive acquisitions such as YouTube and DoubleClick, and products developed in-house such as Google Maps and the Chrome browser, creating an unrivalled ecosystem, Google would not have become the untouchable force it is today, even if AdWords revenue generated by the Google search engine still generates over 60% of revenue.
The mobile operating system Android can also be considered a defining development. It has allowed Google to infiltrate the majority of smartphones on the planet and convert the company’s dominance into the ‘mobile’ online era. If Google had not succeeded in developing Android as the default OS for smartphones and tablets (Android is the OS of an estimated 85% of all smartphones), with Apple’s iOS as its only serious rival, could the company have seen its influence slip rather than grow over the past several years? Almost certainly. By last year, search traffic made through mobile devices had overtaken that through desktops and laptops, reaching 50.3%. Without Android, Google could have been in danger of losing its grip on that traffic. Without Google Maps, Gmail, YouTube et al., would smartphone makers have been lured into the grasp of a rival or preferred to sell their hardware with their own OS? Quite probably.
As it is, Google, or Alphabet as the company was renamed and restructured to better organise its now sprawling interests in 2015, has a near monopoly as the search engine for much of the world and provides the OS for most of the smartphones in the world. When other products such as YouTube, Gmail, Chrome, Google Docs, Google Photos, Google Drive and Google Maps are added to the equation, how much time do we really spend online without in some way touching a Google product?
Alphabet’s market capitalisation will most likely hit $1 trillion before the end of this year. Schmidt has long since stepped down as CEO, handing the reigns back to Larry Page in 2011 with a parting “day to day adult supervision no longer needed”.
Google’s Future: How Big Can Alphabet Get?
Despite its now practically unrivalled status as ruler of the pantheon of Gods of the Internet, Google, or Alphabet as the company should now be referred to, will not rest on its laurels. Not everything Alphabet touches turns to gold. There have also been expensive failures along the way.
Among the most prominent of these are Google+, the ill-fated attempt to develop a social media, the company’s first foray into mobile hardware when it bought Motorola with the ambition of manufacturing its own smartphones (Google’s new Pixel handsets manufactured by HTC show some potential for a better second try) and Google Fibre, an aborted move into supplying the internet itself as well as directing its traffic. Other big launches, like wearables hardware Google Glass, have, while perhaps not exactly a complete flop, failed to live up to the hype.
But failures are an inherent part of innovation and pushing into new verticals. It could be argued that without the flops, there won’t be winners and over time Alphabet’s dominance will be eroded if it treads water as a cash cow, content with its sizeable lot. The three Alphabet units that are currently believed to hold the most potential to develop into key pillars of the now goliath corporation are Waymo, the driverless vehicles technology operation, Google Home and Nest and DeepMind, a UK-based AI research lab acquired for an undisclosed price in 2014, gazumping Facebook in the process.
Alphabet is now seen as the world leader in AI, a development that is the direct result of the DeepMind acquisition. AI is key to dominating the future of voice-activated search and the new, connected IoT world. It also underpins that data storage and processing efficiencies that are becoming arguably the most important technology in the world as the sea of digitalised data held online bursts its banks and expands into a vast ocean.
And AI is also what will make autonomous vehicle software a reality within the next several years. That, perhaps more than anything else, will transform the global economy in a way comparable only to that driven by the dawn of the internet age. Alphabet, through Waymo, is also widely considered to be leading the race to dominate that new wave of technology and the new economy it will lead to.
The company is approaching driverless vehicles in the same way it did smartphones through Android. Waymo is focused on becoming the default OS for autonomous vehicles, rather than attempting to profit from manufacturing the vehicles themselves. Finally, Nest and Google Home have similar aspirations when it comes to becoming the OS of smart homes infused with IoT.
While still a ‘moon shot’, there is a possibility that at some point in the next few decades Calico, a less well-known Alphabet division, could also come to the fore. Calico is a biotech or life sciences company backed by Google since being founded in 2013 by Bill Maris and brought under the Alphabet umbrella in 2015. Calico is focused on uncovering the genetic code behind the ageing process and the discovery of cures for age-related diseases. That has led to newspaper headlines that Google hopes to one day achieve promotion from gatekeeper of the Age of Information to gatekeeper of mortality itself. Could Calico one day develop into the OS for the human body?
Threats to the Google Empire
At least for now, the greatest, and most imminent, threat to Google and Alphabet appears not to be other companies but regulators and lawmakers concerned about its huge influence and growing dominance of different digital economy sectors and verticals. Google was recently fined a record $5 billion by the EC for Android breaking antitrust laws. It was found that Google had been obliging smartphone manufacturers who use the Android OS to pre-install their search engine and the Chrome browser ‘denying rivals the chance to innovate and compete on merits’.
The EU is particularly concerned about the Google monopoly and its regulators are stepping up their attempts to limit Alphabet and the other U.S. tech giants. If Google were to develop dominion over autonomous vehicles and domestic IoT systems through Waymo and Nest, that backlash could strengthen as well as spread to other parts of the world. Perhaps the biggest threat to Alphabet is that international governments will become insecure over its influence and move to break the company up.
If there is a corporate challenge it is most likely to come from Amazon, whose founder Jeff Bezos was one of Google’s first major investors. The ecommerce behemoth has designs on many of the new verticals that Alphabet does and their sheer size means that continued growth will increasingly bring them into direct competition. For example, Amazon’s Alexa in the domestic IoT ecosystem and the autonomous vehicles space.
Amazon has already passed the $1 trillion milestone, achieved last week. The company dominates ecommerce in a way comparable to Google’s grip on online traffic, is expanding into bricks and mortar commerce and also has its sights set on taking pole position in new markets and in developing the latest technology in the world across different sectors. And, perhaps most crucially, Amazon doesn’t really need Google. The company is now, in its own right, a search engine. It’s a search engine focused on ecommerce and consumer goods but that is a huge, and arguably the most commercially valuable, segment of online search.
Over the past couple of years, Amazon’s 2016 $7 billion spend on Google AdWords has started noticeably dwindling. The ecommerce portal is so dominant now it doesn’t need to advertise on Google. Instead, Amazon is becoming a competitor and spending significant sums developing ad-serving technology and building its digital advertising team. Could Google eventually lose much of its search traffic for manufactured goods to Amazon, along with a massive chunk of revenue, in a manner reminiscent of how GoTo.com was outmanoeuvred by Google itself all those years ago? It’s certainly a threat. Google has recently established a partnership with Walmart, Amazon’s great retail rival, that few take seriously and which neither company appears to have their hearts in. Shades of Yahoo buying Overture? Certainly not the same but many analysts see it as a late attempt by Google at an ecommerce play long after that particular train appears to have left the station.
The Barbarians Are Still a Long Way from the Google Gates and the Empire is Growing
However, while there have of course been perceived mistakes, both in strategy and execution, and threats to Google’s dominion over its growing empire, few believe its position to be currently vulnerable. And if Waymo, Nest and Google Home, DeepMind and Calico follow through on their promise, Alphabet and Google could still have plenty more growing to do in an era where the biggest technology companies rival nations as the world’s greatest powers and influences.
Google has come a long way in just 20 years. The company has developed at a greater pace over that period than arguably any other in history and the world and technology with it. What the next 20 years have in store for Google and the latest technology in the world, no one can say with any certainty. But they seem set to be eventful.Risk Warning:
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