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 / Winter 2007 / Issue 49(originally published by Booz & Company)


The Google Enigma

The superior results delivered by Google quickly drew the attention of Web surfers, and in short order it became the dominant search engine. But serving up free search results is not, in itself, much of a business model. And that brings us to the second critical innovation: the development of an auction to sell ads linked to search results. Google did not come up with the idea of letting advertisers bid on search terms. It swiped the concept from another search engine, GoTo. But Google perfected the process. Whereas GoTo ranked its search ads according to the size of advertisers’ bids, Google added a second crite­rion — the likelihood that people would actually click on the ad. That innovation made Google’s ads more relevant, increased click-through rates substantially, and, when combined with Google’s superior search results, turned Google’s auction into a gold mine.

Google’s third great innovation — and it may well be the one most critical to the firm’s future success — is the design of its parallel-processing computer system. Housed in scores of data centers around the world and incorporating hundreds of thousands of computers, the system is able to crunch numbers and process searches and other transactions at unprecedented speeds. Because people demand quick re­sponses from the software they use online, Google’s system has provided it with a big advantage over rivals like Microsoft and Yahoo. The future competition among these companies will be fought as much on the power and efficiency of their machinery as on the attractiveness of their services.

These innovations represent a remarkable accomplishment. But it’s important to remember that they largely predate the formal innovation process that Google developed as it expanded and that is now the source of much of the praise lavished on the company. That process appears to have three key tenets. First, Google believes in throwing lots of people at innovation. Its aggressive recruitment of talented software engineers is legendary in Silicon Valley, and it keeps its workers happy by lavishing them with gourmet food, toys and games, free bus service, and other generous perks. Second, it organizes its product development staff into a lot of small teams and gives them considerable freedom in how they allocate their time and money. In a variation on a practice made famous by 3M, Google allows its engineers to devote 20 percent of their time to pet projects, with little corporate oversight. Third, the company is fanatical about using computers to monitor and analyze its employees’ work as well as its customers’ use of its services. Google’s CEO, Eric Schmidt, has said its goal is to use “metrics of performance” to “systematize” every aspect of its operations.

The company’s innovation system reflects its deep roots in academia. Google operates in much the same way that a science department  operates in a big research university. It hires the smartest people it can find, allows them to pursue their interests in small collegial teams, and measures the progress and results of their work with scientific precision. In a sense, Brin and Page have tried to recreate the graduate school milieu inside the halls of a for-profit corporation.

But how successful has the academic approach really been in creating thriving new products and services? So far, the record has been less than outstanding. Google has introduced dozens of new services, but with only a couple of exceptions, notably Google Maps, they have failed to capture dominant shares of their markets. Even the company’s much-discussed e-mail service, Gmail, lags well behind the industry leaders, Yahoo Mail and Microsoft’s Hotmail, in number of subscribers. Some of the company’s heavily hyped new ventures, such as Google Answers and Google Video, have been scaled back or abandoned altogether.

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