History of Google's Development

1.1.0 HISTORY OF GOOGLE

Google began in January 1996, as a research project by Larry Page, who was soon joined by Sergey Brin, when they were both PhD students at Stanford University in California. They hypothesized that a search engine that analyzed the relationships between websites would produce better ranking of results than existing techniques, which ranked results according to the number of times the search term appeared on a page. Their search engine was originally nicknamed “BackRub” because the system checked backlinks to estimate the importance of a site. A small search engine called Rankdex was already exploring a similar strategy.

Convinced that the pages with the most links to them from other highly relevant web pages must be the most relevant pages associated with the search, Page and Brin tested their thesis as part of their studies, and laid the foundation for their search engine. Originally, the search engine used the Stanford University website with the domain google.stanford.edu. The domain google.com was registered on 15 September 1997, and the company was incorporated as Google Inc. on 4 September 1998 at a friend’s garage in Menlo Park, California. The total initial investment raised for the new company amounted to almost $1.1 million, including a $100,000 check by Andy Bechtolsheim, one of the founders of Sun Microsystems.

Both Brin and Page had been against using advertising pop-ups in a search engine, or an “advertising funded search engines” model, and they wrote a research paper in 1998 on the topic while still students. However, they soon changed their minds and early on allowed simple text ads.

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In March 1999, the company moved into offices in Palo Alto, home to several other noted Silicon Valley technology startups. After quickly outgrowing two other sites, the company leased a complex of buildings in Mountain View, California at 1600 Amphitheatre Parkway from Silicon Graphics (SGI) in 2003. The company has remained at this location ever since, and the complex has since come to be known as the googolplex (a play on the word googolplex). In 2006, Google bought the property from SGI for $319 million.

1.1.1 Name of Google

The name “Google” originated from a misspelling of the word “googol”, which refers to 10100, the number represented by a 1 followed by one hundred zeros. Having found its way increasingly into everyday language, the verb “google” was added to the Merriam Webster Collegiate Dictionary and the Oxford English Dictionary in 2006, meaning “to use the Google search engine to obtain information on the Internet.”

1.1.2 Growth of Google

While the primary business interest is in the web content arena, Google has begun experimenting with other markets, such as radio and print publications. On 17 January 2006, Google announced the purchase of a radio advertising company “dMarc”, which provides an automated system that allows companies to advertise on the radio. This will allow Google to combine two niche advertising media-the Internet and radio-with Google’s ability to laser-focus on the tastes of consumers. Google has also begun an experiment in selling advertisements from its advertisers in offline newspapers and magazines, with select advertisements in the Chicago Sun-Times. They have been filling unsold space in the newspaper that would have normally been used for in-house advertisements.

1.2.0 GOOGLE PRODUCTS AND SERVICES

Google product development philosophy involves rapid and continuous innovation, with frequent releases of early-stage products that they then iterate and improve. Google often make products available early in their development stages by posting them on Google Labs, at test locations online or directly on Google.com. If their users find a product useful, they promote it to “beta” status for additional testing. Once they are satisfied that a product is of high quality and utility, they remove the beta label and make it a core Google product. Their main products and services are described below.

1.2.1 Google.com – Search and Personalization

They are focused on building products and services on the Google web sites that benefit their users and let them find relevant information quickly and easily. These products and services include:

Google Web Search, In addition to providing easy access to billions of Web pages, they have integrated special features into Google Web Search to help people find exactly what they are looking for on the web.

Google Image Search, Google Image Search is a searchable index of images found across the web. To extend the usefulness of Google Image Search, Google offers advanced features, such as searching by image size, format and coloration and restricting searches to specific web sites or domains.

Google Video, Google Video lets users upload, find, view and share video content worldwide.

iGoogle and Personalized Search, iGoogle connects users to the information that is most useful and important to them in an easy-to-use and customizable format. Users add gadgets and themes created by Google and developers to create a powerful and personalized homepage and arrange the content the way they want.

1.2.2 Application

Information created by a single user becomes much more valuable when shared and combined with information from other people or places. Therefore their strategy for products Google develop in this space is simple: develop tools for their users to create, share and communicate any information generated by the user, thus making the information more useful and manageable. Examples of products Google have developed with this strategy in mind include:

Google Docs, Google Docs allows their users to create, view and edit documents, spreadsheets, and presentations from anywhere using a browser. These documents are useful to their users as they are accessible anywhere internet access is available, manageable as they are stored within their servers and automatically backed up, and shareable in that they allow real time editing with co-workers and friends over the internet.

Gmail, Gmail is Google’s free webmail service that comes with built-in Google search technology to allow searching of emails and over seven gigabytes of storage, allowing users to keep their important messages, files and pictures. Google serve small text ads that are relevant to the messages in Gmail.

Orkut, Orkut enables users to search and connect to other users through networks of trusted friends. Users can create a profile, personal mailboxes, post photos and join or manage online communities.

Google Sites, Google Sites allows users to easily create, update and publish content online without technical expertise, with control over who can see and update the site. Google Sites supports a variety of information such as videos, calendars, presentations, spreadsheets, discussions and texts.

YouTube, YouTube is an online community that lets users worldwide uploads, share, watch, rate, and comment on videos, from user generated, niche professional, to premium videos. YouTube is also a video platform providing general purpose video resources to the web community. YouTube videos are embedded in blogs, social networks and web applications, and YouTube programming interfaces are utilized by many registered developers to create third-party products and services. In addition, YouTube offers a range of video and interactive formats for advertisers to reach their intended audience.

1.2.3 Client

Google Toolbar, Google Toolbar is a free application that adds a Google search box to web browsers (Internet Explorer and Firefox) and improves user web experience through features such as a pop-up blocker that blocks pop-up advertising, an autofill feature that completes web forms with information saved on a user’s computer, and customizable buttons that let users search their favorite web sites and stay updated on their favorite feeds.

Google Chrome, Google Chrome is an open-source browser that combines a minimal design with technologies to make the web faster, safer, and easier to navigate.

Google Desktop, Google Desktop lets people perform a full-text search on the contents of their own computer, including email, files, instant messenger chats and web browser history. Users can view web pages they have visited even when they are not online. Google Desktop also includes a customizable Sidebar that includes modules for weather, stock tickers and news.

1.2.4 Google GEO-Maps, Earth and Local

Google Earth, Google Earth lets users see and explore the world and beyond from their desktop. Users can fly virtually to a specific location and learn about that area through detailed satellite and aerial images, 3D topography, street maps and millions of data points describing the location of businesses, schools, parks and other points of interest around the globe. Google Earth includes Sky, an astronomical imagery library with images of over 100 million stars and 200 million galaxies, and Ocean, with a detailed bathymetric map of the earth’s ocean floors.

Google Maps, Google Maps helps people navigate map information. Users can look up addresses, search for businesses, and get point-to-point driving directions-all plotted on an interactive street map or on satellite imagery. Google Maps includes Street View, 360-degree street-level imagery available in several regions around the world, and Google Transit, which provides up-to-date information on local transit options in many cities.

1.3.0 GOOGLE FINANCIAL STATUS TO DATE

The first funding for Google as a company was secured in August 1998 in the form of a $100,000 USD contribution from Andy Bechtolsheim, co-founder of Sun Microsystems, given to a corporation which did not yet exist.

On June 7, 1999, a round of equity funding totaling $25 million was announced; the major investors being rival venture capital firms Kleiner Perkins Caufield & Byers and Sequoia Capital.

In October 2003, while discussing a possible initial public offering of shares (IPO), Microsoft approached the company about a possible partnership or merger. However, no such deal ever materialized. In January 2004, Google announced the hiring of Morgan Stanley and Goldman Sachs Group to arrange an IPO. The IPO was projected to raise as much as $4 billion. On April 29, 2004, Google made an S-1 form SEC filing for an IPO to raise as much as $2,718,281,828.

In May 2004, Google officially cut Goldman Sachs from the IPO, leaving Morgan Stanley and Credit Suisse First Boston as the joint underwriters. They chose the unconventional way of allocating the initial offering through an auction (specifically, a “Dutch auction”), so that “anyone” would be able to participate in the offering. The smallest required account balances at most authorized online brokers that are allowed to participate in an IPO, however, are around $100,000. In the run-up to the IPO the company was forced to slash the price and size of the offering, but the process did not run into any technical difficulties or result in any significant legal challenges. The initial offering of shares was sold for $85 per share. The public valued it at $100.34 at the close of the first day of trading, which saw 22,351,900 shares change hands.

Google’s initial public offering took place on August 19, 2004. A total of 19,605,052 shares were offered at a price of $85 per share. The sale raised US$1.67 billion, and gave Google a market capitalization of more than $23 billion. The vast majority of Google’s 271 million shares remained under Google’s control. Many of Google’s employees became instant paper millionaires. Yahoo!, a competitor of Google, also benefited from the IPO because it owns 2.7 million shares of Google.

Google’s revenue growth rate has been slowing, but for the first time since it went public, the company’s quarter-to-quarter revenue declined.

The company, as is customary, reported results that most business only dreams of, recession or not. Its net income grew 8 percent to $1.42 billion and its revenue, excluding commissions paid to advertising partners, grew 10 percent to $4.07 billion. It generated free cash flow of $2 billion for the quarter, the vast majority of it derived from money advertisers pay Google when people click on ads next to search results.

But everything is most definitely not coming up roses. Google’s revenue, after ascending steadily quarter after quarter, peaked in the fourth quarter and declined 3 percent in the first quarter. Google’s business is still relatively strong, and it’s been hit by the recession less than many in the tech world, but it’s been hit nonetheless.

1.4.0 CULTURE AND EMPLOYEES

Google take great pride in their company culture and embrace it as one of their fundamental strengths. Their culture encourages the iteration of ideas to address complex technical challenges. In addition, Google embrace individual thinking and creativity. As an example, Google encourage their engineers to devote as much as 20% of their time to work on independent projects. Many of their significant new products have come from these independent projects, including Google News, AdSense for content and Orkut.

Google began as a technology company and have evolved into a software, technology, internet, advertising and media company all rolled into one. Google take technology innovation very seriously. Google compete aggressively for talent, and its people drive their innovation, technology development and operations. Google strive to hire the best computer scientists and engineers to help us solve very significant challenges across systems design, artificial intelligence, machine learning, data mining, networking, software engineering, testing, distributed systems, cluster design and other areas. Google work hard to provide an environment where these talented people can have fulfilling jobs and produce technological innovations that have a positive effect on the world through daily use by millions of people.

Google have assembled what Google believe is a highly talented group of employees. Despite their rapid growth, Google constantly seek to maintain a small-company feel that promotes interaction and the exchange of ideas among employees. Google try to minimize corporate hierarchy to facilitate meaningful communication among employees at all levels and across departments. Google believe that considering multiple viewpoints is critical to developing effective solutions, and Google attempt to build consensus in making decisions. While teamwork is one of their core values, Google also significantly reward individual accomplishments that contribute to their overall success. As Google grow, Google expect to continue to provide compensation structures that are more similar to those offered by start-ups than established companies. Google focus on very significant rewards for individuals and teams that build amazing things that provide significant value to us, their advertisers and their users.

At December 31, 2008, Google had 20,222 employees, consisting of 7,254 in research and development, 8,002 in sales and marketing, 3,109 in general and administrative and 1,857 in operations. All of Google’s employees are also equity holders, with significant collective employee ownership. As a result, many employees are highly motivated to make the company more successful.

1.5.0 GOOGLE BUSINESS MODEL

As with its technology, Google has chosen to ignore conventional wisdom in designing its business. The company started with seed money from angel investors and brought together two competing venture capital firms to fund its first equity round. While the dotcom boom exploded around it and competitors spent millions on marketing campaigns to “build brand,” Google focused instead on quietly building a better search engine.

The word quickly spread from one satisfied user to another. With superior search technology and a high volume of traffic at its Google.com site, Google’s managers identified two initial opportunities for generating revenue:

• Advertising
• Search services

1.5.1 Google grows and business blooms

Over time, these two business lines evolved into complementary networks. Google AdWords advertisers create ads to drive qualified traffic to their sites and generate leads. Google publishing partners deliver those ads targeted to relevant search results powered by Google AdSense. With AdSense, the publisher shares in the revenue generated when readers click on the ads.

For sites wishing to have more control over their intranet or site searches, Google developed the Google Search Appliance, a scalable and secure appliance that delivers accurate search results across any number of documents.

Google continues to think about ways in which technology can improve upon existing ways of doing business. New areas are explored, ideas prototyped and budding services nurtured to make them more useful to advertisers and publishers. However, no matter how distant Google’s business model grows from its origins, the root remains providing useful and relevant information to those who are the most important part of the ecosystem – the millions of individuals around the world who rely on Google search to provide the answers they are seeking.

1.5.2 Google AdWords for Advertisers

Google designed AdWords for advertisers who want to reach a qualified audience as efficiently as possible. Advertisers select their own target keywords and only pay when customers click on their ads. It’s easy to create ad text and manage online advertising accounts with no large upfront payment required. All that’s needed is five minutes and a credit card. The ads appear across Google’s growing roster of partners, including thousands of sites from America Online to the Washington Post, and are targeted to relevant search and content pages.

Google’s experienced sales and service team optimize campaigns for our larger advertisers. Our staff of AdWords experts work with advertisers to select the appropriate keywords and generate the matching creative, then carefully monitor the campaign to improve its performance over time by winnowing keywords and rewriting copy based on what is most effective. There’s no limit to the number of keywords that an advertiser can select and each keyword can be matched with a different creative execution. Recent advertisers include Amazon, Cisco Systems and Staples.

Google provides all of its advertisers with a full complement of reporting services to enable fine tuning of campaigns and real-time intelligence about which components are performing best. Advertisers can further increase efficiencies by targeting their campaigns to specific geographies or languages.

1.5.3 Google AdSense and advertisers

Google believes relevant advertising can be as useful as search results or other forms of content. And that advertising can enhance the experience for visitors to a publisher’s website, while helping publishers recover some of their investment in creating content of value. Google AdSense™ combines Google Search technology with our base of keyword advertisers to deliver ads that precisely target search results or the content on a site’s pages, no matter how specialized the subject matter. Advertisers, publishers, and information seekers all profit as a result.

Signing up for AdSense is easy — it only takes a few minutes to apply. And our sales team helps customize the program for sites receiving more than 20 million page views a month.

• AdSense serves relevant ads on content pages search result and content pages as well as dormant domain pages. Google Search Services enable publishers to provide Google web search on their own pages – results that can be used to generate revenue with the AdSense for Search program The Google Search Appliance, a scalable and secure device that provides Google quality search across an individual website or intranet.
• Google Wireless Services deliver Google search results via PDAs, wireless phones and other mobile devices powered by many of the world’s leading wireless service providers.

.1.0 GOOGLE GLOBAL MARKET SHARE

Not only does Google continue to dominate the global search market, it’s also growing faster than any of its competitors, according to data from comScore.

The audience measurement firm estimates that Google sites notched up a total of 76.7 billion searches during the month of July 2009, an increase of 58 percent over July 2008. Google’s search product therefore continues to govern the global search landscape, accounting for over 67 percent of all queries worldwide, comScore suggests.

In comparison, Yahoo and Microsoft — which agreed to a ten-year search partnership in July — attracted a joint total of 12.2 billion queries through their search services, which represents just 10.7 percent of queries globally. Microsoft’s product did, however, experience substantial year-on-year growth of 41 percent.

2.2.0 GOOGLE KEY TECHNOLOGIES

Google web search technology uses a combination of techniques to determine the importance of a web page independent of a particular search query and to determine the relevance of that page to a particular search query.

2.2.1 PageRank Technology

PageRank reflects our view of the importance of web pages by considering more than 500 million variables and 2 billion terms. Pages that we believe are important pages receive a higher PageRank and are more likely to appear at the top of the search results.

PageRank also considers the importance of each page that casts a vote, as votes from some pages are considered to have greater value, thus giving the linked page greater value. We have always taken a pragmatic approach to help improve search quality and create useful products, and our technology uses the collective intelligence of the web to determine a page’s importance.

2.2.2 Hypertext-Matching Analysis

Our search engine also analyzes page content. However, instead of simply scanning for page-based text (which can be manipulated by site publishers through meta-tags), our technology analyzes the full content of a page and factors in fonts, subdivisions and the precise location of each word. We also analyze the content of neighboring web pages to ensure the results returned are the most relevant to a user’s query.

Our innovations don’t stop at the desktop. To give people access to the information they need, whenever and wherever they need it, we continue to develop new mobile applications and services that are more accessible and customizable. And we’re partnering with industry-leading carriers and device manufacturers to deliver these innovative services globally. We’re working with many of these industry leaders through the Open Handset Alliance to develop Android, the first complete, open, and free mobile platform, which will offer people a less expensive and better mobile experience.

2.2.3 Life of a Google Query

The life span of a Google query normally lasts less than half a second, yet involves a number of different steps that must be completed before results can be delivered to a person seeking information.

2.2.4 Infrastructure

Google provides their products and services using their homegrown software and hardware infrastructure, which provides substantial computing resources at low cost. Google currently use a combination of off-the-shelf and custom software running on clusters of commodity computers. Their considerable investment in developing this infrastructure has produced several benefits. This infrastructure simplifies the storage and processing of large amounts of data, eases the deployment and operation of large-scale global products and services, and automates much of the administration of large-scale clusters of computers. Although most of this infrastructure is not directly visible to their users, Google believe it is important for providing a high-quality user experience. It enables significant improvements in the relevance of their search and advertising results by allowing us to apply superior search and retrieval algorithms that are computationally intensive. Google believe the infrastructure also shortens their product development cycle and lets us pursue innovation more cost effectively.

2.3.0 QUALITY OF PERSONNEL

Google is among the most successful Internet-based businesses and companies since the booming dotcoms years in late 1990s and remains to be a leader to date. The success of the Google is rooted on its outstanding organisational practices and core competencies. Google’s formula of success is not only its competent technology but also its aggressive ability to come-up with both innovative and profit-oriented projects. Innovation is very critical among the members of its workforce since it operates in global environment.Managing global environment requires managers the ability to manage change through innovation and creativity. The innovative capability of Google combined with integrated process and a supportive culture creates sustainable competitive advantage. Among the considered high-leverage innovators, Google excels in ideation with overall adeptness and competence across all four stages of the innovation value chain. For example, (2007) describes Google as search engine leader that creates new-fangled ideas with intense speed or what they call the “70-20-10 Rule” where the staff particularly engineers are encouraged to use 70 percent of their working time on central business functions, 20 percent on related business functions, and 10 percent on areas entirely of their own choice. Larger organisations like Google, in contrast to small ones are faster in adoption of innovations because of greater access to resources and need for strategic planning. Due to the stiff competition among Internet companies, the encouragement of innovation and creativity is inherent to Google. Innovation as a ground for doing business in the 21st century will be the consistent tugging force that the organisation must either strive to adopt or suffer the consequences of being left behind by competitors. The Googlers (employees) are motivated to contribute their suggestions, ideas, or anything that pertains to potential profit-gaining activities through various means like meetings, intranet, and other forms of communication. In product development, they emphasise on the feasibility and user-friendliness of relevant ideas. The feasibility is supported by Google’s aim of coming-up with something original and financially viable whereas the idea of user-friendliness works toward potential users. Through innovations, Google has expanded its services and features. Google today is no longer a search engine company but a web computing applications company. The upscale ability of Google is among its critical success factors that make it a sustainable competitive company in its specified industry.

On the aspect of HRM, Google has a distinct recruitment procedure that is bounded on the increased importance on valued intelligence and brainpower more than experience. (2003) identified recruiting as part of the overall management function of staffing. Conversely, (2004) emphasised that staffing requires both the process of attracting and selecting potential personnel with exceptional capabilities and competencies to fill-in the company position available at hand. Recruiting potential Googlers are based on academic proficiency and human intelligence. The diversity of skills and qualities of applicants is recognised because Google management believes that it can contribute on its progression. There are also unique advertising techniques in job postings, effective referral system, and campus recruitment. Generally, Google upholds the key HRM functions namely; attracting a quality workforce, developing a quality workforce, and maintaining a quality workforce.

2.4.0 GOOGLE CAPITAL BASE REVENUE STREAM

Google’s stock fell decidedly below the psychologically significant mark of $300 per share at one point. The stock has fallen 60% overall from its high near $720 and sits near its 2004-2005 prices. Despite this, Google remains a global leader in search, internet advertising, and has its finger on the pulse of innovative web services. Google’s earnings powerand Google’s search share remain intact in the long. Does that mean the shares necessarily imply a great risk-reward tradeoff now?

For perspective, let’s take a look at Google’s performance and its stock performance over a similar period.

Overall, Google’s stock grew at a 93% CAGR from its IPO in 2004 until 2007. Even including the precipitous drop in 2008, the stock has grown at a 30% CAGR. Since 2003, Google has grown its revenue at a 72.6% CAGR and its net income at a 109.1% CAGR. Roughly normalizing to the 2004-2008 time period, Google’s revenue and net income have grown at 62% and 80% CAGR, respectively.

It’s clear that Google’s stock grew relatively in line with its net income, in fact, even at its peak Google’s stock growth never outpaced its net income growth rate thus implying that wild multiple expansion was not responsible for investor returns over the last five years.

Unfortunately, with the changing economic outlook, the market seems to be pre-emptively punishing Google for slowing growth. If the current share price holds, the implication is that the Company will not grow net income from 2008 levels for another three years assuming that a stock’s return (30% CAGR) trends towards the long term growth rate of a company.

This return scenario seems compelling for a long term investor, but given that we remain dependent on growth for our returns as opposed to any fundamental valuation. It’s hard to ascertain whether or not the stock current price represents a reasonable entry point.

Now, let us try to look at the overall strengths and weaknesses of Google’s market, technology, personnel and capital base and revenue stream.

2.5.0 Google’s Strengths

• Google – Already number one search engine has established a brand name, in which its users trust. It’s dependable, reliable and fast.
• Google needs very little end user marketing as the name itself is getting word by mouth publicity.
• Google has a simple interface and it gives comprehensive results without confusing its users.
• Google has low operation cost as it uses low cost UNIX web servers for indexing millions of web pages across internet.
• Google has hired PhDs who are continuously working hard in order to enhance search algorithms and make searching faster, efficient and relevant.
• Google provides an interface to 177 languages to make it comfortable to search for its users in different countries.
• Google uses state of the art search technology to index pages regularly in order to give most updated results to its users.
• Google also weights the votes and ranks web pages with its PageRank technology to give its user access to most important pages first.
• Google is not biased towards advertisers. It clearly separates relevant advertisements and actual results by giving “Sponsored Links” tag to sponsored results when user searches to get information with some keyword. Moreover, it also ranks sponsored links to keep most relevant sponsored links on the top.
• Google offers localized search called “search by location” where users can get results showing vendors, products and services nearby their areas.
• Google also has a range of innovative additional services like Images, Groups, Directory, and News
  

   

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