Part 1 (1/2)

Googled : the end of the world as we know it.

by Ken Auletta.

PREFACE.

The world has been Googled. We don't search for information, we ”Google” it. Type a question in the Google search box, as do more than 70 percent of all searchers worldwide, and in about a half second answers appear. Want to find an episode of Charlie Rose Charlie Rose you missed, or a funny video made by some guy of his three-year-old daughter's brilliant ninety-second synopsis of you missed, or a funny video made by some guy of his three-year-old daughter's brilliant ninety-second synopsis of Star Wars: Episode IV Star Wars: Episode IV? Google's YouTube, with ninety million unique visitors in March 2009-two-thirds of all Web video traffic-has it. Want to place an online ad? Google's DoubleClick is the foremost digital advertising services company. Google's advertising revenues-more than twenty billion dollars a year-account for 40 percent of all the advertising dollars spent online. In turn, Google pumps ad dollars into tens of thousands of Web sites, bringing both traffic and commerce to them. Want to read a newspaper or magazine story from anywhere in the world? Google News aggregates twenty-five thousand news sites daily. Looking for an out-of-print book or a scholarly journal? Google is seeking to make almost every book ever published available in digitized form. Schools in impoverished nations that are without textbooks can now retrieve knowledge for free. ”The Internet,” said Google's chief economist, Hal Varian, ”makes information available. Google makes information accessible.”

Google's uncorporate slogan-”Don't be evil”-appeals to Americans who embrace underdogs like Apple that stand up to giants like Microsoft. Google's is one of the world's most trusted corporate brands. Among traditional media companies-from newspapers and magazines to book publishers, television, Hollywood studios, advertising agencies, telephone companies, and Microsoft-no company inspires more awe, or more fear.

There are sound reasons for traditional media to fear Google. Today, Google's software initiatives encroach on every media industry, from telephone to television to advertising to newspapers to magazines to book publishers to Hollywood studios to digital companies like Microsoft, Amazon, Apple, or eBay. For companies built on owning and selling or distributing that information, Google can be perceived as the new ”Evil Empire.”

Google is run by engineers, and engineers are people who ask why: Why must we do things the way they've always been done? Why shouldn't all the books ever published be digitized? Why shouldn't we be able to read any newspaper or magazine online? Why can't we watch television for free on our computers? Why can't we make copies of our music or DVDs and share them with friends? Why can't advertising be targeted and sold without paying fat fees to the media middleman? Why can't we make phone calls more cheaply? Google's leaders are not cold businessmen; they are cold engineers. They are scientists, always seeking new answers. They seek a construct, a formula, an algorithm that both graphs and predicts behavior. They naively believe that most mysteries, including the mysteries of human behavior, are unlocked with data. Of course, Wall Street's faith in such mathematical models for derivatives helped cripple the American economy.

Naivete and pa.s.sion make a potent mix; combine the two with power and you have an extraordinary force, one that can effect great change for good or for ill. Google fervently believes it has a mission. ”Our goal is to change the world,” Google's CEO, Eric Schmidt, told me. Making money, he continued, ”is a technology to pay for it.”

I came away from two and a half years of reporting on Google believing that its leaders genuinely want to make the world a better place. But they are in business to make money. Making money is not a dirty goal; nor is it a philanthropic activity. Any company with Google's power needs to be scrutinized. I also came away impatient with companies that spend too much time whining about Google and too little time devising an offense. Most old media companies were inexcusably slow to wake to the digital disruption.

In 2007, Eric Schmidt told me that one day Google could become a hundred-billion-dollar media company-more than twice the size of Time Warner, the Walt Disney Company, or News Corporation, the world's three largest media conglomerates. That Google might achieve this goal in less than a generation, in a time when copyright and privacy practices are being upended, when newspapers are declaring bankruptcy and in-depth journalism is endangered, when the profit margins of book publishers are squeezed along with their commitment to serious authors, when broadcast television networks dilute their programming with less expensive reality shows and unscripted fare, when cable news networks talk more than they listen, when the definitions of community and privacy are being redefined, and the way citizens read and process information is being altered, and when most traditional media models are being reconfigured by digital companies like Google-all this means that it's important to put Google under the microscope.

Brilliant engineers are at the core of the success of a company like Google. Drill down, as this book attempts to, and you'll see that engineering is a potent tool to deliver worthwhile efficiencies, and disruption as well. Google takes seriously its motto, ”Don't be evil.” But because we're dealing with humans not algorithms, intent sometimes matters less than effect. A company that questions everything and believes in acting without asking for permission has succeeded like few companies before. Unlike most technologies that disrupted existing business-the printed book that replaced scrolls, the telephone that replaced the telegraph, the automobile that replaced the horse and buggy, the airplane that supplanted cruise s.h.i.+ps, the computer that supplanted typewriters-Google search produces not a tangible product but something abstract: knowledge. This makes Google both less and more vulnerable to challenge. Less because Google's prodigious Mount Everest of data is unrivaled. More because Google depends for its continued success on users and governments that trust it will not abuse this knowledge. Whether one applauds or fears this eleven-year-old company, there is no question that Google demands our attention.

PART ONE.

Different Planets

CHAPTER ONE.

Messing with the Magic

With his suit and tie and closely cropped gray hair, Mel Karmazin stood out as he crossed the Google campus in Mountain View, California, pa.s.sing people in baggy T-s.h.i.+rts 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 compet.i.tors. Two of Viacom's biggest compet.i.tors, 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-fas.h.i.+oned, 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 a.s.sociate, 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 Baysh.o.r.e 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 flas.h.i.+ng 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-s.h.i.+rt 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 s.h.i.+rt and tie, frameless gla.s.ses, 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-s.h.i.+rt, 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 s.h.a.ggy 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 ma.s.sages, hair-cuts, and medical attention-as about technology.

As they adjourned for lunch, Karmazin, walking past offices crowded with engineers and dodging colored phys...o...b..a.l.l.s 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 Pica.s.sos 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 doc.u.ment 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 employment or or Steve Jobs 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 a.s.sign a slightly higher qualitative ranking to more reliable sources-like, for instance, a New York Times 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 a.s.signs it a value. This quantified value is known as PageRank, after Larry Page. 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 a.s.signs 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 s.p.a.ce adjacent to keywords such as sneakers sneakers or or basketball. 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 s.p.a.ce below the coveted top listing. The minimum bid per keyword is set by Google. A commonly searched word or phrase like 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 s.p.a.ce below the coveted top listing. The minimum bid per keyword is set by Google. A commonly searched word or phrase like eBay eBay or or Jet Blue Jet Blue might cost only a penny or two, while a more esoteric phrase like might cost only a penny or two, while a more esoteric phrase like helicopter parts 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 relations.h.i.+ps. 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. 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 relations.h.i.+ps. 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, advertis.e.m.e.nts 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 a.s.semble data advertisers crave and couldn't get from traditional media companies like Karmazin's.

And unlike traditional a.n.a.log media companies, which can't measure the effectiveness of their advertising, Google offered each advertiser a free tool: Google a.n.a.lytics, 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, s.e.x, 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 f.u.c.king with the magic!”

DAYS LATER, that line was still echoing in the halls of the Googleplex. Every Friday afternoon, Google employees a.s.semble 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 f.u.c.king with the magic!'” For Googlers, as they often refer to themselves, Karmazin's deference to tradition was anathema; they questioned everything. everything. Mayer said the Google founders always asked, ”Why does this have to be the way it is? Why can't you 'f.u.c.k with the magic?'” Mayer said the Google founders always asked, ”Why does this have to be the way it is? Why can't you 'f.u.c.k with the magic?'”

Since Google's birth in 1998, as Schmidt acknowledges, Google has set out systematically to attack the magic. ”If Google makes the market more efficient, that's a good thing,” he said. Unlike Karmazin, Google engineers don't make gut decisions. They have no way to quantify relations.h.i.+ps or judgment. They value efficiency more than experience. They require facts, beta testing, mathematical logic. Google fervently believes it is shaping a new and better media world by making the process of buying advertising more rational and transparent. In its view, the company serves consumers by offering advertising as information. It invites advertisers to bid for the best price, and invites media companies to slim their sales forces and automate part of their advertising and to reach into what author Chris Anderson dubbed ”the long tail,” in this case to those potential clients who rarely advertised but would if it was targeted and cheap to do so. Google also invites users to freely search newspapers, books, and magazines in what it sees as both free promotion and an opportunity for publications to sell advertising off this traffic. It invites television networks and movie studios to use YouTube, which Google acquired in 2006, as both a promotional trampoline and as a new online distribution system for their products. It invites advertisers to use DoubleClick, the digital advertising service company they acquired in 2007, for their online ads.

Still, Page told me, he does not see Google as a content company. Google's computers can ”aggregate content; we can process it, rank it, we can do lots of things that are valuable. We can build systems that let lots of people create content themselves. That's really where our leverage is.” That leverage, inevitably, makes it easier for audiences to migrate away from old media. This will cause some distress, but satisfying everyone, including traditional media companies, is not Google's goal, he said; serving users is. ”You don't want to do the wrong things in a way that is causing real damage to the world or to people. But you also need to make progress, and that's not always going to make everybody happy.” Armed with this conviction, Page and Google's engineers have made many media companies very unhappy indeed.

It wouldn't happen all at once. In the early days of the new century, few old media companies had yet lapsed into panic mode. Newspapers saw their circulation and ad revenues slipping. From a peak daily newspaper circulation of sixty-three million in 1984, circulation slid an average of 1 percent each year until 2004, when the drop became more precipitous. Publishers did speak of moving aggressively to create digital newsrooms, and in the nineties the Tribune Company and Knight Ridder, among others, made digital investments. But the chains that owned most newspapers were predominantly interested in getting bigger in order to gain more leverage. There was little urgency to move to the Web; online newspapers were usually stepchildren of print editions, not allowed to break stories or employ their own separate staff, not allowed to look or feel much different from a print newspaper.

Network television viewing had similarly been eroding. On a typical night in 1976, 92 percent of all viewers were watching CBS, NBC, or ABC; today, those networks (along with Fox) attract about 46 percent of viewers. The networks responded to the decline by cutting costs, buying local TV stations and cable properties, producing and syndicating more of their own shows, and-like the movie studios-putting their faith in hits like NBC's Seinfeld, Seinfeld, to save them. to save them.

The media buzzwords were convergence convergence and and synergy. synergy. The common credo was that the advantage accrued to vertically integrated corporate giants-to Viacom, AOL Time Warner, News Corporation, Disney, Gannett, Tribune-those able to control every step in the process from an idea to its manufacture to its distribution. The synergies would come not from partnering with other companies but from owning content and the means to distribute it. With that in mind, media companies pushed to blur the borders between traditional industries: broadcast networks acquired cable networks; telephone companies acquired cable distribution companies; cable system owners invested in content companies and telephone services; Hollywood studios bought broadcast networks along with music and game and book companies; newspapers bought local cable and radio. The common credo was that the advantage accrued to vertically integrated corporate giants-to Viacom, AOL Time Warner, News Corporation, Disney, Gannett, Tribune-those able to control every step in the process from an idea to its manufacture to its distribution. The synergies would come not from partnering with other companies but from owning content and the means to distribute it. With that in mind, media companies pushed to blur the borders between traditional industries: broadcast networks acquired cable networks; telephone companies acquired cable distribution companies; cable system owners invested in content companies and telephone services; Hollywood studios bought broadcast networks along with music and game and book companies; newspapers bought local cable and radio.

Advertising agencies were also convinced size equaled leverage, so they acquired one another, consolidated their media-buying services, and purchased public relations and direct mail and marketing firms, aware that marketing and public relations spending was double the money spent on traditional advertising. Four giant worldwide firms now insisted on being called marketing companies.

Meanwhile, music companies, rather than marketing singles as they once did, continued to push the sale of entire alb.u.ms; as Napster and its clones delighted young fans by offering free digital downloads of their music, they refused to make a deal, choosing instead to prosecute not just Napster but its users-the music companies' own customers.