2004:$105/Share 2011: $618/Share
Google began in March 1996 as a research project conducted by Stanford students Larry Page and Sergey Brin, Ph.D., who were working on the Stanford Digital Library Project (SDLP). The SDLP’s goal was “to develop the enabling technologies for a single, integrated and universal digital library,” and was funded through the National Science Foundation among other federal agencies. In search for a dissertation theme, Page considered exploring the mathematical properties of the World Wide Web, understanding its link structure as a huge graph. His supervisor, Terry Winograd, encouraged him to pick this idea, which Page later recalled as “the best advice I ever got.” Page focused on the problem of finding out which web pages link to a given page, considering the number and nature of such backlinks to be valuable information about that page.
In his research project, nicknamed “BackRub,” he was soon joined by Sergey Brin. Page’s web crawler began exploring the web in March 1996, setting out from Page’s own Stanford home page as it’s only starting point. To convert the backlink data that it gathered into a measure of importance for a given web page, Brin and Page developed the PageRank algorithm. Analyzing BackRub’s output—which, for a given URL, consisted of a list of backlinks ranked by importance—it occurred to them that a search engine based on PageRank would produce better results than existing techniques, which essentially ranked results according to how many times the search term appeared on a page.
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 website with the domain google.stanford.edu. The domain google.com was registered on September 15, 1997. They formally incorporated their company, Google Inc., on September 4, 1998 at a friend’s garage in Menlo Park, California.
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.
The name “Google” originated from a misspelling of “googol,” which refers to the number represented by a 1 followed by one-hundred zeros.
GOOGLE EVOLVES
By the end of 1998, Google had an index of about 60 million pages. The home page was still marked “BETA”, but an article in Salon.com already argued that Google’s search results were better than those of competitors like Hotbot or Excite.com, and praised it for being more technologically innovative than the overloaded portal sites like Yahoo!, Excite.com, Lycos, Netscape’s Netcenter, AOL.com, Go.com and MSN.com, which at that time were seen as “the future of the Web”, especially by stock market investors.
In March 1999, the company move
d into offices at 165 University Avenue 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 at 1600 Amphitheatre Parkway from Silicon Graphics in 2003. The company has remained at this location ever since, and the complex has since become known as the Googleplex. In 2006, Google bought the property from Silicon Graphics for $319 million.
The Google search engine attracted a loyal following among the growing number of Internet users, who liked its simple design. In 2000, Google began selling advertisements associated with search keywords. The ads were text-based to maintain an uncluttered page design and to maximize page loading speed. Keywords were sold based on a combination of price bid and click-through, with bidding starting at $.05 per click. While many of its dot-com rivals failed in the new Internet marketplace, Google quietly rose in stature while generating revenue.
Google’s declared code of conduct is “Don’t be evil”, a phrase which they went so far as to include in their prospectus for their 2004 IPO, noting, “We believe strongly that in the long term, we will be better served—as shareholders and in all other ways—by a company that does good things for the world even if we forgo some short term gains.”
INITIAL PUBLIC OFFERING
The first funding for Google as a company was secured in 1998 in the form of a $100,000 contribution from Andy Bechtolsheim, co-founder of Sun Microsystems, given to a corporation which did not yet exist. In 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.
While Google still needed a lot of funding for their further expansion, Brin and Page were hesitant to take the company public even though that would basically solve most of their financial issues. They were not ready to give up their control over Google. After borrowing the $25 million venture capital money, Sequoia Capital forced Brin and Page to hire a CEO—or else they would take back the borrowed $12.5 million. Brin and Page gave in and hired Eric Schmidt as Google’s first CEO in March 2001.
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 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. The SEC filing revealed that Google turned a profit every year since 2001 and earned a profit of $105.6 million on revenues of $961.8 million during 2003.
They chose the unconventional way of allocating the initial offering through a Dutch auction”, so that anyone would be able to participate in the offering. The initial offering of shares was for $85 a piece. The public valued it at $100.34 at the close of the first day of trading, which saw 22,351,900 shares change hands.
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.
THE GROWTH OF GOOGLE
At its peak in early 2004, Google handled upwards of 84.7% of all search requests on the Web through its website, and through its partnerships with other Internet clients like Yahoo!, AOL, and CNN. In February 2004, Yahoo! dropped its partnership with Google, providing an independent search engine of its own.
After the IPO, Google’s stock market capitalization rose greatly and the stock price more than quadrupled. In January 2005 the number of shares outstanding was up 100 million to 273.42 million. The two founders are believed to hold almost 30% of the outstanding shares.
Google’s increased size produced more competition from large mainstream technology companies, such as the rivalry between Microsoft and Google. Microsoft has been touting its Bing search engine to counter Google’s competitive position. Furthermore, the two companies are increasingly offering overlapping services, such as webmail (Gmail vs. Hotmail), search (both online and local desktop searching), and other applications (for example, Microsoft’s Windows Live Local competes with Google Earth). In addition to an Internet Explorer replacement, Google is designing its own Linux-based operating system called Chrome OS to directly compete with Microsoft Windows. There were also rumors of a Google web browser, fueled much by the fact that Google is the owner of the domain name “gbrowser.com.” These were later proven when Google released Google Chrome.
This corporate feud is most directly expressed in hiring offers and defections. Many Microsoft employees who worked on Internet Explorer have left to work for Google. This feud boiled over into the courts when Kai-Fu Lee, a former vice-president of Microsoft, quit Microsoft to work for Google. Microsoft sued to stop his move by citing Lee’s non-compete contract, because he had access to sensitive information regarding Microsoft’s plans in China.
Google and Microsoft reached a settlement out of court on 22 December 2005, the terms of which are confidential.
After months of speculation, Google was added to the Standard & Poor’s 500 index (S&P 500) in 2006. Google replaced Burlington Resources, a major oil producer based in Houston that had been acquired by ConocoPhillips. The day after the announcement Google’s share price rose by 7%. Over the course of the past decade, Google has become quite well known for its corporate culture and innovative, clean products, and has had a major impact on online culture. In July 2006, the verb, “to google,” was officially added to both the Merriam Webster Collegiate Dictionary as well as the Oxford English Dictionary, meaning, “to use the Google search engine to obtain information on the Internet.”
Editor Phil Robertson is an award-wining journalist and graphic designer. With a degree from the University of Florida’s School of Journalism, his career in journalism and publishing spans over 30 years, and includes positions as editor and publisher for several newspapers and magazines. During his career he has received a first-place award for investigative journalism from the Society of Newspaper Editors, and five ADDY awards for advertising design.
