This time, the branding went faster. I convinced Salar we needed to make it easy to distinguish the new system from the original while planning for an endgame with just one AdWords system. I proposed "AdWords Select," because it would be easy to drop the "Select" when the original system shut down. He agreed and sold it to Larry and Sergey.
The new interface bothered me more. Overture had a simple three-step process for creating ads, an experience as comfortable and easy as driving a golf cart. AdWords Select was a MiG fighter, loaded with technical terms, incomprehensible gauges and dials, and a long checklist before your ads actually took off. I wanted us to have a shortcut with preset options, but Salar felt the granularity of the system made it powerful and that was its selling point.
Sheryl Sandberg, an economics wunderkind and former chief of staff at the Treasury Department, joined Google the week the new prototype went live. She was immediately handed responsibility for advertising customer support and the team of five people who managed that for Omid. One quit that day. Sheryl also wanted things simplified, but there was no working around Salar, who had developed a deep attachment to the product. Salar obsessed about the UI, the sign-up process, the auction mechanics, even the text of the emails going to users. His power as product manager over everything but the code was absolute. The system's thousand moving parts demanded total focus to keep things moving forward. Decisions had to be made quickly, often at four in the morning. Salar was in his element, running at full capacity and pushing the role of PM to a new and significant place.
Salar asked me for text to explain what set AdWords Select apart in a field dominated by Overture's promise of "pay for performance." Something that would stir the souls of advertisers and compel them to try a new system when Overture already worked well for them. Something in fewer than seven words.
"It's all about results," I suggested. The wording felt right. It emphasized the unequaled quality of our search and the importance of real return on investment. We slathered the tagline liberally over the sales materials we had in preparation. If we were going to win Yahoo and others, we needed to tout our strengths as a provider of both search and revenue.
Word on the street was that Yahoo's trial of Overture was not going well. One of our clients had heard Yahoo complaining about the high level of irrelevancy in Overture's listings. A few days later Overture overhauled their advertiser guidelines and introduced stricter controls on URLs, ad titles, and descriptions. "Given our commitment to providing a world-class search experience," Overture announced, "it's important that we provide highly relevant search results to our users." Evidently some users didn't want to just keep clicking until they found what they were looking for.
Overture's blithe confidence derived from the forty thousand advertisers whose listings appeared across their network of tens of thousands of client sites. Google only sold ads that appeared on Google.com. No matter how big our search engine grew, it could never compete with the reach of a web-wide network.
In January 2002, Omid let slip a hint that things were about to change. "A lot of the companies that we power searches for want us to start syndicating advertisements to them in some sort of revenue share," he told a reporter for Revolutionmagazine.com.* "We are looking at that, and it is an area where we may potentially compete with Overture. But it isn't our core business, as we aren't dependant on third-party traffic to generate income."
Omid. What a sandbagger. We already had our first syndication deal signed. Our sales team had inked a contract with Earthlink to supply our original AdWords ads a week earlier. They had been an Overture client until their contract expired, making it our first win in a head-to-head contest. We hadn't even offered them CPC ads. I doubt Overture worried—Earthlink was a trivial account compared to their major partners Yahoo and AOL. But we saw the contract as a very big deal. It proved we could syndicate our ads. Our formerly cold war with Overture began to simmer.
Omid celebrated by telling the entire company to work harder. We needed to increase the revenue per ad we generated to pressure Overture. The more we earned, the more we could offer potential partners in a bidding war for their business. We knew we could improve relevance faster than Overture, because they employed human evaluators to determine ad relevance. People couldn't possibly keep up with a good algorithm.
The Earthlink deal held only one danger for Google—the guarantee of a minimum payment, even if the advertising didn't generate sufficient revenue to cover it. It could turn out like Netscape's CPC death spiral. The exposure was small, but as deals grew bigger and competition more intense, guarantees swelled like great gas-filled dirigibles, casting shadows over our balance sheet. The threat was the "overhang"—the cumulative amount of money guaranteed to all partners. Reduced search volume or quality issues that hurt ad clickthrough rates could spark an explosive expansion of Google's debt and obliterate the company.
Even with Larry and Sergey's high tolerance for risk, no one wanted the company to die under a load of corporate IOUs, especially the new CEO, Eric Schmidt. "Don't make me bankrupt," Sheryl Sandberg recalls Eric telling Salar. "Don't run out of cash."
The guarantees would become a weapon in the battle for syndication market share, as each search superpower tried to bluff the others into spending themselves into economic oblivion.
On February 5, 2002, CNET broke the news that Google had been quietly providing Earthlink with search results and advertising for weeks. It was too late in the day for a market reaction, and the story garnered little attention.
The next morning, Overture's stock tumbled forty-one percent. A day later, Google and Earthlink issued a joint press release announcing that Google would provide search results for Earthlink's network of sites. No mention was made of our syndicating ads for the first time, the shift that changed our industry.
Meanwhile, Overture and a supporting cast of adoring stock analysts downplayed Google's new direction. Safa Rashtchy of US Bancorp Piper Jaffray called the lower stock price a "major buying opportunity" for investors considering Overture. In his view, people were overreacting. Earthlink was an aberration. Its business model didn't apply to the big portal players.
Ted Meisel, Overture's CEO, fired back at us with a press release touting raised expectations for the quarter and stating there would be no "material impact" from the loss of Earthlink as a client. He also announced that the company had extended its relationship with Yahoo to the end of the second quarter of 2002.
Overture's stock recovered over the next few days, in part buoyed by the rosy prognostications of the Wall Street analysts enamored with the company's prospects. Salomon Smith Barney predicted that Earthlink's impact would be minimal since "the major portals can (and do) operate their own CPM-based search advertising models, and they are unlikely to ... share those economics with Google." Besides, SSB noted, privately held Google was tied to CPM-based ads and couldn't afford to compete for contracts with big guarantees in a cost-per-click, pay-for-performance world.
"You ain't seen nothing yet," Rashtchy crowed to investors a week later. He believed Overture's strong fourth quarter and its deal with MSN had set the table for "huge growth leverage."
Larry and Sergey played it cool. They had a stack of aces up their sleeves. Google would prevail because of the better quality of our search, the greater relevance of our ad matching, and our willingness to commit fearlessly (but prudently) to enormous partner guarantees. And because what everyone else saw as our biggest impediment was actually an enormous advantage: we maintained a site that competed directly with our potential partners. Overture didn't have such a site.
In what Larry termed "the first well thought out article I've seen about Overture," George Mannes of TheStreet.com pointed a sharp stick at Overture's Achilles' heel.* "Compared with traditional media practices," he wrote, "Overture retains an exceptionally large portion of the money it collects from advertisers." They were keeping forty-nine percent of the revenue from the ads they sold and giving only half to the
sites where the ads ran. Traditional media-placement agencies kept only fifteen percent for themselves.
That's where we had them. Overture was entirely dependent on its network for revenue, and if its margins slipped, the company would be in trouble. We kept all the money for the ads we ran on Google.com, and that swelling river of cash subsidized our expansion efforts.
We could give a bigger share of our revenue to our partners. Our costs were low since we had to process the ads to run on Google anyway and additional distribution would be almost entirely added profit. Plus, running our own site gave us an edge in understanding how users responded to keyword-based advertising. Google.com was a living laboratory processing priceless data that revealed what was effective and what was not.
We could—and would—send margins into a nosedive, and that went a long way toward assuaging our partners' concerns about Google as a potential competitor. We were now the good guys, cutting costs for everyone and helping to fill the coffers of search-enabled sites across the web.
The Game Changes
Overture CEO Ted Meisel, interviewed by CNET the day the Mannes article appeared, wasn't concerned about the future of paid search. Portals that had not yet augmented their search results with Overture's paid listings, he told a reporter, had "been essentially providing the largest ad giveaway that I can think of," because they were delivering customers to businesses without monetizing the traffic. Meisel noted that Overture's forecasts for the coming year were based only on extension of the Microsoft deal and added, "We certainly regard AOL and Yahoo as important potential partners, but our business can live without them."
Meisel would have reason to be thankful he had hedged his optimism. On February 19, 2002, we posted a "NEW!" option on the web page describing Google's advertising offerings. CPC-based AdWords Select was live.
Overture's stock dropped ten percent. Safa Rashtchy tried to stem the panic by again beating the "buying opportunity" drum. "Overture has a lock on the major portals," he reiterated. Large partners would never sign with Google as long as we had our own site. Besides, Rashtchy pointed out, Google had only a thousand advertisers using its program. Overture had fifty-four times that.
Merrill Lynch analyst Justin Baldauf concurred, telling CNET, "Because Overture is much bigger than Google, Overture can afford to pay distribution partners more money." He explained that Google couldn't increase distribution without more advertisers and wouldn't get more advertisers until we increased distribution. That may have been true for CPM ads, but the underlying economics for CPC ads were far different. Advertisers paid only for the clicks they received, so the return on investment was almost always positive—search-targeted ads paid for themselves. Therefore the market for our ads was limited only by the advertiser's product inventory and production capabilities. CPC search-targeted ads were like crack for marketers. Advertisers pulled money from other direct-marketing budgets to buy as many relevant keywords as they could. We didn't need to take advertisers away from Overture—the pie was plenty big enough for both of us.
Over the weeks to come, I would check MOMA daily to get an update on the advertisers in our system. The number climbed with the steady speed of a veteran Sherpa. That was encouraging, but what we really needed were distribution partners who would display our ads. Overture had most of the big ones sewn up. But that, we determined, was something we could change.
Grow, Baby, Grow
We continued to bulk up as we prepared for our CPC cage match with Overture. Even marketing was given the okay to add staff, and I suddenly found myself with seven open positions and hundreds of résumés cluttering my inbox. I had no time to read them. The AdWords Select launch ate up chunks of my day, and our new venture into hardware, the Google Search Appliance (GSA), chewed up the rest. Our distributed-computing toolbar nibbled at the edges not already gnawed by catalog search. I had canned responses to feed user support and ongoing scraps with Marissa and Wayne over the translation console. I carried the résumés with me and read them while mopping up the residue of my daughter's stomach flu and while waiting for my endodontist to redo a root canal that had gone painfully wrong.
Still, I got a note from a product manager complaining that I couldn't be too busy to rewrite something a second time because he hadn't seen me in the office at two a.m. I wrote a scathing reply in which I pointed out I had been at work till three a.m. polishing AdWords Select and that, well ... let's just say it went on for a page and a half of painful detail about his need for urgency and how it related to his management style.
I hit Send and waited for the response. It wasn't long in coming. "Don't send this," Cindy advised me, as I knew she would. I always ran venting tirades by her before sending them to the people who had wronged me. She understood my wrath and sent a curt note on my behalf. I had plenty of wrath to go around during those hectic days, when the smallest bumps threatened to upset my carefully balanced tray of tasks. My buffer, as the engineers sometimes said, was full.
With Google's expansion, the engineers found that they had outgrown the grand experiment begun with the awkward July reorg. In January 2002, Wayne announced that the company's flat structure could not scale much further. Yes, the executives had a clear line of communication to engineering, but Google intended to hire another hundred engineers that year. They couldn't all report to Wayne. The new goal would be to bring the reporting ratio down to thirty-five to one. Senior managers would be hired primarily for their technical skills, not their managerial ability. These new directors would recognize technical talent when they saw it and, when needed, could lend a hand rather than just encouragement.
A month later Jonathan Rosenberg, freed from his prior commitments by the bankruptcy of Excite@Home, joined Google as VP of product management. He formalized the responsibilities of the department Larry had started with Salar and defined the role of product manager. The PMs would work with engineering to design and develop new products and features, handle cross-organizational communication, and determine product road maps.
There would soon be many PMs, with many advanced degrees from the world's top business schools, law schools, and engineering programs. Our cultural evolution would take a giant leap from single-celled amoeba to vertebrate, from anarchy and individual autonomy to the controlled chaos that, at Google, was as close as anything came to a state of order.
Jonathan's new division shoehorned itself into a crack in the org chart between Cindy's corporate marketing group and engineering. When product management had been ad hoc, my colleagues and I had worked directly with engineers to prepare products for launching into the open market. Now PMs would formally coordinate that activity and draw on the PR specialists and brand management (that is, me) as they did on other corporate resources in their tool kit.
As the product-management wedge grew wider with the influx of new hires, resistance to being displaced intensified within Cindy's world. I, for one, was willing to be integrated, but I didn't want to be shoved aside. In a growing, engineering-driven organization, the power of product management could easily become an unstoppable force. Cindy's reports, including brand management, played a secondary role. We added the clear-coat finish on a precision automobile—our efforts invisible save for a glossy shine highlighting the beauty of the machine that lay beneath. My role still had value, because I worked on the language that went into the product itself. But thinking about how users perceived the product, and the company as a whole, was a low priority. The product would speak for itself, so what mattered most was the technology and the cool things that could be done with it.
The building's population density increased, even after we pushed finance and the ads team into an adjacent office, quickly dubbed the "MoneyPlex." Stacy in HR sent out multiple memos about office hygiene and our duty to respect the micro-kitchens, load our dirty dishes, put away the milk, throw out half-eaten bananas, recycle whenever possible, leave conference rooms clean, wash hockey gear, and keep animals out of the café, the kitchens, and the
bathrooms. There were policies regulating dogs left alone, animal hair, and barking, barfing, and biting.
Charlie warned Larry, Sergey, and long-suffering facilities manager George Salah that he would expire without more space. A compromise was reached. A semitractor showed up one morning belching diesel and dragging a monstrous white trailer custom outfitted with ovens, dishwashers, pothooks, and prep counters. The leviathan was unhitched and beached in the parking lot adjacent to the café to bake in the sun like the victim of a drive-by harpooning.
The trailer contained a fully equipped mobile kitchen designed for use at large outdoor events. All it required was hookups to electricity and water. Those we had, though we lacked the permits that would have allowed us to use them legally. But what's a piece of paper compared with the happiness of hundreds of Google employees? Facilities plugged the trailer in and fired it up. With its painted sheet metal glinting in the harsh summer light and smoke pouring out of its vents, the "auxiliary kitchen" immediately lowered property values throughout the manicured office park in which Google was situated. All that was missing was a rusty Ford pickup on concrete blocks and an ugly mutt chained to a lawn chair. Charlie promptly had his crew run up the Jolly Roger on a pole jutting from the trailer's roof, proclaiming the auxiliary kitchen an interference-free zone. Charlie's outlaw kitchen crew operated unperturbed except for a lone fire truck that rolled up to investigate the smoke perfuming Mountain View with the aroma of a rib joint. Its crew left without citing us. Firemen. They do love barbeque.
I'm Feeling Lucky: The Confessions of Google Employee Number 59 Page 33
