BW Online | July 10, 2001 | Google's Successful Search

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JULY 10, 2001

COMPANY CLOSEUP
By Ben Elgin

Google's Successful Search
By remaining strictly focused on Web searches, the company has nearly become profitable despite the dot-com crackup

STORY TOOLS

For a dot-com company navigating the treacherous terrain of an Internet meltdown, the mood at search-engine stalwart Google is surprisingly light. During a company meeting on a recent Friday afternoon, Google co-founder and President Sergey Brin -- clad in his trademark sandals, shorts, and a short-sleeve collar shirt -- trades quips with 60 or so microbrew-sipping staffers. At one point during the exchange, the 27-year-old exec introduces an intern to the rest of the crew, only to learn the newcomer has been on board for nearly a month. "Well, I see that you've been very productive so far," deadpans Brin, eliciting laughter that fills the room.

At a time when most Internet companies are holding morbid meetings to dole out pink slips, privately held Google remains unruffled by the market turmoil. Over the last three years, the proudly geekish company has quietly built its search engine into the world's 16th-most-visited Web site, according to research company Jupiter Media Metrix.

Now, Google, which handles 100 million Web searches everyday -- including all of Yahoo!'s search queries -- is zeroing in on profitability for this year's third quarter. That's a remarkable feat for a company that has raised just $25 million in one venture round and relies on Internet advertising for nearly half of its business. "Google's doing the best job with search out there," says Scott Gatz, Yahoo's general manager of search and directory.

STRATEGIC CROSSROAD. Furthermore, Google is poised to add some executive clout to its lineup. Chairman Eric Schmidt, sources say, will take over as chief executive when his current company, Novell, is merged with Cambridge Technology Partners in the coming days.

It's a pivotal time. Google is eyeing a potential initial public offering in 2002. And if Schmidt were to step in, he would be facing a strategic crossroad. Google has become the sultan of search engines by establishing itself as a neutral provider of technology. Roughly half of its business comes from licensing its search technology to other Web sites, with the other half coming from ads sold on Google.com.

But the company, while insisting its focus will remain with search, has been slowly becoming more like a portal. Beside Web searches, its offerings now include things like address look-ups and translation services, as well as a Web directory that's nearly an exact copy of Yahoo's.

The question must be asked: At what point will Google.com become a competitor to its search-technology customers? "Resolving their business model is the big question they're going to have to face at some point," says Safa Rashtchy, senior analyst with U.S. Bancorp Piper Jaffray.

RIVALS REEL. Still, Google's relatively smooth journey is all the more impressive given the struggles of its closest competitors. The privately held Mountain View (Calif.) company, which doesn't disclose revenue totals, has seen the markets for both of its core businesses pummeled in the past year.

Internet-search pioneer AltaVista, for instance, cut 25% of its staff earlier this year, and search contenders like Ask Jeeves and Inktomi have also slashed jobs and lowered earnings estimates this year. Meanwhile, the downturn in Internet advertising has battered even the biggest online content sites, such as Yahoo and Excite@Home, which have cut jobs amid declining revenues in 2001.

How has a 200-employee pipsqueak survived such choppy waters thus far? Google's unwavering focus on search technology has served it well. That has always been the plan.

OPPORTUNITY. When co-founders Brin and Larry Page -- who met at Stanford University where they were PhD candidates in computer science -- launched Google in July, 1998, few Web portals were interested in buying their search services. Most portals, which used their own search technology, were busy launching new services such as e-mail accounts. To Brin and Page, this equaled a giant opportunity.

Google has since stockpiled 40 computer science PhDs to grapple with nitty-gritty search algorithms, quickly winning legions of users as the Internet's most sophisticated search tool. Today, Google claims some 130 corporations and Web sites as customers. "There's no question, Google is head and shoulders above the rest," says Danny Sullivan, editor of SearchEngineWatch.com.

Google has also been lucky. The scattershot banner ads that are peppered throughout portals have fallen out of favor with advertisers. But marketers still like to place ads on search-result pages, where a user is actively hunting for something specific. Google, along with several other sites, is now selling search keywords to advertisers.

For instance, if Google users type in the word "wedding," they see a text ad for the Web site WeddingChannel.com immediately above a meaty list of search results. Google charges the advertiser between 0.8 cents and 1.5 cents each time a user types in a keyword. "A lot of our clients are interested [in search pages], because it works," says Mark Stephens, vice-president at online ad agency Lot21.

LONG-TERM SEARCH. Now Google needs to prove that the search niche has plenty of space for growth. The company is already trying to expand its search menu to include images and Adobe's meaty PDF files. Also, Google has begun integrating the millions of discussions of Deja.com, the message-board service it acquired in February.

And yet the long-term viability of search is an issue that doesn't faze Brin or Page. "Search is the No. 1 use of the Web," says Page. "Our only concern is building the ultimate search engine. To do that, we've still got a lot of work to do."

It's a task that -- if done properly -- could ensure Google is one of the Net's lasting companies.