In 2005, Google, outbidding Microsoft, paid a billion dollars for a five-per-cent stake in AOL and a five-year contract to deliver all AOL searches and search-based advertising. But it was the intended purchase of DoubleClick, a company that specializes in display and banner ads and video advertising, that unnerved many in the advertising industry. Microsoft, joined by A.T.&T., claimed that the combination of DoubleClick and Google would be “anti-competitive,” and pressed the Federal Trade Commission to block the merger. WPP also raised concerns. Not surprisingly, ad agencies worry that Google might steal their business—that it might create advertising as well as sell it. Mark Read, WPP’s director of strategy and a member of its board of directors, says that an aggressive Google “makes our people nervous. They tend to talk to our clients directly. Traditional media has been much more respectful of the client-agency relationship than perhaps Google has been.” Read is most worried about Google’s vast database, which forms a “virtuous circle”—more searches produce more data, which attract more advertising dollars.
Tim Armstrong, Google’s president of advertising and commerce for North America, says that the company has no desire to create advertising; it “requires too many employees, and we’re a technology business.” Google recently recruited Andy Berndt, a co-president of Ogilvy & Mather, to run its new Creative Lab division, but Armstrong insists that Berndt was hired to work on Google’s brand and marketing, not to create advertising for clients. “Not only does the advertising industry have nothing to worry about; it should expect to ask, ‘What are the three to five things you need from us?’ ” Armstrong says. Martin Sorrell, WPP’s C.E.O., has claimed that his company is Google’s largest advertising-agency customer. He also calls Google a “frenemy.”
Unlike the advertising revenues of many traditional media companies, which have slowed or fallen steeply, Google’s advertising revenues have been rising from year to year; for 2007, they are expected to have increased by more than thirty per cent. Google’s advertising sales forces point out that Americans spend the same number of hours a week online as they do watching television—fourteen—yet only six per cent of advertising dollars is spent online, while television gets twenty-two per cent. DoubleClick would bring video ads, which generate more revenue, to Google.
Lawrence Lessig, who teaches law at Stanford and has long been a student of digital culture, says, “Google’s brilliant because it architects its system so that, when people do what they want to do, they give something to Google. When I do a search, I give Google my evaluation of what the best search is. Google profits from that. If I want to send an e-mail, I give Google data.” These data invite advertisers to bypass traditional media buyers and let Google manage their Internet advertising. When I asked Sergey Brin if Google would displace media buyers or media sales forces, he gave a somewhat elliptical answer: “We have no desire to screw a category of people, to trick them or something. We legitimately want these partners to be successful.” He believes that “the nature of these functions” may change, just as the role of librarians has. Google, he says, should be regarded as a tool to help media buyers, who for the most part serve large advertisers. He envisions Google doing more to serve small businesses, and of established media buyers he says, “Are they going to buy a one-hundred-dollar spot in a small newspaper?”
The Bush Administration is a reluctant regulator, believing that in most cases a free market provides its own regulation. Jeff Chester, the executive director of the nonprofit Center for Digital Democracy, takes the opposite view. A close reader of trade publications, he became obsessed by the power of Google to compile data on the behavior and interests of users. Chester runs a two-person organization that has an annual budget of two hundred thousand dollars, but his influence is surprisingly broad. (A decade ago, he and his wife, Kathryn Montgomery, a professor of communications at American University, successfully marshalled support for the Children’s Online Privacy Protection Act.) Chester speaks rapidly and passionately, jumping in mid-sentence from privacy to monopoly and then to a conversation he had that morning with an F.T.C. staffer. His small office, on lower Connecticut Avenue, is adorned with posters for movies attacking corporate power. Chester has little regard for the advertising industry, but he knows that if he railed against hucksterism and commercialism it would marginalize him, so he has stressed the privacy issue.
“The basic model for interactive advertising combines advertising with this very powerful data-collection business designed to know your interests in a daily, updated way,” he says. “This is then utilized to create very powerful multimedia to get you to behave in some fashion, whether it’s buying a product or liking a brand.” Chester urged Senator Kohl to hold a one-day hearing on the issue, and pushed for the F.T.C. to broaden its examination of Google to include privacy; in November, the agency held a desultory town-hall meeting to explore the issue.
Google acknowledges on its Web site that it collects information about users. However, it does not collect personal identifying data such as credit-card information, telephone numbers, and purchasing history unless a user signs up for a feature like Google Checkout. EBay and Amazon, among others, also collect user information, but Google is set apart by its reliance on advertising. Marc Rotenberg, the executive director of the Electronic Privacy Information Center, who works closely with Chester to advance privacy-protection measures, believes that the central question should be “Why does Google need to retain all this information?”
Eric Schmidt says that the more Google knows about a user the better the search results—that the idea is to anticipate a user’s intent in a search query. And with data suggesting that about half of all searchers use the ads to comparison-shop or to buy, Google believes that better-targeted ads serve both the user and the advertiser. “We think of the ad as content,” Google’s senior vice-president for engineering, Jeff Huber, says. As for risks to personal privacy, Eric Schmidt says that Google would never cross that boundary; if it violated user trust, “we’ll really be hosed.” When I asked Sergey Brin why consumers should trust Google with their personal data, he said, “How many people do you think had embarrassing information about them disclosed yesterday because of some cookie? Zero. It never happens. Yet I’m sure thousands of people had their mail stolen yesterday, or identity theft.”
Brin and his colleagues often say that they are eager to work with others, and the company has “ten thousand partners,” including publishers who have agreed to have their books digitized, media companies that promote their programs on YouTube, and newspapers and magazines that recruit Google to sell ads for their online or print editions. Google has also taken a few modest steps to address privacy concerns. Last summer, it announced that it would voluntarily reduce from two years to eighteen months the time that it keeps the Web-search histories of its users. It endorsed the idea of uniform international privacy rules. When I spoke with Pablo Chavez, in Google’s Washington office, he told me that the company is experimenting with “crumbling cookies,” or smaller cookies “that collect a limited amount of data” and vanish over time.
In late December, the F.T.C. approved the acquisition of DoubleClick. The agency’s role is to judge whether a merger impedes competition, and, according to a senior regulator in the Bush Administration, it tends “to wait for a violation before it acts.” The Australian government recently approved the merger, but its fate is less certain in the European Union, particularly since the Europeans announced, in mid-November, that they would extend their investigation into whether it would violate European notions of privacy and anti-competitive activity, which are stricter than America’s. If the E.U. rejects the merger, it seems likely that Google would abandon it.
Google’s corporate home, within sight of the Santa Cruz Mountains, reflects the determination of the two founders to make sure that employees stay focussed. They keep them on the campus with perks—ranging from free physicals to free laundry service and a weekly car wash. Employees get a subsidy if they buy an environmentally friendly car; Brin and Page have both owned Priuses. (They also jointly own a Boeing 767, and are buying another jet.) Employees are urged to devote twenty per cent of their time to developing projects on their own. “It’s a way of assuring people that they are scientists and artists,” the Indian-born engineer Krishna Bharat, who used his time to invent Google News, says. All of this makes Google an attractive employer. The company, which now employs about sixteen thousand, receives more than a million résumés a year, and through much of 2007 hired about a hundred and fifty people a week—half of them engineers.
In the 2004 annual report, Page and Brin wrote of their six-year-old company, “If it were a person, it would have started elementary school late last summer . . . and today it would have just about finished the first grade.” Eric Schmidt thinks that Google has skipped over adolescence and advanced to “middle age,” and that with this has come the wisdom of experience. Tim Wu, a professor of law at Columbia University who once worked in Silicon Valley and closely follows events there, says, “It’sa precocious company. Great grades. Perfect I.P.O. A typical high-school standout. The basic problem is whether it remains true to its founding philosophy. I don’t just mean ‘Don’t be evil.’ ” He means, will it stay focussed on its “founding philosophy, which is really an engineer’s aesthetic of getting you to what you want as fast as you can and getting out of the way,” or will it become “a source of content, a platform, a destination?” He says, “I predict that Google will wind up at war with itself.” Brin rejects this analysis, but when asked about his biggest worry he answers simply, “I worry about complexity. I admire Steve Jobs. He has been able to keep his products simple.”
The youth of the founders (Brin is thirty-four and Page is thirty-five) leads to jokes that someone like Schmidt, who is fifty-two, was essential to manage Google. “It borders on insulting to say that Eric provides ‘adult supervision,’ ” Elliot Schrage says. “It is insulting to both.” Yet there are times when Schmidt does supervise. One day, I asked him how he felt about the U.S.A. Patriot Act, which gives the government broad powers—including wiretapping and reading e-mail—to investigate terrorist suspects. “I’m not a big fan,” Schmidt said. “I’m offering you my personal opinion as a citizen.”
Later, at a press lunch attended by the founders and Schmidt, I asked about Google’s position regarding the government’s use of the Patriot Act. “I’m not an expert on the Patriot Act,” Brin said. “But it’s certainly a long-standing issue prior to the Patriot Act—”
“Can I?” Schmidt interrupted. Not waiting for permission, he proceeded: “The best way to answer this question is to say it’s the law of the land and we have to follow it.”
“Or, in some cases, we fought it in court,” Brin said, referring to Google’s successful challenge of a Justice Department request, in January, 2006, to hand over search data to aid the Bush Administration’s defense of an Internet-pornography law. The company accused prosecutors of a “cavalier attitude” and said that the government was “uninformed” about how search engines work. Again, Schmidt interrupted, saying, “We fought it legally, and we followed the law, and we won in court.”
“Every once in a while he does this unintentional condescending thing, and he does it in public settings,” a Google executive says of Schmidt. On Tuesdays, Brin, Page, and Schmidt hold product-strategy meetings, which are dominated by engineers. I was permitted to attend one, on the condition that the product, and the engineers, not be identified, but the tenor of the meeting was clear enough: Page and Brin had wanted an upgrade of an existing product, and they were unhappy with what they were hearing from the engineers. At first, they were stonily silent, slid down in their chairs, and occasionally leaned over to whisper to each other. Schmidt began with technical questions, but then he switched roles and tried to draw out Page and Brin, saying, “Larry, say what’s really bugging you.”
Page said that the engineers were not ambitious enough. Brin agreed, and said that the proposals were “muddled” and too cautious.
“We wanted something big,” Page added. “Instead, you proposed something small. Why are you so resistant?”
The head of the engineering team said that the founders’ own proposed changes would be too costly in money, time, and engineering talent.
Schmidt—the only person at the meeting wearing a tie—tried to summarize their differences. He noted that Brin and Page wanted to start by deciding the outcome, while the product team focussed first on the process, and concluded that the engineering would prove too “disruptive” to achieve the goal.
“I’m just worried that we designed the wrong thing,” Brin said. “And you’re telling me you’re not designing the optimum system. I think that’s a mistake. . . . I’m trying to give you permission.”
The product team went on to make a slide presentation, but everyone there realized that the issues would not be resolved that day. Schmidt told the team to report back with a detailed design “that is responsive to Larry and Sergey’s criticism,” and to clarify “what it takes to build a good product,” and what it would cost in time and money. However, he balanced this with praise: “But this is very well done. I love it when people show me the flaws in our products.”
In meetings such as this, Page and Brin are like a tag team, taking turns as they chide employees for devising something that is merely a “cute” solution, not a fundamental one. Schmidt says, “They think about what should be, and they assume it is possible.” Brin and Page also introduce a measure of what Schmidt refers to, affectionately, as management “chaos.” Neither has an assistant. Executives check Google Calendar to learn if Brin or Page plans to attend a meeting. Sometimes, Schmidt says, the founders show up, unscheduled, for the wrong meeting. Sometimes they simply disappear—flying off on their Boeing, for instance, or indulging their newest sport, kite surfing.
Some outside Google believe that Schmidt operates with many constraints. “I learned that Google had an interesting management structure,” Philippe Dauman, the C.E.O. of Viacom, says, describing the negotiations that preceded the YouTube lawsuit. “Every time we thought we came down to a certain point, the Google people changed their minds. And they changed the people in the negotiations.” He explains, “I talked to their C.E.O., and then when Eric went down a certain path he had to have a discussion back in Mountain View with his two associates. Often, there would be a total change in direction.” Within Google, the view is different. Sheryl Sandberg has been a senior officer at the company for six years, and observes that the reason the troika works “is that whoever you go to for an answer, that answer sticks.” Brin says of Schmidt, “Eric is the leader for the company. Larry and Eric and I all share in the top-level leadership, but mostly Eric takes on the hardest challenges. Larry and I can spend more time on products and technology.”
For months, Schmidt tried to get the founders to write a corporate-strategy memo. Finally, on a business trip to Seville, he opened his e-mail and up popped a draft from Brin. Perfect, Schmidt thought, and he showed it to Page before circulating it to the senior staff. “Why couldn’t I get them to write this in a normal way?” Schmidt asked me. “That’s not the way their minds work. Their ideas are much better than mine.”
The ads attacking Google and its “server farm” were a prelude to what may be Google’s next frontier: the mobile-telephone business. There are almost three billion mobile phones worldwide, and Schmidt expects a billion more in the next four years. If the phones use Google software to sell advertising, Schmidt thinks that over time it is “mathematically possible for Google to become a one-hundred-billion-dollar corporation.” Two vital markets are television, which is “easily attainable,” and mobile phones, which are “more personable” and more “targetable” than most advertising. To achieve this goal, Google would need to claim ten per cent of all global advertising, which now amounts to just under a trillion dollars.
Google’s interest in mobile phones surfaced last spring, when it announced that, to advance the goal of an “open net,” it was likely to make an initial bid of $4.6 billion for a slice of the nation’s wireless airwaves. (The Federal Communications Commission is auctioning off the rights to the last significant corridor of the wireless spectrum this month.) In November, Google announced the formation of an Open Handset Alliance, made up of technology companies like Intel and smaller phone companies that would support free software designed by Google. Clearly, Google was intending to break the control that companies like Verizon and A.T.&T. have on deciding what services to allow on mobile phones. Google has decided to bid, though it is not clear whether it will bid alone or with a partner—or even whether the aim is simply to push competitors to open their systems.
Google may wind up bumping into its corporate ally Apple. Although the iPhone features Google Maps and Google search, Google wants to create an operating system for mobile phones the way Apple has—a potential conflict. Four of Apple’s eight directors are either Google directors or Google senior advisers. One of the Apple directors is Eric Schmidt, who now recuses himself from mobile-phone discussions at Apple board meetings.
As Google expands beyond search—in late November, Page and Brin announced that Google would invest hundreds of millions of dollars in developing environmentally friendly renewable-electricity technologies that would produce power more cheaply than coal-fired plants—the risk is that the company will come to believe that its engineers can master any business, solve any problem, and that Google will lose its focus. Terry Winograd, a professor of computer science at Stanford, was Larry Page’s academic adviser and mentor when Page and Brin were Ph.D. candidates. A friendly man with a white mustache and bushy eyebrows, Winograd, who has taught at Stanford since 1973, was given Google stock for work that he did early in the company’s history. He admires his former students, but he describes their impatience as both a virtue and a potential curse. “Larry and Sergey believe that if you try to get everybody on board it will prevent things from happening,” he told me. “If you just do it, others will come around to realize they were attached to old ways that were not as good. . . . No one has proven them wrong—yet.” Google’s potential weakness, Winograd says, is that its engineers see things “not from an institutional, political point of view but from this personal and engineering point of view. ‘We would never do that sort of thing’—they believe that in their hearts.” But the engineers’ passion, he said, also drives them to believe that they “are smart enough to make sure that it won’t happen by accident.” With that, Winograd arched an eyebrow and concluded that this entails “a certain amount of technical arrogance: ‘The system cannot fail, cannot fail.’ ”
Last August, Schmidt flew his own jet, a Gulfstream G550, to Aspen to give the keynote dinner speech to the free-market-oriented Progress & Freedom Foundation. He outlined four “basic principles” that he believes are vital for media and technology companies to embrace, among them freedom of speech and assuring universal broadband access. Missing from his presentation were thoughts about privacy and copyright—and how far Google might push the boundaries. For instance, when does fair use become copyright infringement?
A few weeks later, I sat with Schmidt in his cramped conference room on the Mountain View campus. I asked him why he hadn’t touched on the subject of privacy in the Aspen speech. There was a long pause before he said, “No particular reason. It’s sort of a given. If we violate the privacy of our users, they’ll leave us.” And copyright? “Maybe it was the altitude. I was just chatting away.” In addition, Schmidt said, copyright “is not an absolute right,” and has to be balanced by “fair use.” When I asked whether Google wanted to push the envelope on privacy and copyright, he said, “That’s probably correct. If there’s a legal case, we’re going to favor the legal one that favors users.”
What sets Google apart, Schmidt told me in another conversation, is that although people like him always assumed that “Google would be an important company, the founders always assumed that Google would be a defining company.” He remembers a day in 2002 when he walked into Page’s office and Page started to show off a book scanner he had built. “What are you going to do with that, Larry?” Schmidt recalls asking. “We’re going to scan all the books in the world,” Page replied. Eventually, Google began to do just that. It signed up Page’s alma mater, the University of Michigan, along with, among others, the Library of Congress, Stanford, Oxford, and the New York Public Library. And then it ran into trouble.
Google still faces obstacles from publishers and authors and television networks; search competitors like Yahoo! and Microsoft; so-called vertical search engines that rely on human experts; advertising agencies and telephone companies. One senior executive at Time Warner, who did not want to be identified, because Time Warner’s AOL division is a Google partner, says, “Sometimes I don’t know what to think of Google. We have the best relationship of anyone with Google. On the other hand, you always have to worry when someone gets so much more powerful than all the competition out there. This is why I come down to this: I hope the government starts understanding this power sooner rather than later.”
Eric Schmidt, not surprisingly, has another view. “In our society, bigness is often associated with bad,” he says. “There is no question that a company with the ambitions of Google will generate controversy, will have people upset with us. The question is: Where does it come from? Is it coming from a competitor? Is it coming from a business whose business model is being endangered by the Internet? Or is it because we’re behaving badly?” He believes that it often comes from companies threatened by change. “When you have a technology that is as engrossing as the Internet, you’re going to have winners and losers. I’m not trying to sound arrogant. I’m trying to sound rational about it. The Internet allows people to consume media in a different way.” He believes that because Google is “run by three computer scientists we’re going to make all the mistakes computer scientists running a company would make. But one of the mistakes we’re not going to make is the mistake that non-scientists make. We’re going to make mistakes based on facts and data and analysis.” He paused. Then he said, “What kills a company is not competition but arrogance. We control our fate.