We all have experienced the magical effect of Google in our lives. What was once just a plain wide web page has now become such an integral part of our lives that now it’s hard to imagine a world without Google. As a result, Google has emerged as one of the most successful companies on the planet with its stock price skyrocketing by 5000% and a market cap of one trillion dollars.
But the most surprising fact of all is that back in the day, Google was neither the first search engine in the market Nor was it the most profitable company in the market. In fact, in 1998 Google was bleeding money. While it was just a small startup. On top of that, They had killerRivals like goto.com that made 231 million dollars in Revenue in the very same year through search ads. When Google did not even have a concrete business model.
Then the question is, how did google become so successful? What exactly was your business strategy? And as students of business, what can we learn from this legendary Penny? This is a story that dates back to September 1998 When Larry and Sergey founded Google based on an algorithm called Page Rank, and they had developed it as Ph.D. students at Stanford. Now, during that time, the problem with search was that majority of the search engines rank the pages majorly based on.
The text that they contained. And because of this, it allowed spammers to game the system by filling their pages with commonly searched keywords. For example, when you searched for Honda, Instead of giving you Hondacom as a search result,It would show you an adult site that just copy-pastes It, the word Honda 50 times, but PageRank dived much deeper and evaluated the sides by Authority and influence based on a number of other relevant websites that.
God link to them in the form ofbacklinks. Now, although Google’salgorithm was far superior than most of the algorithms in themarket, They struggle to make money. Because, unlike today, thestandard wisdom back then was that there was no money insearch results. Web sites like Yahoo Used theirhomepage to place banner ads and generate billions ofdollars in profits. This is where Google had thefirst chance to make a million.
Dollars by displaying the samebanner ads as Yahoo. But Larry and Sergey hated theidea because it degraded the customer experience. So while other companies weremaking a million dollars both due to their business model anddue to thecom bubble, Google was bleeding money and waswandering around without a business model. That is, when Larry and Sergeystarted studying there, I will go tocom and back in the day,Although it did not have a.
Great search algorithm, eightminutes 68 million dollars in profit in 1999 Why? Because instead of buildingtheir own search engine from scratch will grow as thefounder took an existing search engine called in Tommy’s engine,and introduced The Twist called the paid search, along withthat bill, also introduced a game-changingpricing model called the cost per click pricing.
Now, this model was anextremely successful model back in the day, because it solvedthree major problems in the market. Number one, in an attempt todownplay the spammers, companies like Honda were verykeen on paying more money for their keywords, such that theycould get the top spot and not those spammers. And when they paid for theadvertising, it automatically pushed down the spammers.
Secondly, these key words wereplaced on an auction. Therefore, it created acompetition among the The advertisers, which generated aton of profits for the website. And thirdly, while in othersearch engines, advertisers had to pay for an impression,whereas in go to, they only had to pay for the click as in,instead of paying for the advertisement every time it appeared in front of theusers They needed to pay only when someone clicked on it.
Now, this was a revolutionaryidea back then, because it gave the advertisers of confidenceof conversion and the uncertainty of wasted moneyinto marketing was Eliminated. This is when Larry and Sergeystarted dissecting into the model of gotocom. And when they did, theyidentified two major problems with the model. The first problem was thatbecause the model was solely.
Based on who pays more money, alarge company could abuse its power And by the keywords ofother companies. Also, for example, Samsungcould buy all the keywords related to Vivo. So even if someone is searchingfor Vivo, a Samsung sponsored content would pop up. And This was unfair to thesmall businesses. Secondly, the small businesseswere discouraged from placing their ads, merely due to theprice domination of the large.
Players there for Larry andSergey work, day in and day out to come out with two major improvements that turnedGoogle into a trillion dollar company. The question is, what exactlywere these improvements? Number one, they came out withthe idea of something called the quality score that wouldfilter out content in such a way that the ranking will notjust be based on the option Paid, but.
Also on the basis of therelevance of the add with respect to those search. So if you’re looking for aHonda, Tesla cannot sabotage on displace and present itself ontop. Secondly, they came out withthe idea of using a variant of a unique auction model calledthe weekly auction model. This is a model that wasactually proposed by a Nobel Laureate named William We crave,and this is how it works out. Let’s say there are fourbidders, Mahindra, mg, Tata and.
Toyota, and the Two bids are 10Rupees, 20 rupees 30 rupees and 10000 rupees, respectively. And they are bidding for akeyword called XUV. Now in the standard model, orthe first prize Model. Toyota will win the auction,and it has to pay 10000 rupees. Now, although Toyota could havegot it for 31 rupees, It has to overpay because of itsassumption that the keyword XUV will be costly, whereas in the second prizemodel or the wickery model,.
Although Toyota still winsAuction, It only has to pay one rupee more than the secondhighest bidder, which in this case is startup. So Toyota only has to pay 31rupees. And in case of Google, Toyotahas to pay the price quoted by Tata. That is, the second highestbidder data has to pay What was quoted by mg That is the thirdhighest bidder and so on and so forth.
This way advertisers don’t haveto overpay for the keyword, and they also get insights into thecompetitive prices in the market, which in turn helpsthem optimize the future bits Along with this, using the quality score, Google ensurethat they don’t just ranked the ads based on the bids, but alsoon the basis of the quality of the content that the biddersare putting forward, Such that the sponsor with the most relevant contentalways shows up on top, even if.
They’ve paid less money. And these two features, ladiesand gentleman, turned Google into a revolutionary searchengine that was far superior than the rest of the competition, because it did not just havethe amazing feature of Sparklink of gotocom, but alsosaved advertises a ton of money due to the second price auctionmethod. And most importantly, due tothe Quality score, in spite of being the highest bidder, acompany could not overpower.
Another bidder solely on thebasis of money. And this eventually encouragedauthentic advertisements and eliminated the abusers andspirimals. This is how lazy and German in2002 Google launched Its pay-per-click auction-basedsearch advertising product called Old the Google AdWordsselect. And from that year onwards, therevenue of the company started skyrocketing. They made four hundred milliondollars in Revenue In 2002 15.
Billion dollars in 2003 32billion dollars in 2004. And finally, when they went IPOin 2004, the company reached a valuation of twenty threebillion dollars. And the rest is history. Now, another important questionthat needs to be asked to be here is that during such timesof Ruthless competition, when Had a predator like Microsoftand a giant like Yahoo As their competition, What was so special about Google thatthey were able to keep.
Innovating to stay ahead ofthese well-established companies? And this is what brings me toanother important attribute of Google as a company. And that is their culture ofinnovation. Did you guys know that some ofthe most game-changing projects at Google, like Gmail, Google,suggest and even Google news? They were all just sideprojects, and none of them were officially allocated to anyteam in the company. In fact, all of them weredesigned by enthusiastic.
Employees who just happen to dosomething extraordinary that their manager Never asked themFor. The question is, how and whyWould these employees working so hard on something that thecompany is not even asking for? Well, that is because of awonderful company practice called the 20% Rule. And because of this rule, everyemployee had to dedicate 20% of their time into projects thatinterest them, even if they have not been officiallyallocated by the company.
And this was based on thephilosophy that even if it leads to 1000 failed projects,even if one of them turns out to be successful, it is enoughto make up for the one thousand failures. And this is exactly whathappened because today, Gmail alone is being used by 18billion users. And it is said to generate abillion dollars in profits for the company, Therefore, because of suchwonderful practices, not just.
Sergey and Larry, but theentire organization was not just a bunch of workers, but abunch of Learners who kept learning and trying new thingsevery single day. And this is what brings me tothe most important part of the episode. And that are the businesslessons from the case Re and the study materials to help youdive deeper into the concepts of the case study.
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Now Let’s talk about thelessons from the case study and the study materials to help youdive, deeper lesson Number One, never everbe discouraged If there’s already a big player in yourMarket. In fact, you should be happybecause it gives you a opportunity to dissect theirstrategies and learn from their mistakes Such that it willenable you to build an even better business. In fact, if you look back atthe tech Revolution, Napster.
Did not succeed. Spotify Did Myspace did not succeed, Facebooked It. Why? Because the founders of these companies did not make the mistakes made by the first Moors. In this case, It was the dissection of gotocom that motivated Sergey and Larry to design the quality score system and use the We cream order to benefit the advertisers. And this eventually had them build a far superior search.
Engine, not just in terms of tech, but also in terms of business, because they use the cost per click model. Secondly, as a leader of your organization, If you want your company to achieve greatness,you have to find a way to develop a culture of learning and failing such that you build a foundation for failure. And eventually, you build a culture where ideation Beyond work, Never stops, And even at things cool, no matter.
Who we work with, whether that’s a freelancer and intern, or even me, or Posh. We make sure that we push our limits to make sure that we as an organization are learning beyond boundaries because we believe that greatness is only achieved with the audacity to fail. And the humility to try. And lastly, to keep you learning. I have attached three study materials for you.
First is the talk about organizational Culture by a legend called a coil. He’s the author of The book called cultural code. Second is the research paper that will help you understand the week raise auction model. And lastly, There’s a wonderful video by a YouTuber called Tech alternate that explains the state of Mozilla, which is even to this day, struggling to survive in spite of being one of the greatest companies.
Of all time. And this is happening because it couldn’t strike a balance between nobility and capitalism. And this concept in itself is a philosophy called to question that needs to be pondered over.
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