It’s crazy to think about the history of Google, and how different our life would be without Google. There aren’t a lot of companies whose names become a verb. It’s likely that most people in the world have said talked about Googling something. But beyond their influence in how we find information, Google touches so many aspects of our lives. On a regular basis, the team at Sebo uses Google search, Gmail, Google Docs, Google Sheets, Google Drive, Google Maps, Google Navigate and so much more.

How did Google become one of the most profitable companies in the world? Read below, and learn more about the history of Google.

NOTE: This compilation of information is a summary from Bruce Rowe, a co-founder and current President of Sebo Marketing. Credit needs to be given to several resources, including John Battelle and the book “The Search: How Google and Its Rivals Rewrote the Rules of Business and Transformed Our Culture” and “How Google Works” by Eric Schmidt (former CEO of Google) and Jonathan Rosenberg.

Life Before Google

Larry Page and Sergey Brin Meet at Stanford

Larry Page did his undergraduate work at the University of Michigan. Sergey Brin earned his bachelor’s degree at the University of Maryland. They met in the summer of 1995 before Larry had decided to accept Stanford’s offer of admission to the graduate school of computer science. Initially, the both found each other a bit obnoxious, but they enjoyed arguing and bantering with each other. This led to Page accepting the offer from Stanford.

The Concept of BackRub

While working through potential topics for his doctoral thesis, Page realized that if you look at each computer as a node, and each link on a web page as a connection between the nodes, the World Wide Web may have been the largest graph ever created, and it was growing at a breakneck pace. Page decided to consider the link structure of the web, and he realized that the links pointing to web pages should influence search results. And thinking about academic publishing, more citations is better, and the more important the citation, the more value that citation carries. Shouldn’t the same concept work on the web?

“If [Page] could divine a method to count and quantify each backlink on the web, the Web would become a more valuable place.” [The Search, page 72]. So Page created BackRub which was a system that would discover pages and then make it possible to see who was linking to any given page on the Web. In 1995, the Web comprised about 10 million documents, with tons of links between them. Page estimated there were about 100 million links between documents. The number turned out to be much bigger.

The computing resources required to do this were much greater than the usual bounds of a student project. But, Page began building out his crawler. Brin remained in contact with Page, and the complexity and scale of the project lured Brin into getting involved.

The PageRank Breakthrough

Once they had indexed the entire web and graphed the results, they needed to determine a ranking methodology. By the time you count the links, score the value of each link, and score the value of the page sending the links, the math gets really complicated really quickly. Fortunately, Brin’s prodigious mathematical gifts could help. But how can a computer automatically determine the value of a link from one page vs a link from a different page? Page and Brin had a breakthrough when they created an algorithm that they dubbed PageRank (named after Larry Page, not web pages).

PageRank mirrored the rough approach of academic citation counting and it ended up working really well. In summary, more popular sites rose to the top of the list, and less popular sites fell toward the bottom. As they fiddled with the algorithm, they realized the implications they had for Internet search. They kept testing, and they believed that their results were far superior to traditional search engines. PageRank became the foundation of Google’s secret to better search results.

The Start of Google

To further test their search results, Page and Brin created a basic search tool. They were excited about the results, but even more importantly, they realized that their tool would scale and the web scaled. As they indexed more pages and gathered more link information, their results would continue to improve. That idea inspired them to name their new engine Google after the mathematical term googol. A googol is the number 1 followed by 100 zeroes.

They released the first version of Google on the Stanford website in August 1996. The Stanford campus was impressed. Page and Brin were even more energized. However, the system starting using a crazy amount of resources. 2 interesting facts:

  1. The BackRub crawler used nearly half of Stanford’s entire network bandwidth
  2. On at least one occasion, the project brought down Stanford’s internet connection

However, Stanford’s leaders were impressed with the project so they didn’t hassle Page and Brin too much about the resources they were using.

Some Big Complaints

Many webmasters complained to Stanford because they didn’t understand why Google was constantly requesting website information (and limiting website bandwidth issues). A request to download the content of an entire site was similar to trespassing. Webmaster’s just weren’t happy about it.

In fact, a museum felt Google was trying to steal their images, and the museum threatened to sue Google. These issues continued in 1997 and 1998.

Additionally, site owners began to take notice of Google’s search results. Many were not pleased with the results and comments like “this is an injustice of such magnitude that you need to rank my site higher.”  Who were these kids from Stanford telling the world how we ranked?

Looking back, it’s so interesting to think about people’s thought processes when the entire concept of search and search engines was such a foreign, new and unique concept. Google didn’t claim to rate site effectiveness (design, messages, calls to action, etc). They simply laid bare the truth of how well connected a site seemed to be. If a site wasn’t well linked, then in effect, the site really didn’t matter or exist.

While they didn’t realize it at the time, they created the need for millions of Webmasters to start understanding the concept of Search Engine Optimization (SEO).

Google Becomes a Company

As Page and Brin continued working on papers for Stanford (remember, they were still Stanford students at this point), they published a paper called “The Anatomy of a Large-Scale Hypertextual Web Search Engine.” Page and Brin were going back and forth about remaining as students or starting a company. Their initial thought was not to create their own search engine, but rather to license their technology to other search engines. They set a price of $1.6 million. A local investor brought the idea to the search engine Excite, but George Bell, the CEO of Excite, threw him out of the office.

Over the next 18 months, Page and Brin demonstrated their technology to nearly every search company and to several venture capitalists. was a search engine who considered putting in an offer to acquire the technology. Yahoo was interested in becoming a portal, “but they weren’t interested in search. They did have horoscopes, though.” – Steve Kirsch, founder of Infoseek.

Back in the late 1990’s, the goal was to get site visitors and keep them on your site. Search tried to get people to leave your site and visit other sites. There wasn’t an inherent value in people simply doing a search with your search engine. That monetization would come much later. Since no one wanted to license the technology, Google continued to run at google.stanford.edu. By late 1998, Google served more than 10,000 queries a day, and they knew they needed to provide their own resources rather than use Stanford’s resources. Starting a company became the only viable alternative.

A Meeting with Andy Bechtolsheim

A faculty adviser suggested that Page and Brin meet with Andy Bechtolsheim. The meeting was set, and the demo was done at 8 am on the porch of the the faculty adviser’s home. Andy asked lots of questions. He said “I don’t want to waste time. I’m sure it’ll help you guys if I just write a check.” Page and Brin weren’t ready for the offer, and talked briefly privately about the valuation. Andy said it wasn’t nearly enough. Bechtolsheim suggested that the call the company Google Inc. They agreed. Minutes later they had a check for $100,000. If there ever was a reason to start a company, this was it. To celebrate, they went to Burger King and had breakfast.

They kept the check in Page’s dorm room for several weeks as they formed the company and set up the bank accounts. Google Inc was formally incorporated on September 7, 1998 with Page as CEO and Brin as President.

Google’s Early Stages

After incorporating, Google continued to work from Sergey’s dorm room. The rented a bedroom from Susan Wojcicki, and they moved their office to her house.  They continued to raise additional capital, including some funding from Jeff Bezos, the CEO of Amazon. The company grew to 7 then 10 employees, so in the spring of 1999, the company moved to Palo Alto.

At this time, Google was living on investment money. They hired a sales person, and decided to go try and get even more investment funding. But, they needed a way to generate cash. The intent was to generate money from banner advertising. The internet bubble was in full swing, and the next round of funding was at a valuation of $100 million. 2 of the biggest financiers in the valley got involved, and people took notice. They received $25 million, and they again went to celebrate at Burger King. At this point, Page and Brin reluctantly ended their schooling at Stanford.

The VC’s wanted a return on their money, and they wanted Google to do banner ads. Page and Brin didn’t like being told what to do by their new board members, and they were suspicious of blending advertising and search. They wanted the best possible search results, no matter what. So, rather than start doing banner advertising, they decided on an enterprise model where Google would become a provider of search results to large sites. The big sites would pay Google, and Google would show their results on the website. But selling this service was extremely tough. The truth is that there wasn’t a viable plan for making money until 2001.

They couldn’t figure out the business model. Things were looking very bleak. They were burning through hundreds of thousands of dollars each month without a path to generate revenues.

The Birth of Pay-Per-Click (PPC)

Had Bill Gross, the founder of GoTo.com, just followed his gut, he might have been the famous one, and Google might not have even existed. Books would have been written about how GoTo transformed our culture. But that obviously isn’t what happened. Gross can legitimately claim to have created the business model that made Google possible.

He started and sold several companies, making millions of dollars in the process. He created an additional company called IdeaLab that developed many successful businesses, and he and his investors got very, very rich. But by the middle of 2001, the investors were left holding a shattered portfolio. However, in the wreckage was one shining gem: GoTo.com, which by that point was known as Overture. If Google was a home run, Overture was a triple that didn’t quite make it home, even though Bill Gross grew the company and sold it for well over $1 billion.

Why? How to GoTo become worth so much?

In 1998, many search engines were showing too many spam sites. Hiding white text on a white background to get keywords on a page worked at the time, so many people spammed the system, and search results dramatically declined. Gross reasoned that without an economic price associated with the listings, spam would overrun search. In addition, Gross sensed that people buying advertising on portals were failing to justify the costs. Too often, visitors would come to a site that just weren’t the right kind of visitors. How can you get more of the right kinds of visitors to the site? Gross realized that businesses would pay quite a bit for the right kind of traffic. He also realized that the value of clicks were about $.05 to $.10 each. But businesses would be willing to pay more than that, and he could make a killing on the spread.

The problem is he needed lots of searchers, and lots of advertisers. But how can he get advertisers to try out the service? Instead of demanding up-front money like the portals, what if it was free to try, and they only had to pay if they received the right kind of visitors?

In 1998, Gross launched the GoTo.com service. They only had 15 advertisers. Within 6 months, it had hundreds of advertisers, and by 1999, it had thousands. The old advertising maxim “You waste half of your advertising budget, but the problem is you don’t know which half is wasted” was being put to the test. You knew if the money being spent was worth it or not.

PPC Syndication

Gross then realized that he could pay to get his results listed on other sites, and then he would make money on each click. In September 2000, GoTo would pay AOL $50 million to show their results on AOL’s website. They started turning a consistent profit after this deal was made. By the fall of 2000, GoTo made most of its revenue from other sites…not from traffic at GoTo.com. And if AOL had to compete for visitors from GoTo.com, they wouldn’t be happy. So, they decided to phase out GoTo.com. In September 2001, GoTo.com formally changed its name to Overture.

“We thought that if we didn’t phase out GoTo.com, our partners wouldn’t renew. But…as long as we were making them money, they didn’t care.” – Bill Gross

Gross went to Google and discussed a partnership. Google refused. Their reason? Google would never be associated with a company that mixed paid advertising and organic search results. The talks stalled. Several months later, Google introduced AdWords, its answer to Overture. Overture sued Google for patent infringement.

The new business model had come of age, and Google for the most part was getting credit for it. In addition, AOL didn’t renew their deal with Overture, and they created a similar deal with Google instead. By 2002, Yahoo, Google and MSN controlled the traffic flow. Overture was valued like a parts supplier rather than the destination source. Overture made deals with Yahoo and MSN (if you wanted PPC on Yahoo and MSN, you had to set this up through Overture).

 

What happened to Overture?

Yahoo later realized that they needed to make money from each click, not from PPC Syndication. So rather than build their own PPC network, they decided to acquire Overture in 2002, and they closed the deal in 2003…for a whopping price of $1.63 billion. So even though Bill Gross invented PPC, and hasn’t been as successful as Larry Page and Sergey Brin, he did just fine through the sale of Overture.

So Why Did Google Become Google?

To dominate search the way Google has dominated the search results, you need the following in place:

  1. Your own high quality organic search results
  2. Your own paid search network
  3. You need to own your own traffic

Think through the implications of this. MSN and Yahoo outsourced organic search results to Google or Inktomi. MSN and Yahoo received money via PPC syndication via Overture, but this means Overture got the PPC revenue, not MSN or Yahoo. And Overture only controlled the paid search network. They didn’t generate their own traffic or provide quality SEO results.

Google had the best organic search results.

To restate:

  1. Google has consistently had the best SEO results of any search engine
  2. Google owns their PPC network, so all the click revenue comes to them
  3. Google.com gets by far the most traffic of any search engine

Google was the only player in Search that had these 3 items. Because of that, Google has become one of the most profitable and powerful companies in the world.