Google: The Origin of Search. How the Best Business in Human History Happened (Audio)

1. 0:00 – 1:51:25

   Intro

   1. BGBen Gilbert0:00

      All right, David, last episode we are doing in our studios before Radio City.

   2. DRDavid Rosenthal0:04

      Ooh, that's right.

   3. BGBen Gilbert0:05

      How do you feel?

   4. DRDavid Rosenthal0:06

      Uh, we're about to go from, like, the stage of one, [laughing]

   5. BGBen Gilbert0:10

      [laughing]

   6. DRDavid Rosenthal0:10

      Very, very small audience of one to the very, very big stage.

   7. BGBen Gilbert0:13

      Where if we make a mistake, no one will notice-

   8. DRDavid Rosenthal0:15

      Yeah

   9. BGBen Gilbert0:16

      ... and we just re-record it, and it's like it never happened. [chuckles]

   10. DRDavid Rosenthal0:18

       We should try that at Radio City. Just be like, "Ah, strike that. All right, let's take that again."

   11. BGBen Gilbert0:21

       Yeah. Hey, this is authentically Acquired, you guys. This is how we do it. You're getting a look at the inside. Probably not, though. All right, let's do it.

   12. DRDavid Rosenthal0:28

       Let's do it.

   13. SPSpeaker0:29

       Who got the truth? Is it you? Is it you? Is it you? Who got the truth now? Hmm. Is it you? Is it you? Is it you? Sit me down. Say it straight. Another story on the way. Who got the truth?

   14. BGBen Gilbert0:46

       Welcome to the Summer 2025 season of Acquired, the podcast about great companies and the stories and playbooks behind them. I'm Ben Gilbert.

   15. DRDavid Rosenthal0:53

       I'm David Rosenthal.

   16. BGBen Gilbert0:55

       And we are your hosts. Artificial intelligence is the story of our time. It is definitively the next trillion-dollar technology wave after PCs, the internet, and mobile. And to understand AI, you have to understand the company most responsible for its technical foundation and the wave that came before it, Google. This episode begins our multi-part Google saga. Finally-

   17. DRDavid Rosenthal1:21

       Woo!

   18. BGBen Gilbert1:21

       ... as I'm sure many of you out there are saying right now, Google has been the front door to the entire internet for twenty-five years now, a quarter century, but it wasn't always this way.

   19. DRDavid Rosenthal1:31

       No, it was not.

   20. BGBen Gilbert1:32

       Back in 1998, when Google was founded, there were a dozen other search engines that already existed, and there were a variety of different business models, most of which were not very interesting.

   21. DRDavid Rosenthal1:43

       Yeah, none of which were very interesting. [chuckles]

   22. BGBen Gilbert1:45

       Yes. So today, we will try to answer the question: Why did Google work? And once it did, how did it go from clever technology and nice product to the single greatest business of all time? I'm not being facetious, listeners. Google, and I should say Alphabet today, generates more net income, or profit, than any other US company. More than Apple, Microsoft, ExxonMobil, J.P. Morgan Chase, Berkshire Hathaway. This is a cash gusher. It is, A, super high gross margin, B, in a giant market, and C, according to the US government, as of today, they are a monopoly in that market, with ninety percent market share. That is three enormous numbers multiplied together to create that most profitable company in the US stat that I threw out earlier.

   23. DRDavid Rosenthal2:40

       Well, I'm glad we don't need to get to, uh, the government and all that until much, much later in our series, but yeah, this is the creation of the most beautiful business of all time.

   24. BGBen Gilbert2:49

       And Google's market position has been seemingly unassailable, at least until really this year, until the AI war has really heated up. So of course, it was that clean user experience that everyone talks about, with just a search box on the homepage, and the focus on the users, and the high-quality, fast search that spread virally through word of mouth. But good product is far from the only reason that Google became dominant. So today, we'll tell the story of why, while Google was nowhere near the first search engine, it was the last.

   25. DRDavid Rosenthal3:21

       Well, you know, uh, Microsoft may take a little issue with that with Bing, but- [chuckles]

   26. BGBen Gilbert3:25

       [chuckles]

   27. DRDavid Rosenthal3:25

       But only a little issue. [laughing]

   28. BGBen Gilbert3:26

       Yeah, a little. Few percentage points issue.

   29. DRDavid Rosenthal3:28

       Few percentage points of issue, yeah. [chuckles]

   30. BGBen Gilbert3:30

       Well, listeners, if you wanna know every time an episode drops, check out our email list. It is also the only place where we will share a hint at what our next episode will be, share corrections, updates, little tidbits we learned from previous episodes. That's acquired.fm/email. After this episode, join the Slack to talk about this with us and the whole Acquired community: acquired.fm/slack. And if you want more Acquired between each episode, check out ACQ2, our interview show, where we talk with founders and CEOs building businesses in areas we've covered on the show. The most recent was with Jesse Cole from the Savannah Bananas. David, that was the most fun I've ever had recording [chuckles] basically any podcast episode.
2. 1:51:25 – 2:48:34

   We tell the story of the single greatest business ever created: Google search. From its origins as a Stanford research project called BackRub, Google became the front door to the internet. Today it’s an essential service for over half the world, and one that generates more profit than ANY other US company — more than Apple, Microsoft, or Berkshire Hathaway.

   1. BGBen Gilbert1:51:25

      go2.com. We should tell you that story now. So GoTo, Bill Gross started the company out of his startup incubator, Idealab, and he did it with quite a bit of flair, coming to the world from the TED Conference in February of nineteen ninety-eight.

   2. DRDavid Rosenthal1:51:41

      So same time as Google's about to launch.

   3. BGBen Gilbert1:51:43

      Right, and at the time, existing search engines, as you'll remember, had a problem. This is the same exact problem that Larry and Sergey recognized: quality was going down. In the old world, keyword-matching algorithms were fine. There was no one gaming the algorithms. There wasn't a lot of real commercial activity yet, and search engines weren't well understood yet, and so the old, "Hey, go search for dogs," and the most relevant website is probably the one that says "dogs" the most, that still kind of worked.

   4. DRDavid Rosenthal1:52:14

      Yep.

   5. BGBen Gilbert1:52:15

      So now you're starting to get, in nineteen ninety-eight, all this stuff like keyword stuffing, white text on a white background, people getting porn sites to appear in search results no matter what you're searching for, hijacking traffic, all that sort of stuff. So Bill had this very radical idea: the best search results should be determined by the free market with dollars. Whoever is willing to pay the most is probably the very best search result for your given query, and spammers who aren't relevant to your search can't afford to pay, 'cause there's not gonna be super high conversion. But super legitimate businesses that would actually solve the pain point that you're searching for could, just like how Yellow Pages in the phone book had paid inclusion as a philosophy that would lead to only the most relevant listings for any given category.

   6. DRDavid Rosenthal1:53:00

      Right, and at the time, this was, like, a completely crazy idea, but when you think about it, it actually does make sense. If I have a product or service that can solve the need you're expressing for through your, your intent in the search, I should be willing to pay more than anybody else to meet your needs.

   7. BGBen Gilbert1:53:18

      Absolutely. It's just a different way of solving ranking and relevance than Larry did. Larry and Sergey sort of figured it out on the or- organic side, and Bill sort of figured it out on the paid side. So Bill went so far as to, uh, [chuckles] GoTo didn't actually develop any organic search technology on their own.

   8. DRDavid Rosenthal1:53:35

      [chuckles]

   9. BGBen Gilbert1:53:35

      They relied-

   10. DRDavid Rosenthal1:53:36

       It was all paid.

   11. BGBen Gilbert1:53:37

       Yes, only on paid listings, and if you kept scrolling, they actually did show organic results, but they would license them from Inktomi and others, David, like you were saying, as a backfill. All right, so the net of all this on the TED stage, Bill gets wildly criticized for this. Some people even booed the idea when he was on stage at TED, but crazily, Bill's idea was basically right, and it had a ton of ideas that would become a part of Google that we'll talk about here in a minute. So here's how it worked. When you searched, GoTo would show you a list of the paid results, exactly in order of who paid the most, with no fanciness at all beyond that, and they would show you the price that someone was willing to pay for your click. So right there on the page, you could see twenty-one cents, twenty-three cents, twenty-four cents.

   12. DRDavid Rosenthal1:54:22

       Yeah, it was fully transparent.

   13. BGBen Gilbert1:54:24

       Yes. So insight number one, paid ads on keywords auctioned off to the highest bidder showing up first. Insight number two, and again, this is way back in 'ninety-eight, was that this whole cost per thousand impressions thing was wrong, and that eventually, he thought the whole world was gonna move beyond this to a cost-per-click or pay-per-click pricing, and so he thought, "Why not just do it today?" And so GoTo advertisers only had to pay when a user actually clicked, and the origin of this is, since Bill had a bunch of companies at Idealab, he could uniquely feel this pain point. He sort of hated the fact that he was getting billed for all these impressions at his companies when he just wanted to pay for the actual clicks.

   14. DRDavid Rosenthal1:55:03

       I mean, this is how advertising worked throughout all of human history to this point. You know, there's that famous John Wanamaker quote of, "Half the money I spend on advertising is wasted. I-- the problem is, I just don't know which half." This new model of performance-based advertising wasn't-... possible until the internet, when you could track clicks and conversions. But now, all of a sudden, as an advertiser, you don't have to worry anymore about what's wasted.

   15. BGBen Gilbert1:55:28

       Right.

   16. DRDavid Rosenthal1:55:29

       You know it's all performing.

   17. BGBen Gilbert1:55:30

       And the nuance is CPM actually works fine in brand-building situations, but on conversion, you actually care about the click. So basically, with cost per click, you're getting free exposure every time your ad shows up, but nobody clicks on it. But in a high-intent environment, you're not trying to get exposure, you're trying to actually capture the clicks. So it's kind of reasonable the way that it shook out, that a lot of brand-based advertising is still CPM-based, but on search engines, it totally should be CPC. So how did it go? Well, it worked insanely well out of the gate. GoTo did a hundred million in revenue in one year.

   18. DRDavid Rosenthal1:56:08

       [laughing] Way more than Google.

   19. BGBen Gilbert1:56:12

       Yes. This is a good business model, they have found. By the way, this is also self-serve. There is a website where you, as an advertiser, can log in and place a bid. There is an auction that happens, you know, a, a real-time auction, where the person with the highest bid, again, placed through the website, is on the very top. Does this sound familiar to anyone who's [chuckles] used Google's advertising tools? So the hundred million happened in year one. By mid-1999, they had eight thousand advertisers. Compare that against what AdWords had when they launched in October of 2000, which was three hundred and fifty advertisers in the beta program. To your comment about scale, David, this can just scale to so many more advertisers. GoTo goes public within a year.

   20. DRDavid Rosenthal1:56:59

       Yeah.

   21. BGBen Gilbert1:56:59

       Isn't this crazy? Uh, you're probably sitting there thinking, like, "How are they not the dominant player?" So, [chuckles] one thing that did not happen was patents. They did not patent the idea of the auction or of pay per click. And I got the chance to talk to Bill when we were prepping for this episode. He's very direct about all this, very reflective, also a brilliant guy. He just thought they were obvious. He just thought, "This is the way it should be done. Of course, it should be billed per click. Of course, there should be an auction, and the highest bidder, [chuckles] uh, is the one that, that wins." So the nuts and the bolts of it are that right before going public, the lawyers flagged, "Hey, you really should patent some of this." But they were just outside the window of what was patentable because he shared them more than a year ago on stage at TED, so the ideas were no longer eligible. [chuckles]

   22. DRDavid Rosenthal1:57:48

       [chuckles] The TED Conference. That's amazing. There's some really interesting background to all this, too. You would think, of course, Bill was right, this stuff is obvious. Why had nobody tried this until 1998? Somebody actually had tried this earlier. There was a search engine called OpenText that did try paid search results in 1996, but the internet was still enough of sort of a utopian, uh, community, like small enough and sort of an outgrowth of academia, that... I mean, people booed Bill Gross and GoTo on stage at TED in 1998. In 1996, when OpenText tried to do this, it was like they got kneecapped right away.

   23. BGBen Gilbert1:58:31

       Heresy, yeah.

   24. DRDavid Rosenthal1:58:32

       Yeah, it was heresy, and because that happened, everybody else had a hangover from it of like, "Oh, that's like a third rail. You can't touch that. Internet users will never tolerate paid search."

   25. BGBen Gilbert1:58:43

       Right. So it's funny, maybe they wouldn't have gotten the patents anyway, since OpenText was doing it before. But that was the ethos of that early web, is, "How dare you litter our organic results with your paid inclusion, putting these ads front and center?"

   26. DRDavid Rosenthal1:58:56

       Look, originally, Larry and Sergey were thinking this, too, right?

   27. BGBen Gilbert1:58:59

       Yeah. The great irony is all this criticism... We're gonna flash forward for a second. When Google does launch AdWords V2, there's a sidebar with a separate color. It looks super different. The word "sponsored" is very clear. You are very aware that you're looking at, like, a whole separate pane over there. That's the paid icky world, relative to my beautiful, clean Google Search organic results. Anyone who's used Google in the last few years knows the world basically ended up exactly the way Bill Gross envisioned. It's one column of results. The first few are sponsored. In Google's case, they label them even less than Bill was labeling them at GoTo, and then it's followed by the organic results after that. So what was once criticized as absolutely heretical has come to become basically the dominant model of search and search monetization today.

   28. DRDavid Rosenthal1:59:51

       Yep. But the interesting thing is, the timing was not right in the mid-'90s-

   29. BGBen Gilbert1:59:54

       Right

   30. DRDavid Rosenthal1:59:54

       ... for this.

Episode duration: 3:39:29