RIPTIDE
`
`What really happened to the news business
`
`CHAPTER12
`
`EXPLORE INTERVIEWS 0 Q
`
`Google, The Second
`Coming
`
`Google's Larry Page and Sergey Brin, before the company's I PO, 2004. (AP/Ben Margot)
`
`As one of the fastest growing, most
`valuable companies on the planet, millions of
`words have been spilled on the subject of Google,
`EXHIBIT 2064
`Facebook, Inc. et al.
`v.
`Software Rights Archive, LLC
`CASE IPR2013-00479
`
`
`
`What really happened to the news business
`
`CHAPTER12
`
`EXPLORE INTERVIEWS 0 Q
`
`Google, The Second
`Coming
`
`Google's Larry Page and Sergey Brin, before the company's I PO, 2004. (AP/Ben Margot)
`
`As one of the fastest growing, most
`valuable companies on the planet, millions of
`words have been spilled on the subject of Google,
`EXHIBIT 2064
`Facebook, Inc. et al.
`v.
`Software Rights Archive, LLC
`CASE IPR2013-00479
`
`
`
`5/15/2014
`Chapter 12: Google, The Second Coming - Riptide
`and we do not intend to reprise that history here,
`except to advance understanding of what has
`happened to the news business. But we refer you
`to three informative books on the subject,
`including Googled: The End of the World as We
`Know It by Ken Auletta, The Search: How Google
`and Its Rivals Rewrote the Rules of Business and
`Transformed Our Culture by the very same John
`Battelle, and .!Y.!!: .. ~.t .. w._~.Y.!.~ .... QQ.~fl.?.~ ... !.!..Q.~ by Jeff
`Jarvis.
`
`Battelle begins his book with the following quote
`
`from~!:':~~~.~.~.!:':.~.~~~' founder of the .!.~~.~!..!!.~!
`A:!.~!!!Y.~.: "The library of Alexandria was the first
`time humanity attempted to bring the sum total of
`human knowledge together in one place at one
`time. Our latest attempt? Google."
`
`Indeed, what turns out to have been the
`extraordinary ambition ofGoogle- and its ability
`to deliver on that ambition - ends up coloring
`much of what happened to the news business
`between the Web Winter and today. That era can
`just as easily be called the Age of Go ogle as
`anything.
`
`There is one fact that is now indisputable in the
`history of what happened when the news business,
`and countless others, collided with the Internet.
`And that fact is simply this: Go ogle changed
`
`liTh ere was
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`an enormous
`fear that we
`were selling
`out to the
`demons, that
`this service
`on the
`Internet was
`going to be
`perverted
`and spiral
`downhill into
`the clammy
`hands of the
`capita I ists."
`
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`5/15/2014
`everything. Like the dawn ot" every other era in this
`epic saga, the Google era actually began during the
`height of the previous era, in this case Web 1.0. It
`started in 1998, when -yet again- two Stanford
`graduate students, Sergey Brin and Larry Page,
`founded their little search engine company with(cid:173)
`yet again -another silly name, in the two(cid:173)
`bedroom graduate housing apartment they shared
`with another student.
`
`Google began with a decidedlyun-media company
`idea, creating a search algorithm that would
`"purify'' the quest to find whatever you were
`looking for on the Internet without applying
`individual human judgment. Yet Go ogle quickly
`evolved into the ultimate media company and has
`proved to be the ultimate disruptive innovator (so
`far) of a multitude ofbusinesses. But above all else,
`it completely turned the advertising business on
`its head, beginning with the notion that Google
`didn't want you to come to its site and stay there;
`it just wanted you to go through it to get
`everywhere else. And then it wanted to charge
`marketers for the privilege of following you where
`you were going, and knowing what you went there
`for, and then selling them the ability to advertise
`to you.
`
`"Paid search" is the understated name given to its
`main business concept, which Google didn't invent
`but worked hard to optimize. Then again, that's a
`bit like saying that Sam Walton didn't invent
`discount retailing, but merely made the most of it
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`with a modest chain of stores. Go ogle wasn't the
`first search site to present paid results: that was
`invented during the dot-com boom by an
`entrepreneur named .!'!~~ .. 9.:!:':~.~-~-' who created a
`sponsored search engine called goto.com that
`eventually became Overture and was later bought
`by Yahoo. But Yahoo wasn't able to swim fast
`enough to catch Go ogle, and Google rapidly gained
`market dominance after it got started. Google
`called its service Adwords, which are those small
`text ads that showup next to the search results
`you're looking for whenever you type something
`into a Google search box and click "enter."
`
`Google CEO Eric Schmidt has a pretty simple
`explanation for what actually makes his fairly
`complicated company click, and it's the same thing
`that used to make all those news companies so
`profitable: a river of advertising dollars.
`
`ERIC SCHMIDT
`
`Google today is pretty much the same as it has
`been since I've been here. Since 2001, the
`majority- 97%, 98%- of our revenue
`comes from ads of one kind or another. These
`little ads that come along with our search
`results, which are targeted to what you were
`looking for, people auction and people click on
`them, and we make a lot of money from that,
`and we do it globally, and it works extremely
`well. That's not changed very much, and I
`don't think it will change very much in the
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`next while.
`
`MARTIN SORRELL on the creation
`of so-called "native advertising."
`
`Today, with digital advertising revenues
`in excess of $40 billion annually,
`Go ogle's share of the digital advertising
`market dwarfs all others. Sir Martin
`Sorrell, CEO of global advertising giant
`WPP, says that Google has become his
`firm's number-one spending
`destination. The search company
`supplanted leader News Corp. and its
`global empire of media brands,
`everything from The Wall Street
`Journal to Fox News and The New York Post to
`American Idol. It was Sorrell who first referred to
`Go ogle as his "frenemy'': at once, both friend and
`enemy. The same word is now often applied in a
`news context, as Google is a vital provider of traffic
`and revenue to news sites, while at the same time
`it systematically and voraciously feeds on their
`revenue streams. And while Google may want to
`be known for its "Don't be evil" credo, Sorrell
`captured well the business impact of what they
`really do:
`
`MARTIN SORRELL
`
`But if you thought about what was their
`principal operating principle, it would be
`disintermediation of established business
`models and providing you and I as consumer
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`Chapter 12: Google, The Second Coming - Riptide
`with a cheaper alternative, a better-value
`alternative ... In a way, I think this is an
`industrial revolution that probably, for legacy
`companies, is very difficult to deal with.
`
`Google annual revenue, 2001 to 2012 (in billions}
`
`$60B
`
`2001 2002
`
`2003 2004
`
`2005
`
`2006
`
`2007
`
`2008
`
`2009
`
`2010
`
`2011 2012
`Source: Google
`
`Google's annual revenue has climbed at the same time
`newspapers' has plunged. Source: Google.
`
`As he had in the early days ofYahoo, Mike Moritz
`of Sequoia became an early backer of Google.
`
`MIKE MORITZ
`
`The Google investment wasn't centered
`around media. It wasn't centered around
`news and information. It was centered around
`technology. The obvious point that the power
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`Chapter 12: Google, The Second Coming - Riptide
`ot the search technology that the tounders ot
`Google and their close friends had worked on
`[was] superior to everything else that was
`around.
`
`JOHN HUEY
`
`But you saw it early on as an advertising play,
`right? Or not?
`
`MIKE MORITZ
`
`Initially, Google was going to be a licensing
`company to ...
`
`MARTIN NISENHOL TZ
`
`It was. It was licensing to Yahoo.
`
`MIKE MORITZ
`
`That was part of the way that Sequoia got
`involved with Google. Google was licensing its
`search technology to Yahoo for Yahoo to
`distribute.
`
`JOHN HUEY
`
`When and how does the advertising light bulb
`go off? Is Sequoia involved in that?
`
`MIKE MORITZ
`
`The advertising light bulb went off very early
`in a tiny way at Yahoo. The first
`advertisement, I think, was a tiny,
`inconspicuous Visa advertisement, which
`provoked all manner of hand wringing within
`Yahoo .... There was an enormous fear that we
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`were selling out to the demons, that this
`service on the Internet was going to be
`perverted and spiral downhill into the clammy
`hands of the capitalists. There were all these
`outraged emails from the devoted that there
`was this little Visa advertisement.
`
`Of course, it played out that Yahoo got over its
`squeamishness about running online ads pretty
`quickly and became the dominant Internet media
`company of its moment- but then lost its lead to
`Go ogle and has been playing from behind ever
`since.
`
`ART KERN
`
`... It's simple mathematics. If you got the best
`algorithms, you wring most of the cost out of
`the aggregation business that you're in. Here's
`Yahoo, clunking along with all those human
`beings, trying to aggregate information, and
`here's Google.
`
`Google's architecture, the way they launched
`anything new, was stunning. We didn't know
`it quite at the time, but it didn't take us long to
`figure it out. They set up the company with a
`vision that everything we do, we can do, if we
`press one button here in [Silicon] Valley, it
`can roll out worldwide, instantaneously. Think
`of what kind of architecture it would take to
`do that. Among other things, they had
`strapped together these very cheap servers
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`by the hundreds ot thousands, literally. It's the
`software that interconnected them that was
`brilliant. People forget that the architecture ...
`of how the data flows, really matters.
`
`Again, back to the point about speed. Like [at]
`Yahoo we'd have a [new product, take, for
`example] Yahoo Answers. We'd have a
`product developed by a small team in Taiwan
`or Korea.
`
`MARTIN NISENHOL TZ
`[AJ successfu I product, by the way.
`
`ART KERN
`
`Yeah, fine. But first of all, look how long it took
`just to get headquarters to understand that it
`was successful, much less roll it out
`anywhere. Versus Google, who could have
`taken something like that and rolled it out
`instantaneously. I remember asking one of our
`engineers, uwhen we're doing testing, how
`many servers do we dedicate to that task?"
`Proudly, he said, "5,000." I said, "How many
`does Google use?" He said, ,.At least 100,000.
`Maybe 150,000." Think of an exponential
`curve, and think about our line versus theirs
`and how long it would take for them to zoom
`past us. Back to search, everything that they
`did was architected for speed and simplicity.
`They made it look simple, but they had the
`best algorithms, by far. That meant that they
`would be more accurate, they'd be more
`timely. In making the advertising case, it's the
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