Google Part II: Alphabet

0:00 Are you intentionally wearing a black turtleneck for this one? No. It is actually gonna be one of my carve outs, though. Yeah, amazing. What you think I dress up like Steve Jobs for a Google episode? Well I thought'cause of the you know war between Android and uh I I walk in and there's this like smirk on your face. Alright, let's do it. Who got the truth?

0:24 Is it you, is it you, is it you who got No. Is it you, is it you, is it you Down.

0:33 Another story on the way Welcome to the summer twenty twenty five season of acquired, the podcast about great companies and the stories and playbooks behind them. I'm Ben Gilbert. I'm David Rosenthal, and we are your hosts. In the late nineteen nineties, Google built the best search engine for the rapidly growing internet. With a breakthrough search algorithm, low-cost servers based on commodity hardware, and the best business model of all time, search ads. They turned that search engine into a cash gushing business and took it public in two thousand and four.

1:06 But then, curiously, they started doing some things that weren't related to search. They launched a breakthrough email service in your browser with Gmail. map that were far superior to the current state of the art. Docs and spreadsheets with real time collaboration for the first time. Of course YouTube, then Android.

1:24 in their own web browser with Chrome. Astonishingly, today Google has fifteen products with over half a billion users, seven of those have over two billion users. David, that is over twenty five percent of humans use seven. Of Google's products.

1:41 Just Unreal. Can't wait to tell all of these stories today. Yes. And they've also launched some colossal failures.

1:49 Google Plus to try to compete with Facebook. Google Wave, Buzz, and about half a dozen messaging apps. I don't know, maybe a dozen messaging apps over the years. Hot air balloons to provide wireless internet and of course Oh man, I forgot about the hot air balloons. Google Glass. Can't forget about that one, unfortunately.

2:08 So why did they do all this? And as a business, Google was and still is the company that makes the vast majority of their money from ads on search results on the web. So today we tell the story of Google as the innovation factory of the two thousands. their reorganization into the parent company alphabet, and how all these different products cleverly serve different business purposes. And also how it feeds into Google's original core mission. To organize the world's information.

2:37 And we'll end this episode story right at the dawn of the AI era. Oh, spoilers. Sorry. So is Google a search engine? Is it the platform company of the web era? Or is it an incubator that just happens to have struck gold with search and perhaps AI? Today.

2:56 We dive in. Whoop Listeners, if you want to know every time an episode drops or get early hints at what the next episode will be, check out our email list. That's also where we share corrections and updates about previous episodes and We are adding a new bonus.

3:11 You get to help us vote on future episode topics. So the first poll is going out soon. Sign up now. at acquire.fm slash email. Join the Slack if you want to come talk about this with us and the whole acquired community, acquired.fm slash slack. So with that, this show is not investment advice. David and I may have investments in the companies we discuss, and this show is for informational and entertainment purposes.

3:34 Only David. Where are we starting this alphabet story? I have A very, very fun beginning for you, Ben.

3:43 I Wanna start. With a quote. From Russ Hanneman. The fictional

3:51 HBO show. Oh yeah. From the T V show. Awesome. And the quote is If you show revenue People will ask how much. And it will never be enough.

4:03 The company that was the hundred Xer, the thousand Xer, is suddenly the two X dog. But if you have no revenue, you can say you're pre-revenue, you're a potential pure play. It's not about how much you earn, it's about what you're worth and who's worth the most. Companies that lose money. Immortal words of wisdom. For the technology world.

4:22 God, that show is so good. Why do I bring this up? Why do I start here? Why are you talking about this? Google is a cash gushing machine. Revenue is obviously not the problem for Google. But what was the problem in two thousand four, two thousand five, two thousand six.

4:38 was being viewed as In Russ's terms. Pure play. When Google went public in fall of two thousand four, the stock shot up, basically doubled in two months. Wall Street.

4:50 Loved. Google. AdWords, the search business model. Everybody had to own shares. Google had cracked the code on

4:59 Monetizing the internet. The more people use the internet, the more they search, the more they search, the more Money comics. Simple. Easy. Pure Play.

5:07 You might say. Yep. That is until Google announced Fourth quarter. Two thousand five earnings. Full year two thousand five revenue.

5:17 Six point one. billion dollars. That's almost double. The three point one that it was in two thousand four, the first year went public. But earnings. are flat.

5:28 Profitability. Is down. Hm. Google's now investing in all these new products and services. Gmail, maps. The forthcoming Google Docs. Later this year in two thousand six.

5:38 Would buy YouTube for one point six billion dollars. Wall Street Hates this. Hates it. This is a huge amount of their cash they're putting back on the table and betting for the future. So

5:49 This is January two thousand six. The stock falls twenty seven percent. Mostly. God, these guys, what are they doing? They're messing it up.

5:57 Steven Levy writes in in The Plex that the perception of Google's ventures beyond search is At the time. was that the company was tossing balls into the air like a drunken juggler. They were a peer play in investors' eyes and now they're Messing it up. They're adding all this other stuff. They don't want the other stuff.

6:14 Yeah. So then Ben, as you teed up in the HO. Question is why did they do all this? And I think the way to answer it. is to start and just tell the stories of all the individual products.

6:24 Let's do it. Strap in. I will say, David, doing the research took me way back to early acquired grading acquisition. This is the cornucopia of hits. of iconic product launches in tech history. So the first And probably the most important here because it sets the stage for

6:40 Everything else. The first Major non search product. was on April first, April Fool's Day, two thousand four. Gmail the most. Famous, infamous.

6:50 Nine Joke. April Fool's Day announcement. Of all time. Yes.

6:55 But it sure sounded like a joke. Here's the announcement. In two thousand four. Entirely web based email. In your browser.

7:03 You can log in and access it. Anywhere. On any device. Google search is built in. You don't need to spend all this time sorting your mail into folders anymore.

7:13 And one Gigabyte of storage. Free. No need to delete your mail, no need to clean up your inbox, no need to do anything. Every yeah.

7:24 And The whole Yeah. Is free. Yep.

7:28 Of course, this sounds like a joke. This is too good to be true. The universe at the time is Microsoft sells sort of enterprise grade mail for a lot of money. Or there's all these free web based services popping up, like Hotmail that Microsoft would end up buying. And Yahoo Mail and AOL. You get like five megabytes. Of storage.

7:47 Yeah, not even at the time. Hotmail, which as you said, Microsoft owns. had two megabytes of pre storage. And Yahoo Mail had four megabytes. There's another great story from in the Plex that Stephen Levy has. He's interviewing Bill Gates.

8:02 At the Newsweek headquarters office in New York. Shortly after Gmail comes out. And there they started talking about Gmail and Bill Can't believe it. He's like a Ended.

8:12 By Gmail. Because He thinks that giving people all this storage is just wasteful. You're doing email wrong. It's morally repugnant to leave All of this email sitting on the servers.

8:25 I was thinking about it until Gmail The paradigm for email People treated it like regular physical mail. Sort it, you file away the important stuff, you throw out the pieces you don't need anymore. I mean, even freaking Bill Gates operates this way. Yes. So Gmail this is Radical. This is a radical notion

8:45 of how email should work. And Correct. I mean If you

8:50 Sat and you thought about it in say Two thousand one or so, when Gmail starts getting worked on within Google. And you thought about the combination of the growth of the internet, which obviously Google as a front row seat two. And

9:02 Moore's Law. You would logically come to this conclusion that the cost of sending and storing and searching email Woasymatically go to zero. And thus as that happened.

9:13 A whole lot more email was gonna Be sent. In the world. Yep. So can I tell you my understanding of where this story starts in nineteen ninety six?

9:23 Oh, I was gonna go back to ninety nine, but yeah, go for it. All right. So, I know you're about to bring up the name Paul Bukite, is that right? Of course. Yeah. So Paul.

9:32 was kind enough to speak with me before recording this episode, Paul famously the inventor of Gmail. In nineteen ninety six, Paul was a student at Case Western Reserve University in Cleveland. Which You may also know this, David. Famously was one of the first campuses in the nation to have broadband internet in the dorms and all over campus. Oh okay. I do about the Paul. fascination with webmail starting in college, but I didn't realize the case Western had

10:00 Broadband. So this is why when you're living in the universe of broadband everywhere. He was living like fifteen years in the future. Temporarily for four years in college. Yeah, nineteen ninety six. Yes.

10:13 So He realizes email is kind of a bummer if it's a thing that you download and lives on your computer. The information Should just exist. At my fingertips all the time.

10:25 bits are becoming free to move around. So He kinda gets obsessed with this idea in college. That Email should exist.

10:35 On the web. In a browser. without ever having to download it. And he builds a prototype for webmail. When he's in college. Wow.

10:43 In two thousand and one, famously pre IPO at Google. Larry Page. feels like Google is moving a little bit too slow and gets rid of all engineering managers. So Larry and Wayne Rosing, who is leading engineer in Goen, meet with each engineer individually to talk about ideas that they could work on. This tells you.

11:02 so much about Googliness, but it also tells you a lot about the caliber of the engineers they were hiring at the time. Where they would just approach them and say, What ideas are you thinking about? Here are some ideas we have. Can you just

11:13 Full stack own this. product entirely yourself. And so in Paul's meeting, they knew about his previous interest in email and web based mail, and they sort of float this amorphous. And

11:25 That's where it comes from. Ah, so Larry and Wynn. Suggested it to him. Interesting. Here's some other stuff that Paul said. So part of the motivation was that They were looking to make something that would make Google stickier.

11:38 So you'd have sort of this ongoing relationship for If there was a next Google after Google, there was some reason why you would still have a relationship. Mm. Which obviously you know Yahoo would have for many, many years, even though there was a next Yahoo after Yahoo in Google. We still get emails from people with Yahoo mails. Do you know how Paul found out about Google in nineteen ninety nine? Ooh, no.

11:59 Slash dot. Really? That's awesome. And then he sends an email to jobs at google.com. Unbelievable. Fitting that you know he gets hired with an email. Hey oh Okay. So Two thousand one. Paul gets to work with encouragement from Larry and Wynn. Do you know what the original seed of the code is?

12:18 Oh no, go for it. Google had just bought a company called Deja News, their first acquisition. It was the corpus of all the old Usenet posts. Oh yeah, and then this becomes Google Groups, right? That's exactly right. Yeah, and Paul's working on that. And part of that was a feature to do real time indexing of all the posts that would allow you to search the whole corpus.

12:39 So Paul just applies that to his own personal inbox. The first instantiation of this is just a search box. To search. his personal Unix mail directory as if it is the

12:52 old Usenet posts that they had just bought. That's the first version of Gmail. Amazing. As He's building on that though, obviously like the

13:01 First thing he needs is. A web front, uh an interface. Okay, hot males out there, Yahoo males out there, web males out there. It just it sucks. It sucks for a lot of reasons. There's gotta be a way to make it better, make it more performant and better to use as a web page. And so he's playing around With

13:18 JavaScript and what he can do with JavaScript to make this application, this web application of email. Better. The history of JavaScript is fascinating. Brendan Ike created it at Netscape back in nineteen ninety-five. We did a whole episode with Brendan years ago about this. The idea behind JavaScript. was to include a programming language as part of web browsers so that people could make

13:38 dynamic web pages instead of just static. HTML documents. The problem was It was kind of this casualty of the browser wars with Microsoft and Internet Explorer and everything that killed Netscape. And so up until this time, kinda two thousand and one

13:54 JavaScript existed. But like it wasn't super popular. It wasn't very powerful. You could do weird stuff like animate something on the page. But I would describe it as toy like and not a real programming language, for sure. Yep. And for what the web was up until that point in time, you didn't really need it. Static web pages are

14:11 kind of fine for most of what's happening I mean even Google.com was static. Type a search into the search box. Google servers process the query and they send you a whole new Static web page with the results. But

14:22 You can imagine for doing something like email on the web or any application on the web. You don't want the site to reload every time you open a new email or you create a draft or you move something around in folders. You might want to move from a web site to a world of web applications. Yeah. But this is how hotmail and Yahoo Mail worked. Every time you took an action, it reloaded the page. And so they were super slow. Yes. And so Paul's like maybe I can use JavaScript to make this better. He's working on it. And he discovers A little known feature of JavaScript called the XML HTTP request.

14:54 Which lets you A web page. Fetch. Automatically. New

15:01 XML data from a server without Reloading the page. And Paul's like Oh my god. This

15:09 Is gold. And this Is the birth. Of Ajax. Asynchronous.

15:15 JavaScript. And XML. So David I assumed you were gonna go here. I thought that you get it all laid up. You've been letting me go. You've just been feeding me a rope the whole time. You trying to tell me that Gmail is the first Ajax application?

15:28 Well, The first widely adopted around the world. That's fair to say. That sort of set the bar for what Dynamic. Web two dot oh, you might say websites could be. Yes. The origin of the XML HTTP request is a part of Internet Explorer, first implemented by Microsoft and used in

15:47 This part of Outlook called Outlook Web Access. Mm. When I worked for my high school, I could log in on any computer Into my

15:58 Outlook. through their web access and that thing used Ajax. And I think it only worked in Internet Explorer. So that is the origin of why this API exists in the first place, ironically for another male client. Oh, not just for another male client. It's so deeply ironic. That this originated for a Microsoft male client. Yes.

16:18 We're gonna get deep into that in just a minute here. Yes. So I mean when Paul discovers this This is Almost like Google search all over again when people realize

16:29 What you can do to create something that looks and feels and has all the functionality of a Application that heretofore Would have been a program that you installed on your

16:40 Personal computer. that maybe you downloaded from the internet, but more likely you went to a retail shop like Comp USA or something. installed on your computer. That you can now just do this in a web browser? This is incredible. The web is the platform of the future.

16:58 Yep. So Paul builds the prototype. Shows it to Larry and Sergey. They're super jazzed. So supposedly Larry and Sergey become the first beta users of Gmail. They are the seed Gmail users and they start using it exclusively as their mail service.

17:15 Within Google and then By the time it launches publicly, all of Google is On Gmail. And using it addicted to it. And

17:23 It wasn't called this at the time, but it's in the cloud. You don't have to have your mail stored on your machine or a specific server. You can log in, access it anywhere. On any network, any device. All this stuff sounds so boring, but it was completely breakthrough. So Obviously Larry and Sergey are jazzed.

17:40 First'cause of just The incredible nature of this product. And Larry especially he is a product person. And his view is if we can build a better product and it's on the web, then it's good for Google and we should do it. And that is a huge part of the motivation underlying Gmail and

17:55 Everything we're gonna talk about. But there's also another reason. And that's Microsoft. Because Google

18:02 Well. Doing great. Printing money. Add words, search, greatest product, greatest business of all time. But They've got them.

18:10 Big risk. Which is that Everything about Google, everything about the web right now Flows through Microsoft. Flows through.

18:19 Internet Explorer. Yeah, Google's entire money printing machine was built on top of Microsoft's and at two layers. So to this point, over ninety percent of Google search queries were done. On Windows PCs.

18:34 And Ninety percent were done. in Internet Explorer running on those PCs. So Google's got the killer app for the web. In search. And the thing under them is a browser owned by Microsoft, and the thing under that is an operating system owned by Microsoft.

18:47 Yes. They exist at the pleasure of Microsoft at this point in history. And Microsoft has a different business model. So

18:56 Google's business model, the greatest of all time, is People use Google search. They discover more the web. They spend more time online on these new sites and services that they're discovering. As they're spending more time online.

19:08 They search more. Searching more leads them to discover even more new sites and services. The cycle repeats itself and Google just monetizes the whole thing. Yes. And

19:17 Web usage isn't bad for Microsoft, but if the platform of the next generation becomes the web and people are writing web applications instead of Windows applications, that makes Microsoft's platform a lot less valuable versus other operating systems like say Mac or say a future where we change away from desktop computers altogether. Yes. At a minimum Microsoft.

19:42 Doesn't business model wise care about the web. 'Cause they don't monetize the web. Microsoft makes money by OEM selling PCs. That have windows on them.

19:51 And then Microsoft sells. Software. That goes on those PCs. So at a minimum they don't

19:56 Yeah. And at a maximum, like you're saying Web apps are at a existential risk to Microsoft. Oh my god. there's a future application platform that just doesn't really require our participation.

20:08 other than the fact that we control I. And at least for now, that's really important. And most of Microsoft hasn't. Realized this yet.

20:16 Thank God for Google, Microsoft's distracted with The albatross that was Longhorn that would become Windows Vista. Yes. A few people in Microsoft realize this, but Google for sure realizes this, though. Eric Schmidt.

20:30 for Double Shore realizes it because he was the CO of Novelle before coming to Google. Who is Novelle's competitor? Microsoft. And Microsoft crushed them. So Why Google's so jazzed about Gmail?

20:42 They need to build up leverage. With consumers with users that they're gonna demand Rich. web applications so that if Microsoft ever tries to disadvantago or disadvantage apps and things moving to the web.

20:56 really the only defense against that is if consumers have already adopted this stuff and love it and would Revolt. And so this is what Gmail is. Yes. So

21:05 Gmail development's trucking along through. Two thousand one, two thousand two, two thousand three. This is hard to remember now. It took three years. To develop Gmail. Long development cycle. Yeah. To be ready to release publicly. And then it was in beta for like ten years. Yeah. I think the reason it took so long was this was all No.

21:24 There wasn't a lot of depth of knowledge out there about JavaScript. Certainly not about Ajax and X ML dynamic refreshing. It was really hard to program. Today you've got all these nice abstraction layers, these frameworks that people have built to do web development.

21:38 Yeah. really didn't exist to make Ajax applications. Yes. Okay. So Google's finally getting ready to launch it. We're in two thousand four. There's a couple of

21:47 Questions. One. The service. For all the reasons we just described. Google, Larry, Serge, Eric, they want it to be so compelling.

21:57 That consumers demand it. It takes off like wildfire. It builds this. Strategic mode against. Microsoft. Will cost money. There's a reason other people don't do this. Yeah, there's a reason that a gigabyte of free storage Seems a little crazy.

22:11 Even if you assume and I think this is probably directionally correct. D. Because of Google's commodity infrastructure. advantage. They could launch

22:21 Gmail at like one tenth of the cost that Anybody else could. Also Remember, there's no public cloud at this point in time. So you'd have to go build your own data center to do this. You can't just launch on AWS. There is no AWS.

22:33 But even assume that Google has a Ninety percent cost advantage on the infrastructure side. the state of the art is other competitors are offering four megabytes of free storage. Google's gonna offer a gig Sure, knock that down by ninety percent, but the effective cost is still a hundred megabytes.

22:49 So How do you get around being flooded with costs and infrastructure demand when you launch it? They come up with The invite. system. Yes. And this is so brilliant. I actually don't know if it was designed as this sort of

23:03 Prestigious. growth strategy thing that it became anyone got any Gmail invites? Please, I'll do anything. Yeah, yeah, please, please, please. Or if it was Truly because of the infrastructure cost. Either way. It's just brilliant. When they launch it on April first, two thousand four, they send out

23:20 one thousand seed Invites to Gmail. It's a private invite only. Internet service. They send them out to influencers. You know, the term didn't exist back in the day, but influential people and journalists.

23:34 And then each user has a set number of invites that they can give to other users. To invite their friends. And it was low. It was like five or something. And then it wasn't clear when they would top back up, but you'd give out your five and then at some point you'd come in and you'd have five more. You'd have three more. It was like super dynamic and very clearly.

23:54 whatever Google felt like they could give away from their servers at the moment. Yep. But it was so brilliant. It made it feel like you're in this special world of people in the know that with super incentivized viral word of mouth growth. Because

24:09 I'm telling you. It's a gigabyte of free storage. It's this incredible service. They're selling on eBay for a hundred and fifty bucks. There was a monetary value to these things. Yes, yes, they were trading on eBay for average price of 150 buc in the early days. And so I'm giving you this gift. Incredible. And look, everybody wants this. But you need to have the product quality that caches the check.

24:31 Yes, it needs to be a real gift. Right. And it was. It was just Better. It wasn't just something I'd sign up for and then churn and be like, cool, I locked in my username or whatever. It was something that you actually

24:44 used every day, or in the words of Larry Page, pass the toothbrush test. It was a part of your daily habit, something you do once or twice a day. Ha ha Uh, I wish I could only. Refresh Gmail once or twice a day.

24:57 So David, was this the first software that used a wait list like this,'cause obviously it's become very popular since. I think so. So That's how they take care of the cost side of the equation is not running out of control is the invite strategy.

25:11 Well, still not making any money, though. That's question number two. How are we gonna Make money from this thing'cause yeah, okay, there's all these strategic reasons to do it. It'll increase more.

25:20 Traffic on the web, time spent, people search more, we'll make more money directly, but they still don't really know that. So they think, okay, we need a Monetization strategy baked into the product. itself. Yes. Well, how do you make money from anything at Google? This actually came up during development. So

25:35 Even in the prototyping phase. Paul logs into the database of ads, which It's just funny that at that point in time Google's got this big database of ads. Right. Yeah.

25:45 I'm just gonna access the ads database. You know, all of them. Yes. And these are the ads that would run when you searched and landed on a search results page. And so he decided to do content matching against your inbox and just show those ads on the page next to your email. And even though they weren't meant for that, it actually turned out that these search ads were pretty relevant. It actually

26:06 was a decent ad to be showing you while you're looking at your inbox about similar topics. So he just rolls this out. even though all these people in Google are actually using it as their mail client at the time. People were pissed. I mean people were like, Are you looking at my emails?

26:22 You know, all the things that would then sort of come later in the public actually happened inside Google first. But Larry and Sergey. Loved it. They were like, Oh, this is so obviously the answer. Interestingly,

26:33 This experiment pre dates Adsense. So Google has the display ad offering for website publishers that's called AdSense, that's different than AdWords, which is the keyword advertisements on a search results page. AdSense hasn't launched yet. And there's sort of multiple versions of history here. How much credit for AdSense does Gmail get in discovering this, but it is safe to say.

26:56 that the idea of display ads that are content matched against your Gmail did contribute to the idea for the first version of AdSense, which are essentially the same thing, content matched ads. just on a publisher website instead of the content of your inbox. So

27:14 The product launch is publicly April two thousand four. As you would expect. People go nuts. It is truly a revolutionary.

27:22 Product. And Gmail. Grows over the next twenty years.

27:27 From that a thousand And it's all. Public. Beta user Seed Base. To over two billion today.

27:34 And it's still by far the best email service. Even if you use another front end for your Email for your Gmail like superhuman or whatnot today. You still want Gmail on the backend, at least as a consumer. Yes. So

27:47 Once Gmail starts to Take off. Larry and Sergey and Eric. See this and they're like wow We should do this a lot Let's go like let's Build as many

28:04 web applications. As we possibly can imagine. What else can go into the browser that we didn't think was possible before? This fires On every single cylinder for us. Most importantly.

28:18 Grow. The web. Grow usage. You grow the web, you grow time that people spend in web browsers, they will search more. We will make more money. And beyond that, with some of these products like Gmail, we can monetize the products

28:31 themselves. Great. Two. We are building our strategic mode. Against.

28:37 Microsoft. The faster that we Yeah. The internet using public. to fall in love with and use web applications.

28:47 The less and less leverage Microsoft. has over us. To use sort of Ben Thompson speak. Google realizes the web can become the point of integration. Maybe the OS isn't what the whole universe has to target. The

29:02 hardware makers, the OEMs, the application makers, the users. If applications start living in the browser, then the web can become the point of integration. Users just need a browser. And OEMs just need an operating system that can access the browser. And what's so great for Google because of their business model

29:22 Sure. It's great. when they build and own and operate and run and monetize web applications themselves, like they do with Gmail. Like they'll do with maps, like they'll do with docs, like they'll do with YouTube that we're about to talk about. But if they don't, it doesn't matter.

29:35 As long as anybody does it. Right. They just need to be wind at the back of web adoption. Yes. So that leads

29:42 To a whole flood. Of Google. Web products and services to come. All right listeners. Now is a great time to talk about a new partner of ours here on Acquired, Lagora.

29:54 The agentic operating system that is redefining how the world's best legal teams work. Yep. It's sort of obvious that AI is gonna completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Ligora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry? So the founders did exactly what great founders do. operate with obsessive customer focus. They embedded inside a massive law firm.

30:27 For months. They sat with the lawyers just watching how the work really gets done. And that's how you get features that customers love, like tabular review where you Drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Legor's Bet Here is interesting, since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time. And they recently launched Lagora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required.

31:15 And Lagora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Lagora numbers essentially speak for themselves. When they have a head to head pilot with their top competitor, they win seventy percent of the time. Lagora now has over a hundred thousand lawyers on the platform from twelve hundred legal teams in fifty countries. And crazily, they went from one million

31:42 In about Eighteen months. Yeah. Truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client.

31:58 If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at Lagora.com/slash acquired. And just tell'em that Ben and David sent you. All right, David. So Gmail. We've got our existence proof of a

32:15 Ajax based web app. It's going viral. People love it. We can really build web applications now. Let's go nuts. Yes. So the next big web apps following Gmail were maps.

32:28 Docks. And spreadsheets. Oh Absolutely incredible. And it was not clear that these things were

32:37 Possible. With web technologies. Incredible technical and product. Vision.

32:44 So first maps. We actually did. A whole acquired episode back in the day. Just about Google Maps. the three companies they acquired. Yeah.

32:54 It starts in two thousand three, so even before the Gmail launch. When a young associate product manager APM at Google named Brett Taylor. That Brett Taylor. Of course of ACQ two fame, Brett Taylor. Recent ACQ two guest. Brett Taylor. Oh yeah, also friend feed founder, Facebook CTO.

33:14 Co CO of Salesforce, Chairman of OpenAI former chairman of Twitter. Yeah, yeah. That Brad Taylor. Starts his career out of Stanford. In two thousand three, yeah as an associate product manager. Hey, Google.

33:28 He ends up going to Larry and it's like We're missing out here. AOL has MapQuest. Which they've just bought for a billion. And I'm hearing through the grapevine

33:39 That Yahoo Is about to make a big push. And launch Yahoo maps. And so

33:46 As you would expect, Larry's like, Oh yeah, okay, is this a web product? Yes, of course. Go do this. For all these things we're studying here, there's a business rationale, which might be extremely indirect, but it's there. This idea of increasing web use increases Google search, which increases the money printer. But then there's also an abstract rationale, which is our mission is to Organize the world's information and make it universally accessible.

34:11 And useful. And Maps is squarely in the middle of that. Yeah. Now.

34:16 The thing was As big as MapQuest. And Yahoo maps. We're about to become a little bit more. at the time. And they were big. I remember using'em. My parents used them

34:26 Everybody on the internet used these services. They weren't. What you think of as Google Maps today. They were static web pages. Yep. They didn't use Ajax.

34:37 And the whole point. Was to get driving directions. That you could print out. Exactly. And the business model.

34:44 For these services was On the printed piece of paper that people would print out. You would put ads on there. Yep. It's like a uh Trojan horse newspaper business.

34:55 Right. So Brett and Larry and Marissa are looking at this like I think we can do better than this. So they go out and they buy a little company in Australia called Where to Technologies. Which was started

35:07 By these two brothers, Lars and Jens Rasmussen. Yeah. Who were incredible. Engineers. And they had built A real time

35:19 Interactive Maps. Application. Except it was a install desktop app. And so they're meeting with them and Larry's like

35:29 Okay, this is what we want, but We need it on the web. I think actually the quote was We like the web at Google. And this is how good of engineers the Rasmusons were.

35:40 They go off. And in I think three weeks. They rewrite and re architect. The entire application.

35:49 To run. As a web app. And they basically independently discover and implement A lot of the JavaScript and Ajax features. That Google was working on internally for Gmail.

35:59 Gmail still hadn't launched yet. Amazing. So Google ends up buying where to, that becomes the core of Google Maps. Around the same time they also acquired two other companies, Zip Dash that did traffic data. And

36:12 Keyhole. Which would become a Google Earth. Desktop.

36:19 application. Ultimately everything that Google Earth was building would get folded back into maps later. It's actually not true. I thought that. And just last night I realized you can still go to earth.google dot com and get a completely different three D experience than Google Maps. Oh no way. It's all in the web now. It's unbelievably powerful. Oh so it is a web app, but it's separate than Maps. Yes.

36:41 Oh, I didn't know that. Oh, I gotta check that out. It's amazing. That's awesome. Yes. Keyhole and Google Earth.

36:48 I think is my favorite. part of our first Google episode earlier this year. That the whole thing. ended up just being a Trojan horse downloader to get Google Toolbar installed on Internet Explorer on people's systems. They're organizing the world's information and making it universally accessible and useful. But also it comes with Google Toolbar.

37:09 Yeah. The greatest distribution hack for Google search. Of all time. Yes. Anyway. Back to Google Maps and Where to?

37:18 February two thousand five, Google Maps launches. People go nuts. Live mapping. dynamic web application. Do you want to know my favorite Easter egg for the first day launch? of Google Maps. I don't know if you know this.

37:32 When you load it up Maps.google dot com, do you know what visually you saw? I have no recollection. You saw a great big ocean. And North America.

37:42 And then floating in the middle of the Atlantic Ocean? You see the UK? And then there is nothing past it. Mm-hmm.

37:51 They hadn't built it yet. They hadn't built it yet. Europe, Asia, Africa, not included. It's not even like it's off limits. It looks like there's an ocean where Europe should be. How do you decide what the MVP is or the minimum viable product to ship on the map? It's a basic All right, there's one more really important piece of maps.

38:14 Which is the next year in two thousand six. They released the API. And this is what really Kicks off. The web two dot oh.

38:23 Era. Gmail and JavaScript and Ajax had inspired developers out there for sure to make richer web apps and people were doing that. When Google releases the maps

38:34 API. This thing called mash ups. starts happening. Do you remember this? Absolutely. It's now super easy. To grab Google Maps.

38:44 And build stuff. On top of it. And it's really hot. And this enables startups. So like Zillows. Uber.

38:52 Eventually DoorDash, Airbnb. Think about all the companies. They just Couldn't Exist without

39:00 The Google Maps API. There was that whole web of geo related companies too. Remember that era of mobile social local Mo Solo Oh yeah, Foursquare and Goala and yeah, all those. All this existed because Google Maps existed. So back to Google's overall strategy here and adoption of web apps and sort of building this mote and defense against Microsoft.

39:25 This is just Incredible. maps itself as a first class, rich web application that Tens, eventually hundreds, today billions, two billion plus users. Use and love every day.

39:41 And now here's this API. That's making it really easy to help Other startups. And other companies. Go build great web apps too.

39:50 the lock in just keeps getting deeper and deeper and deeper for the web. Yeah. And at first the API was notoriously free or very inexpensive at very high limits for a long time. That's different now. But for the longest time. It was just

40:03 This is a part of the mission. So we're doing it and we'll figure out the business later is a very sort of founder driven thing. Now it's popular to create maps. I mean, Apple at some point flipped into doing it, and there's these sort of other third party companies, and there's the open street maps and all this stuff. For the first

40:20 Five to maybe eight years. Google was kinda the only one that had a passion for this and a willing to spend into the giant hole that you need to create maps of the whole world. I mean, it is a incredibly hard data and engineering problem. And you know, they had to go draw all their own maps from scratch, acquire the data, figure out how to get fresh data all the time, create a crowd sourced crazy thing among Google is it Google Maps explorers or something like that. All the people that would update these things. This is a

40:51 Extremely googly problem. And a founder bet to be Like, nope, we're gonna go spend hundreds of millions of dollars, billions of dollars on this. Drive cars around, taking pictures of everything, figure out how to Not overshare personal information on this. Do it dynamically because you're capturing a huge amount. I mean, it's just It's a wacky, wacky engineering problem that

41:11 Is daunting and they took it on. Yep. And We're not gonna talk about this today, but Put a pin. In for the next episode.

41:20 Is One of the most incredibly strategically Valuable. data assets for

41:28 The AI era and specifically for self driving cars. Yes. But today Maps has over two billion active users this year. They don't break out revenue, but estimates are that maps does well over five billion in revenue, maybe even ten billion in revenue. The larger part of that is ads you see recommended. Places to go around you all the time whenever you open Google Maps now that are sponsored ads, just like

41:52 on Google search. And then the smaller part of that is from the API licensing, David, that you were talking about. But this is a real business for Google today. Yep. All right. Next ones that we gotta talk about.

42:04 Docs and spreadsheets. So These aren't The biggest. Google apps out there today. Think if you've lumped them all together into workspace and add drive, it is over a billion users. That whole suite is among their most used

42:18 Products. Office office suite? Is that what you would call it? Yeah. Sounds like a office type suite. It's a good idea. Someone should do that. So Docs and spreadsheets.

42:31 hit Microsoft. Right. Where it hurts. Office. So

42:37 People have tried. Both. before Google and after Google. To compete with Microsoft. In productivity.

42:45 Forever. Word perfect. Lotus notes. Lotus one two three We talked all about that.

42:53 On our Microsoft episode. By the way, word perfect acquired by and run by Novell. who was the CO of Nobel, Eric Schmidt. Eric knows. Oh.

43:04 About this. But here's what I will say, David. If you were starting on the foot of competing with Microsoft or trying to build a word processor or trying to build a spreadsheet. you would be doomed for failure. What

43:16 Google was doing. There is something that is uniquely possible. with web applications and Ajax in this web two point oh era for the first time. And that thing is real time collaboration. Real time.

43:30 multi user Collaboration. These were The first I've tried to rack my brain.

43:39 I talked to Sam Chilis, the founder of Rightly, which Google acquired, which became Google Docs, he believes These were the first Real time. multi user collaborative pieces of software. In history.

43:52 It just wasn't possible before the web. Yeah, Jonathan Rochelle, the founder of the company that would be acquired that would become Google spreadsheets. basically said the same thing. His comment was we actually didn't know if it was possible. to do this in the web. Google said.

44:05 based on the success we're seeing with Gmail I bet. We could do actual spreadsheet. in the browser with real time collaboration. And when the Sheets team came in, it was truly an open question of can we make it so you and another person can party on the same very basic spreadsheet at the same time. Interesting. The Docs team. So Docs was an acquisition. It was a company called Rightly.

44:28 that was founded by Sam and his two co founders who were great programmers. They've worked together for Many years. I used rightly before it became a process. You were like one of very few people who did that. Yeah.'Cause it was not an independent company for long. Product launched August two thousand five. Google bought the company in March two thousand six. So you had about six month window. Wow.

44:49 But yeah, they Built. real time collaborative word processing. as a web app inspired by Gmail and everything that was going on at Google.

45:01 The whole company started as oh for our next project. Let's explore what we can do with JavaScript and Ajax and oh, what would it be like if we Put a word processor. on the web. They weren't actually even thinking about collaboration at first.

45:17 But then as they were working on it together, they naturally started collaborating about Oh, this is the killer. Feature. That's funny. That's different than the Spreadsheets team. Their whole thing at first was We're not gonna make a better spreadsheet than Excel. So if we put it in the web, it has to be about sharing collaboration.

45:34 Yep. And so to your earlier point. Nobody can compete with Microsoft. And productivity software. One, because they'd been

45:43 doing it so long. They had this feature wall of so many features that people needed. Two proprietary file formats. They had a network effect of the file format. You built your big model in Excel? Good luck. Other people need to be able to run it on

45:58 They're Install desktop applications. Good luck getting somebody to try downloading or buying a new piece of software and installing it on their machine. But three, I mean the biggest by far.

46:11 The enterprise agreement. This is Microsoft's whole entire Business. Right.

46:17 You don't have to be best in breed in any specific thing. You just have to be a platform with everything. Yep. And IT departments will buy it and especially for productivity software. Really all the money. Is it?

46:29 B to B um work applications. And so if I D departments are buying the Microsoft Enterprise Agreement. They're getting everything. Good luck. Unseating. Microsoft office. And I'm not sure you could do this as an independent business,'cause think about how long

46:43 Google went with these things before they were adopted by bigger companies. for the longest time it was, oh, a Google Doc, that's like a thing for either you use that for your personal life, or maybe like a startup would use it, but even a medium sized company You can't be serious. Get out of here with that. And Google was basically able to subsidize it because they had a giant existing business. You are so right.

47:05 Nobody except Google could do this. For a whole bunch of reasons. One, you talk about subsidizing. Imagine trying to build this. software as an independent company.

47:17 Or really even as any other company. It would require a lot of infrastructure. real time multi user. In a web app. Gosh, that seems like really complicated.

47:28 Server and back end infrastructure. For Google. It's what they do. Running docs and sheets the incremental load to Google's infrastructure. was trivial. Compared to search.

47:39 They already had it built out. It was super cheap. Yeah. Two. They don't need to make money from it. This is the big reason why nobody else could compete.

47:47 Microsoft has all the dollars. completely on lockdown. Because of the enterprise agreement. big dollars. These small and medium businesses would of course pay for something But those dollars don't add up to be nearly as big.

48:00 Right, exactly. Google though. That's fine. Microsoft can keep all the dollars. All we care about is people use

48:09 The web. And in this instance Particularly. with office and productivity Really this is about

48:17 putting the screws to Microsoft a little bit. And Distracting them. And from Google's point of view, this is a cheap distraction. If this gets Microsoft all spun up.

48:27 Microsoft is now all of a sudden getting asked all the time, what's your web strategy for Office? When are you gonna add collaboration to Word and Excel, et cetera, et cetera. They don't have any answers. I literally worked on this. My internship was at Microsoft and I worked on Adding headers and footers. to the Microsoft Word web app. We were porting

48:46 the Windows code to have perfect document fidelity. to the web. So when you looked on the web and then printed from the web, the document would be laid out. Pixel for pixel, character for character, exactly how it would look on the printed page. When you have that requirement. That is a hard, hard engineering task.

49:05 And it's still Not as good as Google Docs. Right. I love it that this launched your technology career. Yes. Amazing. But yeah, from Google's perspective. This is amazing.

49:18 Microsoft is now Forced. to bring their crown jewels to the web, which they don't want to do. And Ben, to your point, because they have to make it look and feel and function exactly like the installed desktop apps. This is gonna take them a long time and be a big investment.

49:35 Fantastic. And no matter what, it's gonna be more complicated because with Google, since it's all free, there's no licensing. Someone just shares a Google Doc with you. If you have permission to view it, you view it. With Microsoft, I remember at first it was sort of antithetical. It was like, but what if I haven't bought Word? Can I just use word for free? In the web then? Right. Is Microsoft okay with that? Am I gonna hit some weird usage tier? Like what so it's confusing for users? It forces the company to think about pricing and packaging.

50:00 It was a master stroke by Google. Yep. So fast forward to today. It's hard to get. Real actual apples to apples.

50:07 Data on Google Workspace versus Microsoft Office users. But basically the way to think about the market is that Google has the vast majority of

50:18 users and usage of productivity software. And Microsoft still has the vast majority of dollars. And that's fine. Google's super happy about that. Is that true that there's more active users of

50:31 Google Workspace than there is of Office. Yeah, I mean I think if you look at Users of Docs or sheets or slides. It's in uh billion niche, five hundred million, billion range for each of those.

50:44 Office I Think has Couple hundred million. Users worldwide. Wow.

50:52 Yeah, that's crazy. I didn't realize that. Pretty wild, right? But To my point about the dollars, so Microsoft's

51:00 Productivity and business process. segment which is mostly office. I think LinkedIn is now part of this too. Last year generated over a hundred and twenty billion dollars in revenue.

51:12 Google. Reports workspace as part of the cloud segment. All of cloud. Inclusive of their infrastructure as a service. All the AI infrastructure, all that.

51:24 The whole cloud segment. for Google last year. Did about fifty. billion dollars in revenue. Less than fifty. So Microsoft's productivity segment hundred and twenty.

51:35 Office is the big piece. And that's high margin revenue. High margin revenue. Google's office products are some small portion of a fifty billion dollar revenue segment. So yeah. Microsoft's still got all the money. Yes. Google's got all the users. And everybody's happy. But you're so right. Everyone is happy. This is exactly what Google wants.

51:51 Yeah. And Ultimately today Microsoft is fine with this arrangement too. The ultimate. Fun coda though.

52:00 It's Sam Shilis. Founder of rightly He would go on to manage you know all of Docks and sheets and I think he actually managed maps at some point too.

52:09 He is now the deputy CTO. Of Microsoft. Careers are long. Amazing. The interesting thing

52:15 reflecting on Google's actual business here and comparing it against all the things that we're talking about. Google Essentially one search. by the mid late two thousands. I mean, I know Bing hasn't even launched yet and we'll get to that. But

52:29 Search was going to continue becoming a more and more giant market. And so All the stuff they're doing, it's like Oh, we've won.

52:37 And this market is naturally going to become large. I guess let's just fuel it getting larger and try to do a bunch of stuff under the umbrella of our mission, but What do we really need to do? And the slightly more altruistic answer, I suspect if Larry Page was sitting next to us, he would say What is the goal of a company? The goal of a company isn't

52:56 build the largest business necessarily. It's to fulfill its mission. And yeah, we got a money printing machine from Search and we're investing a lot of money still in Surge and making that better. But All these things fulfill our mission too. Yep. And I think these things are All true.

53:10 Yes. So On the back of the success of Maps. Doc.

53:16 Spreadsheets. Really starts to inform. Google's. strategy here and specifically they've seen Hey, we can acquire

53:26 These Web app, web two dot oh Companies. Bring them into Google. turbocharge them, offer these magical experiences to consumers.

53:36 We get all this strategic value out of them both on the offensive and defensive front. We can operate these things at a fraction of the expense that it would cost Anyone else to do so. standalone company or part of other big companies. And some of the things we could buy actually fit into our core ads business quite well. Yeah.

53:57 What if we When Big. With this like Really?

54:01 Big. Like something super expensive to run that requires storage of massive videos and bandwidth for streaming, these massive videos and Lawsuit protection. Yeah. Probably also costs a lot to buy it'cause it's well funded from Uh

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56:08 That Ben and David sent you. Alright, David, the YouTube story. Ooh, the big kahuna. The big kahuna. Uh. The most embarrassing thing.

56:20 In acquired history. Was our early episode on YouTube. All right. I have got a proposal for you. Okay. I'm ready for it. You wanna take it out of the feed, delete it? Today we're setting the record straight.

56:32 When we finish this section, we are regrading YouTube. We are Updating the acquired canon. It's happening. Oh, let's do it. We're bringing grading back, baby. Great. I'm glad you're into it. I love it. I love it. Awesome. Alright, YouTube. Two thousand three. So same

56:49 Time frame is everything we're talking about here. Gmail hasn't even launched yet. Google starts working on Google video. And the idea. Is that there's a lot. of information in video.

57:01 And that's it. Fits Google's mission. Then as you were saying earlier. And also Well

57:08 There's just so much more advertising dollars in TV. than anywhere else in the global economy. To this point in time, T V was the bulk of ad spend. Yep. If you go look at some of the old Mary Meeker Internet Trends decks, remember from

57:25 This time period. And you look at the share of global ad dollars spent on TV. versus any other category. It's just So much bigger than anything else. David, I am so glad you did this. We are brothers. I did the exact same thing to try to tee this up. Amazing. I have the stats in front of me.

57:42 For listeners. Digital advertising you know, Google's universe. Would not eclipse T V.

57:50 Until twenty seventeen, twenty eighteen. Wow. So Almost fifteen years in the future from when we're talking about here in two thousand three. Yes. That is the wildest thing that TV was bigger than digital for that long. Mary Meeker famously had this

58:08 point that she made every single year. That the attention was all in the digital economy, but there was this gap. And the ad monetization hadn't caught up yet. And it took all the way till twenty eighteen for the flip to finally happen, where Digital overtook television.

58:23 Thanks. Two You too. Yes. And Facebook and Meta and TikTok and et cetera. And the rest of Google too. I know, I know. So this Google

58:35 Video project. actually came out of the ads org. It didn't come out of engineering and the rest of the product order. Yeah, it was motivated by Hey, there's a lot of money in TV and

58:49 Of course. This fits the mission. There's a lot of information and video. We should totally do this. Here's how Larry describes it. Google Video was first launched in 2005 as a search service for television content. Because T V closed captioning made search possible and user generated video had yet to take off.

59:08 but it subsequently evolved into a site where individuals and corporations alike could post their own videos. They were digitizing TV because the transcription wasn't as good as it is today, so they needed the closed captioning data to make it searchable. And they were almost like meta searching. They were looking for other

59:25 Websites that allowed people to upload video and including that in the search results also. Yep. Sure you can see how

59:34 Yes. Conceivably could be a product vision. You could have at the time. But Google video was

59:42 The wrong. Product. the problem was one, you couldn't actually watch the video. It was just search that then directed you just like Google's main search business model. off of Google Video to go consume it somewhere else. Yeah. In the beginning it didn't even have a player.

59:58 Whoa, I didn't realize that. Yeah, crazy. And The bigger problem though Well, that's a pretty big problem. Another big problem shall we say.

1:00:07 was that the focus was on traditionally produced head. kind of content. Not long tail Not user generated content. It was really tied to TV. There was a press release that said that they could search the content of T V programs, find programs containing the content they're looking for, and discover when and where the program will next air. Yeah.

1:00:27 So Meanwhile, obviously, here we are in two thousand Four, five, six Consumer generated

1:00:38 Digital video. Is becoming a thing. Either via standalone new devices like the FlipCam that's coming out from uh Flip was a startup, right? And then Cisco bought it. Yeah, my other internship employer bought Flip while I was there.

1:00:52 Yeah, this is like Ben Gilbert personal history, yes. But more commonly so you mean there were dedicated devices like the flip cam, but Digital point and shoot cameras. had gotten so good. By this point in time.

1:01:04 This is gonna come back up later in the episode. people thought this was the big consumer electronic Device. vector before smartphones.

1:01:14 People were really, really excited about how good And how universally adopted. Digital. Cameras were. all of a sudden in the mid two thousands for the first time.

1:01:25 Anybody Could make a video. At any time. And i movie was just becoming a thing.

1:01:32 So you could shoot it on your point and shoot and you can edit on your computer. That's right. So YouTube.

1:01:40 In early Two thousand five. Three PayPal employees. PayPal Mafia. Actually fairly junior employees at PayPal.

1:01:51 Chad Hurley. Javid Karim. And Steve Chen. Leave PayPal. And create

1:01:57 UT. Okay, Ben. I have two Deep cut. YouTube corporate history trivia items for you. Number one.

1:02:08 Do you know? What YouTube's original Tag line was. The name of the company was YouTube. What was

1:02:17 The tagline and the value prop. I have no idea. Tune in. Hookup. Really? It was a video.

1:02:27 Dating side. And they actually Posting Craig's List ads. In the Bay Area. For attractive women.

1:02:38 Videos to post as profiles. On the site. Unbelievable. And they got like no responses, as you would expect.

1:02:48 Thank goodness for them and Google though, because then they pivoted into a general purpose. Video. uploading site that anybody could upload anything that they made. You two. Okay. So that's Trivial question number one. Okay.

1:03:00 Trivia question number two. Do you know Who Chad Hurley, Chad was the CEO. Who Chad's father in law.

1:03:10 at the time was. Oh no, I have no idea. Jim Clark. Of SGI? And Netscape?

1:03:17 Of Silicon Graphics and Netscape. Jim Clark. Wow. Jim Clark. Didn't know that. Yeah. So not only were they part of the PayPal team and PayPal Mafia, like they had the best advisor of all time. Wow. To navigate the Silicon Valley ecosystem and the internet ecosystem and Jim Clark. So the brilliance of YouTube. And

1:03:39 It really Was Absolutely brilliant. Was threefold. One.

1:03:45 It was super easy for anyone to upload. A video. Killer. Content acquisition model. Anybody, any time.

1:03:55 Anything. And As soon as the servers process it. We'll put it live. No copyright checks.

1:04:01 Unlike Google Video. Which would take one to two days all about copyright. For humans to pour over it. Make sure that it was all good and bless it, and then put it live, which of course won't scale in the UGC era. YouTube's just like, Whatever, upload it. Yeah.

1:04:18 Two. Super easy for anyone to watch a video. You need a really good Viewer. In the web app.

1:04:27 To view the videos. Google Video didn't have it at the beginning. So killer content consumption model. Go to YouTube.com. Find something.

1:04:35 Or find a link or Number three brilliant thing about YouTube. see a YouTube video embedded on another Website. Boom, you're watching the video.

1:04:47 Killer growth and distribution model. And also YouTube pretty much from the beginning had great search. You can Search YouTube and

1:04:55 Find Videos that you're looking for. Pretty quickly. YouTube became and still is, Google talks about this all the time. The second largest search engine.

1:05:07 on earth behind Google. It's amazing. Search is happening On YouTube. That happened quickly. I always thought that was a more recent Last ten years phenomenon. I think that happened very quickly.

1:05:17 YouTube traffic scaled. So fast and so big. So You can see. How

1:05:24 Utu here not only are they the correct video platform for the web and just doing it much better than Google's doing it with Google Video. There's actually some version of the world where they might become a Real competitor to Google's Core.

1:05:39 Business. If all these searches are happening, they could add search for other things on YouTube too. Right. I don't think they had any plans to do that, but it's the same rationale of Mark Zuckerberg saying Uh oh, everyone's using WhatsApp for messaging. whether or not they put in a social media feed stream, they always could

1:05:57 And so it's really dangerous to me for them to be out there aggregating all the users and attention and habits when they always could do something like that. Exactly. Same dynamic. And Whereas in the Previous categories of apps that we talked about

1:06:12 Google had the advantage of uniquely being able to do it as Google in a way that startups couldn't. Here, it's a little bit the opposite. YouTube as a small startup has the advantage of

1:06:26 Oh, copyright, rules, laws, but I don't know. We're just a platform. We're just a startup. Anybody upload anything. Google by this point in time is a public company. No way they could behave like this. Well it's funny, they could, but they wouldn't. They actually

1:06:41 Could do it and stay in business. Whereas YouTube Can say Ah. Whatever.

1:06:48 But then they're gonna go out of business'cause they're gonna get sued out of business. So it's this really interesting sort of catch twenty two of This is the way to start and get all the users. Because this is the best user experience. And at the same time, it will not work.

1:07:03 As a resource constrained small company. Once it is started. It needs to be part of Google. Right. Yes. Obviously we're gonna get to that.

1:07:12 But in the beginning though. Oh my gosh. I mean the embeds were a beautiful distribution growth mechanic for you two, but People were just uploading copyrighted video that people could watch for free. I mean it's almost like Gmail. It is so

1:07:28 Unbelievably compelling to a consumer. when your friend tells you about YouTube or just sends you a link or you see an embed page of Whoa. I can go watch lazy Sunday from

1:07:39 Lonely Island and Saturday Night Live. In my web browser. Any time. I want. For free.

1:07:45 With no commercials. Yes. Yes, I want that. And in fact When Users started uploading

1:07:52 Lazy Sunday, the Lonely Island skip from Saturday Night Live. to YouTube. This is in that brief phase where YouTube was an ascended startup and not yet part of Google. That one skit. Increased YouTube traffic by Eighty three percent. Wow.

1:08:09 Unbelievable. And so they very quickly raise money from Sequoia, is that right? Yep, so it was basically incubated at Sequoia. when the three founders left PayPal Sequoia uh invested right away. I think it was Rulov Botha's first investment when he joined

1:08:24 'Cause Rulof knew them from PayPal. He's also part of the PayPal Mafia. Exactly. And then Sequoia led another round pretty quickly thereafter because The infrastructure costs started. As you would imagine, scaling astronomically here. Yeah, so three things that are very expensive. Two of which are ongoing. One is a one time cost. The one time cost, but still expensive, is encoding the video.

1:08:45 This might eventually play on multiple types of devices and multiple browsers. So there's a lot of encoding that has to happen. Two then are Just big ongoing variable costs. You have to store all this video. And the biggest of all, the networking. The bandwidth becomes extremely expensive and costs you every single time someone plays the video. Your biggest cost driver scales with minutes watched.

1:09:09 So that is eventually going to kill you unless you have an aligned business model. Yeah. By the way, it'd also be really nice if Whoever. owns and operates this.

1:09:18 had its own really good, really cheap infrastructure. All of these things built into it. So yeah, pretty quickly Within a little over a year of launching YouTube is in. Way over its head.

1:09:32 The content issues, the copyright issues. The infrastructure scaling issues. It's all exactly what they wanted. It's going as well as they could have hoped. And it isn't way over its head. Yes. And if this had happened today.

1:09:46 You could probably raise enough capital from the private markets. to address this and scale up as a company. fast enough, especially with public cloud. That you could. Probably build this as a standalone company. Yeah.

1:09:59 I mean today you can go raise billions of dollars As a series A startup. If you're in the right space doing the most interesting things with the big market. Two thousand five, two thousand six, not the same kind of private capital. available. And of course, there's no way the company could go public with all these issues or anything. Right. In particular, there was a giant suit from Viacom.

1:10:19 Yes. So Because of these things. U two. Ends up

1:10:24 basically putting itself up for sale. I mean they have no leverage. Yeah. content negotiations with rights holders and infrastructure is killing them. So in November

1:10:35 Two thousand six. Which is less than eighteen months. After the product launched. Google buys YouTube. For one point six

1:10:44 Five. Billion dollars. In Stock. In stock. I'm glad you caught that too. Stock.

1:10:51 Yes, we heard in the research that after this deal Patrick Bashed, I think was the CFO of Google at the time. He said never again, right? This was our biggest mistake. Said Never again. This is the last stock deal that we ever do. Google's market cap has twenty x'd since the day that this deal closed.

1:11:08 If they had paid in cash. They would have made an extra twenty times multiple on whatever you already think the multiple is. on their purchase of YouTube. Yep. The thing is though. This is we will correct

1:11:21 The acquired record at the end of this section. Either way. Even if Google paid twenty times one point six billion dollars for this. They got a screaming deal. UT is

1:11:31 So Valuable. All right. I have some of the numbers from the first few years that I was able to cobble together. And then I want to talk about some of the product evolution over the years. Yes, great. All right, so Google buys it for one point six five billion dollars. And

1:11:46 Interestingly, Shashir Marota. This week Went on the grit podcast, the Cleiner Perkins podcast. And

1:11:53 laid out a bunch of data on this. And I actually didn't have a chance to reach out to Sherry, because it just came out. But a lot of this is from that conversation. So After the acquisition, he said, and Shashir was the head of product and basically the CPO CTO at YouTube. Not right after the acquisition, but

1:12:09 within a year kind of came in for four or five years. So after the acquisition, he said it was doing about thirty million in revenue. Okay. So they did have revenue, I believe, just to foreshadow our next chapter. that was in the form of programmatic advertising that was on the double click ad exchange.

1:12:26 that they were using to Make money. They were losing about a billion dollars a year run rate. On thirty million in revenue. The amount of money they lost was almost exactly equal to a penny per view.

1:12:39 So just imagine every time you loaded YouTube in those years. Google would just flush a penny down the dream. They gotta figure out something to do about this. So for the first couple of years, the CFO at the time was terrified of its scaling. Like please don't scale in its current state. But of course, there's nothing they can do. The cat's out of the bag, it's scaling. And the CFO was exploring, hey, can we sell this to one of the other companies who was bidding on it? That's right, because

1:13:04 Yahoo and the media companies also wanted to buy YouTube. Yes. So Shishir says we were broadly known as Google's first mistake. Well, back to my tee up in the intro being a pure play. Investors. Didn't like this. For a long time this was a huge knock. I mean

1:13:20 Geez, when we did our episode ten years ago about YouTube. We said it was a terrible acquisition. Yes. The thing we haven't talked about, music licensing was really expensive. They were. One of the top

1:13:32 revenue sources for the music industry for a long time, maybe even still one of the top few to the music industry. Yeah, right up there with Spotify. Yep. So Kinda on the product side of things. early on, as you were saying, the way that you found YouTube is you would see it embedded on a different site. You would click through

1:13:50 And then you may stick around to watch something after. But then you'd leave and your entry point to YouTube again was another embed. Most sessions did not start on YouTube.com. So you weren't going to YouTube with the idea of that they'll recommend something to me. And then even the people who did go to YouTube.com in this sort of four year, five year period after the acquisition. Ninety percent of that traffic was there to search.

1:14:11 And they just ignored anything that you recommended to them. I mean, it takes a long time A to build habits and B to build out the technology to make any sort of recommendation or browse or anything good. Yeah. For first with related videos and then ultimately the feed.

1:14:27 And just for a sense of scale. There was a report. That Estimated. That YouTube that year in two thousand seven.

1:14:35 consumed as much bandwidth As the entire internet did. in the year two thousand, so just seven years before. I've an extremely similar stat from Shishir. which is the later period. It's twenty fourteen, but it's apples to apples rather than comparing that oh seven to two thousand. He said in twenty fourteen, YouTube was twenty percent of the bits on the internet.

1:14:56 Wow. I mean, this stat, but especially your stat illustrates just how much this thing took off and also just how much more bandwidth video took up than any other media type on the internet. Yeah. But the long term play here, obviously, is the Mary Meeker slide of

1:15:13 Yes. Video, the reason that it gets Consume so much is this is what humans want. Right. And you can advertise against it. And Google realized this. I think they they were very smart to rather than trying to continue investing in Google video to basically say they got the lightning in the bottle.

1:15:29 they have the consumer brand, they have the attention, let's just go buy that thing. And on a expected value basis, if you're making a bet, Sure, you could build it on your own cheaper, but your chance of succeeding is so unlikely relative to buying that thing that it's actually a deal to get it for one point six five billion plus the billion that we'll need to invest every year for a few years to run it in the red. So 2009 is the year where the business really starts working. Google actually discloses nothing about profitability, but that the ad revenue tripled in one year. in two thousand and nine. Twenty ten, twenty eleven.

1:16:00 They turn profitable. There was a report that in twenty twelve they were estimated to make about four billion dollars in revenue, but roughly break even. than the twenty twelve, thirteen, fourteen, I think they were Small profitable but profitable. Then in twenty thirteen to twenty fifteen, that time period on the product side, that's when things really changed.

1:16:21 So the North Star really became Users should go to YouTube to be entertained for 15 minutes. And it's our job to do whatever we need to do. To make that True.

1:16:32 And a few things really helped with this. One was the shift to mobile. in mobile and remember they were a launch partner on the iPhone. Oh, we're gonna get into it. there were a lot more low intense sessions. So people who opened the app Rather than clicking through from an embed page.

1:16:50 Low intent of watching a specific thing. Yes. It's a beautiful thing. on mobile that you can sort of say, I've got something to recommend to you. And obviously short form vertical video like TikTok and YouTube shorts and all that these days is bad on steroids. Mobile also made it the case that any given user was more likely to be logged in. That way all the personalization, all the algorithm stuff works well.

1:17:13 They also adjusted their core metric internally away from views. And to watch time? And YouTube was very early to the concept of creator monetization. For a long time, it was the only place on the internet where creators could make money. Share revenue with creators. And in our old episode, we sort of knocked them. We said, look, this business has to give its first fifty percent off the top of any revenue it makes to the creator of the video. It's a way worse business than say

1:17:41 Google search ads or Facebook, who, you know, Facebook has influencers on their platforms too, all the meta platforms, Instagram. And Their Rev share if it's anything, sure isn't fifty percent. It's probably closer to zero and U to right early on said you're a Fifty ish percent partner. Which

1:17:59 takes you a decade longer to get profitable. But helps you build that base. just creates amazing incentives for people to build businesses and careers on this. I mean Uh

1:18:11 Is Ultimate. Instantiation of the internet. To me.

1:18:16 And uh Power that it can provide. to individuals to make a living. It abstracts The need

1:18:24 At all. To create or run a business. It really just simplifies it down to Make content that people watch. You will get money for it. You don't have to do anything else in between. There's a little sleight of hand that you did there, David, which is

1:18:39 that people watch. Well, yes. So YouTube internally went back and forth for years on this, and I think we're sort of in this no man's land that we've landed today. Camp one is Hey, the way to make people most engaged is by getting them to follow creators and they curate the information sources they want.

1:18:58 Camp two is In algorithms we trust. It turns out Camp two. is actually correct.

1:19:05 Which is unfortunate. It's a messed up incentive. Most of the time if you show someone something that they're subscribed to, Or you show someone something that the very smart computers have figured out you will watch and Then watch another video after that.

1:19:21 Usually the algorithmic approach. is right. And so there is sort of this internal conflict there where they say, Yeah, of course you should subscribe, but Your views are. Only loosely related to how many subscribers you have.

1:19:34 Yep. This is the dark side, too. The YouTube Academy. Yes. But

1:19:38 Putting that aside, just th the sheer concept of Anybody. And everybody in the world has a Video camera. Today.

1:19:47 Can create something. And if it's good and people watch it. And the definition of good being The algorithm likes it. You will make money. Yeah. With no other steps in between.

1:19:58 That can only happen on the internet. It's pretty interesting because it kinda has these two business models in core Google land. They have the AdWords business model. Where they're the first party media site, each search result page is a form of media.

1:20:13 And they run ads on that and then they keep Approximately a hundred percent of the revenue. generated from that ad. the advertiser pays them and they share some in the form of traffic acquisition costs that we'll talk about later. But it's a largely a first party ad.

1:20:26 And then they have this other form. Ad Sense and the Google Content Network when they show display ads on other people's websites. Where they share like seventy percent of the revenue, most of the revenue out to The

1:20:40 The publisher. Publisher. The content owner. Right. Who actually is the reason why there's an ad there in the first place. And YouTube was sort of a Interesting mix between the two. They were comfortable and familiar with the idea. that we can manage a platform where we actually share a lot of the revenue with those producing the content.

1:20:59 Which is is interesting. Like if they had never gone into the AdSense world and they were purely a search engine. I think it would have probably been more of a fight to try to do this fifty percent split with creators. Alright, so

1:21:12 There's a thing that I mentioned earlier, this notion of people on mobile are more likely to be logged in. than people who just hit a web page on desktop. Logged in this is essential for YouTube's success. That is actually new to Google.

1:21:30 Logged inness is not essential to the effectiveness as of a search engine. Or even the monetization of a search engine. We've sort of flirted with this idea, you can kind of hear it through our episode of Things like Gmail are good because then you're logged into Google. But there's not a giant lift.

1:21:47 It's sort of like a nice to have. Yes. Search Especially on the advertising side is already so bottom of funnel. Right. The intent is right there. I don't need to know what your demographics are. I know what your intent is. Right. You search for a shovel. I'mma sell you a shovel.

1:22:03 Yeah. That's a stark contrast. to YouTube where The whole YouTube flywheel really only works.

1:22:10 with logged in users. Right. Not just For serving Videos and content. For you to watch.

1:22:18 But also for advertising. This is how the television advertising Ecosystem works. It's about targeting. Yeah, why does Chevrolet advertise on football games? You need demographic data. Right.

1:22:29 All right. So David. Are you ready to regrade? the acquisition of YouTube by Google. Yes. We gotta set the context of how big it is today.

1:22:38 All right. So back in twenty sixteen, we had two knocks on YouTube. One is that it wasn't a destination site. Narrative number two was The only Get to keep fifty percent.

1:22:47 of their total gross revenue. And then they've got these crazy infrastructure costs and they'll never be able to outrun them. Well, They sure have solved both of these issues. Clearly a destination site, actually more than anything, a destination app. You open YouTube and an algorithm we trust. It's what I do every night before I go to bed. Yes.

1:23:04 And you know, it's some mix of things you're subscribed to and things you're not, but things YouTube believes will grip your attention at that moment. On the infrastructure costs. Let's just start by unpacking their financial. So last year in twenty twenty four YouTube ads alone.

1:23:18 did thirty six billion dollars in revenue. So half goes to creators. They have eighteen billion left to play with, and they've had two decades to figure out how to get their variable cost down for video hosting bandwidth. Compute for encoding, music licensing, all that stuff. They now do insane feats of engineering, including

1:23:38 doing their own custom silicon. to do video encoding. They also have a whole bunch of crazy things that they do. Like change the video encoding that is used depending on how many views the episode has.

1:23:52 Oh, interesting. So they do like vanilla H two sixty four when you first upload it. And then when it hits some number of views, it switches to a more computationally expensive to encode but then smaller to distribute. format.

1:24:08 And then when you hit another one when you have like five million views or something, then they do it yet again. They re-encode the video and make the file size even smaller. So they have figured out all these little optimizations. to make any given stream as inexpensive as possible. on the sort of variable cost basis. Brilliant. On the revenue side, they have gotten much better at selling ads, and most estimates is that YouTube is actually quite profitable now. On top of the thirty-six billion in advertising revenue, Google reported that if you include subscription revenue, so this is things like YouTube premium.

1:24:43 YouTube music, NFL Sunday ticket. They're now doing over fifty billion in revenue. Wow. So David This now makes YouTube the second largest media company by revenue after only Disney.

1:24:55 And Disney has so many other things contributing to that revenue theme parks, cruise ships, merchandise, et cetera. Yes. So y YouTube is already bigger than Disney's media business and this year will likely become bigger. Then Disney's entire business.

1:25:11 The question is How does that revenue figure compare to Netflix? I'm glad you asked. Netflix annual revenue for twenty twenty four. was thirty nine billion. So they've already eclipsed Netflix. Well.

1:25:23 So there you go. Google doesn't release usage data for YouTube. But I'm Pretty sure. That YouTube is

1:25:31 The biggest Single. property on the internet in terms of minutes spent by humans. Okay.

1:25:39 It's not the biggest number of users on the internet, both Facebook, Blue App and What's up or Bigger in terms of total number of users, but I think you too. probably dwarfs them in terms of time spent by users on the app. I think it is the biggest. I can see that.

1:25:54 Human attention time sink. Known to man. So then the question becomes how profitable is the fifth in revenue? And officially we don't know. But there's these great things called research firms out there that uh make our jobs at acquired here much easier. So storied firm Moffitt Nathanson published a report earlier this year that they think

1:26:14 YouTube does about eight billion dollars in operating income. eight billion a year. So I'd wanna diff that against their total investment into grade it. Okay, here we go. Yes.

1:26:28 Now we are getting into grading here. We are landing the YouTube plane. The definitive Acquired. regrading of YouTube. So as mentioned earlier, I don't think they ever lost much more than a billion a year. And I think they got breakeven within conservatively five years.

1:26:44 So after the one point seven billion dollar purchase price and the five billion in additional costs Google paid six point seven billion dollars. I'd bet it's closer to Five and a half six. To own something that spits off eight billion dollars a year in profit. Today.

1:27:01 And revenues are growing ten to fifteen percent every year. By the way, also, since I think the theme of This whole episode is Sort of like the dual bottom line to Google of everything they're doing of both.

1:27:14 Revenue and profits. And strategic installation versus other large tech companies. Oh, but David, you're forgetting the third of organizing the world's information. And the main line there we go. The triple bottom line. Google itself Not including YouTube.

1:27:31 Pretty much whiffed on social. Really, really strategically good for them that they own YouTube, isn't it? Now that you know Meta and TikTok exist. Well, here's the crazy thing. They whift on social And then what ended up happening was With social became YouTube. Yes. Yes. It's the craziest thing. We don't open apps anymore.

1:27:50 To look at what our friends are posting, a place where Google has no presence. But you open Meta's most important property. with Instagram and you look at Instagram's most used thing reels. Or you look at TikTok.

1:28:03 And what do you see? Do you see Videos from people you don't know. I mean it's crazy that the rest of social media or almost like user generated media pivoted into Google space.

1:28:15 Yeah, this was Yeah, the big denouement to our meta episode last fall was Hey, social networking such as the conception of it existed in the mid two thousands and twenty tens. Is dead.

1:28:29 It's gone. It bifurcated into private messaging. And public media. Yes. the sort of middle ground of wide group of people you kind of know is

1:28:39 effectively dead. It's close friends and it's I don't really care where it came from, but it's entertaining. Yeah. So You could do a discounted cash flow on this thing that I just gave you, this call it. six billion of investment and now eight billion growing at ten to fifteen percent every year.

1:28:56 But there's additional strategic value too. In addition to this thing you just said, this becoming the winner in the short form era, they have the largest corpus of video to train on for the AI era. Yeah. Let's go. So Moffat Nathanson estimated that if this was publicly traded, it would be worth about five hundred billion dollars as a standalone company. And even conservatively, if you sort of take media company comps and do a revenue multiple, and you discount all the strategic future value, it's still like two hundred billion dollars.

1:29:26 So This is officially one of the best acquisitions of all time. And I am raising my grade from a C to an A plus. I am Obviously.

1:29:34 right there with you. This isn't a plus plus plus. Now it's not really fair to say that It's like turning six billion into five hundred. That initial

1:29:46 one point seven was largely Google stock. that they traded. So that had real opportunity cost. But it's still ridiculous. Like I said earlier. A screamin' deal either way.

1:29:56 Yes. All right. There we go. We have revised history. Corrected the record. Yes.

1:30:02 All right. Well, for our next chapter, I motion that we go back closer to Google's core business of advertising on the web. Mm. Also

1:30:13 stay closer to acquire its original uh raison d'etre of Discussing the greatest acquisitions of all time. We may as well follow up YouTube with double click. All right listeners. Now is a great time to thank our longtime friend of the show, ServiceNow.

1:30:29 If you are running a large enterprise, AI agents are likely spread across every team, and deploying them is uh no longer the hard part. Yeah. The hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making. AI security for an enterprise at scale is not a small concern. Like the risks Are real. Exactly. And the challenge with AI is governing it, securing it, measuring it, and making sure that it actually delivers value. That is why ServiceNow built the AI control tower.

1:31:01 Yep, AI control tower gives enterprises a single place to see, manage, govern, and optimize AI across the entire business. And it works with Any AI, not just theirs. Every device on your network, every permission across every system. Every AI agent visible and secure in one place. And ServiceNow can do this because they've spent more than twenty years building the operational backbone of the enterprise, the workflows, governance, approval, security controls, and institutional knowledge that power how work actually gets done across IT, HR, customer service, finance, and security. ServiceNow

1:31:36 already runs more than a hundred billion workflows annually and trillions of transactions for more than eighty five percent of the Fortune five hundred. So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates. And in a future, that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, Who's managing them all? So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely at scale, go check out serviceNow.com slash acquired and tell them that Ben and David sent you. So Double click.

1:32:14 Well If Buying YouTube. In October two thousand six. For one point.

1:32:21 Six five billion dollars. Was a lot. Google decided to Basically double that. A few months later. In April of two thousand seven.

1:32:34 When they bought double click. For three point one. Billion dollars. In cash this time. Not stock.

1:32:43 And this is on the display ad side of the house. So Google's got two advertising businesses at this point. There's AdWords when you search and you get the Blue links that show up above the blue links. And then there's the off property or the Google network ads. And at this point in time, Google just is operating something called AdSense, which is this ad network that they've started. Yeah. So double click.

1:33:07 actually has a fascinating company history before Google that I did not know yeah. Not a hot rising startup like YouTube that they bought for, you know, a couple of billion dollars. Though it once was Yes. All right, so here's the double click story. And huge thank you. There's a new book that actually just came out. Ari Paparo.

1:33:27 The book is called Yield. DoubleClick was originally founded in 1995. So before Google. Before Google. The founders were Kevin O'Connor and Dwight Merriman. And their headquarters were in New York City.

1:33:41 The original idea was twofold. One, build software that could let advertisers serve ads across websites. This is called an ad server. And the network of websites and media, the advertisements, when people talk about paid media, it's the advertisements themselves. that would run. Over the next five years, they end up building and acquiring their way to being the leading display ad network and ad server. And they went Public during this time, right? Yep. Nineteen ninety eight.

1:34:08 shining success of the dot com industry. However dot com crash happens, seventy percent of DoubleClick's customers not only Churn, but go out of business. A huge amount of double clicks advertisers

1:34:22 Or actually V C backed startups. Brand dollars hadn't really spread to the web yet. Like we talked about the digital advertising was so early and so nascent. Yeah. It was pets dot com that was advertising on Other dot com properties. Exactly.

1:34:38 And they're almost levered on the bubble is probably the right way to think about it. So easy come, easy go. So in two thousand and two, after they're sort of limping along for a while, they sell that ad network division off. for under fifteen million dollars with an M. Yeah.

1:34:56 So now all they've got left is the software, the sort of ad server. Part. Of the business. So Flash forward to two thousand and four.

1:35:04 They're this kind of sleepy slow growth company with a shrinking market cap. The ad server, their software was still widely used, but digital marketing on the web just wasn't actually having that much spend flow through it. They decided to put themselves up for sale. Google actually took a meeting to look at it to see if they wanted to buy it. They decided not to. And eventually they sold it to private equity two different firms, Hellman and Friedman and JMI Management.

1:35:29 bought it in two thousand five for about a billion dollars. IPO day was double. this final price tag that they would sell it to private equity for And in many stories this is Kinda the end of the story.

1:35:41 This is the start. Yeah, it's sort of crazy given the fact pattern that you just told us that Two years later Google's gonna buy this thing for three billion dollars. Yes. So

1:35:53 David Rosenblatt. Become CEO. And he has a very familiar name that all of you will probably recognize who becomes Neil Mohan. Yes. The head of product and strategy at the company, Neil Mohan. Neil, of course, is the CEO of YouTube today.

1:36:09 Yep. So from double click originally. Many would argue the best thing that Google got in the double click acquisition. You could argue that. Now here's the amazing thing.

1:36:20 Во хапенс under the private equity ownership. is that they launch a completely different product, this new thing called an ad exchange. When the concept of an ad exchange is first invented, remember it was very straightforward before this. There was just an ad network and some software called an ad server. The ad exchange is this sort of brilliant idea that we can cross route demand between ad networks.

1:36:44 And at first what this is sort of used for is like the remnant or unsold inventory. Oh, we've got some page loads. We don't currently have a buyer in our ad network forum. So throw'em up on this exchange and see if programmatically some people will bid on it and will get more dollars this month for the same number of page views. But technically what was going on is it was really sophisticated and it allowed for some crazy stuff to get done. You could bid in real time, including against the publisher's direct sold ads.

1:37:12 you know, let's say the New York Times has done a specific deal with Ford. then in a real time basis. Right. If somebody else is willing to top forward, then you can displace them. Yep. Yeah. Exactly. Got This sounds a lot like Google, doesn't it? It really created the modern programmatic display advertising, for better or for worse. That's basically what happened here. And as a publisher, when you start working with an ad exchange, you can incorporate multiple different networks, agency trading desks, because this became a big thing with an ad agencies. You can stand up these complex rules engines.

1:37:44 effectively what happened is you sort of jumped in front of the ad networks. You almost disintermediated them. You're the lowest level building block. that everything else has to integrate with and eventually what started as this ad exchange that just became used for remnant and unsold ultimately becomes the primary way that digital media is bought. on the biggest advertisers with the biggest publishers and all, of course, bought and sold through these big agencies.

1:38:11 Google is running this little thing called AdSense. It's kind of for smaller publishers. And it's very like DIY self-serve. It's almost like a techie utopians version of how do you run ads on websites. Whereas this ad exchange is

1:38:28 Let's acknowledge all the complex realities that exist in all these business relationships, all these purchasing decisions. the way Madison Avenue has evolved from the Madman era to, you know, this moment in time in the early two thousands. And Let's essentially construct Fat. Pipes.

1:38:44 for money to flow through all this. Yeah. And what I mean by that is direct integrations into ad agencies financial systems and the ad agencies control the budgets for all the big brands and all the big dollars that are flowing. That's exactly right. So if only Google had a way of

1:39:02 unlocking and now participating in these deeply integrated Money flow. Google had a few other problems. The way DoubleClick worked and performed a lot of really fancy stuff like frequency capping to make sure you don't see the same ad forty six times. is third party cookies. Google was philosophically opposed to using third party cookies, so they couldn't do stuff like that.

1:39:22 But double click could. Google didn't have a lot of these big sales relationships since at the time, again, they're very obsessed with self serve web pages, advertisers just log in and upload and transact. So Google ends up kind of locked out of the best ad inventory. Advertisers on Google

1:39:39 could really only be placed on the long tail of websites which advertisers were willing to pay less to appear on those websites. Again, we're all in the ad sense part of the world, not search ads. Yes. There's all sorts of things that make them not enterprise great here. So Google decided they'd like to buy double click.

1:39:56 Yes. Well. That's sort of the story out there. The reality is think back to how you started when I interjected and I said Gosh, a lot of what

1:40:06 Double click is doing it really Sounds a lot like what's the same. Google is doing, right? Well, We were talking to Tim Armstrong for research for this episode. Tim of course was

1:40:17 Head of Sales at Google for many years. And we were asking Tim about DoubleClick and he was like, Well I was close with the Double Click guys and I wanted to meet with them here in kind of late two thousand six, early two thousand seven and Just so happened. I was gonna be in Seattle for some stuff and I was emailing with um

1:40:36 And they were like, uh oh uh you're in Seattle. Actually we're in Seattle too right now. We can get together here. Tim immediately sounds the alarm inside Google to Eric and Larry. They're in Seattle. Why are they? This is a New York based company. There is only one reason. Why the double click guys.

1:40:56 Are gonna be in Seattle. And that would be If Microsoft is gonna buy the company. Yeah. Now.

1:41:03 Back to everything we've been talking about all episode. What does Google absolutely not want to have happen here? Well. One is Microsoft to kneecap them by making changes to Internet Explorer or Windows or whatnot. They basically neutralized that through the whole

1:41:20 Web app web two point oh strategy. Now the threat is Oh, Microsoft is finally gonna wake up and do what they should have done ten years ago. And compete with us. Build their own search engine.

1:41:32 Right. be willing to be an ad based business. Their DNA was Yeah, we'll do some ad stuff and MSN kinda has to'cause it's a media business, but We sell software. We sell software. That's what we do primarily and we would never trade our ability to sell software to make money on dirty ads.

1:41:49 Yeah. Well Microsoft is realizing That for some set of users

1:41:55 Google's actually making more money on any given PC user. than Microsoft is. And they're not happy with this and they say, Fine, we at least just need to be in that game too. Yeah. So

1:42:06 The negotiations are kind of happening with Microsoft and Double Click. Tim told us this great anecdote where he's invited to present and he still thinks like a early stage conversation in the negotiations. And somehow he gets sent to the wrong floor, the person who is escorting him into the double click building, sent them to a floor, and they sort of freak out when the door opens and they're like trying to close the door, like please go to the other floor. And Tim

1:42:31 Is like what's going on here. He steps out. He runs down the hall and he sees a conference room full of all the Microsoft people and their accountants and their lawyers. And he's like, Oh my god. Oh my god. You guys. You're you're about to decide this deal with Microsoft. You gotta so he gets them to hold off. So he can kick the tires.

1:42:50 Do his diligence. Submit a counter bid. This is a crazy process that goes back and forth. Yahoo gets involved. There's a whole presentation series that happens. Where Yahoo, Microsoft, AOL, and Google are basically all getting the pitch and DoubleClick is now shooting. I'm imagining they're all like in an auditorium and DoubleClick is presenting on stage. Dude, there was a spreadsheet.

1:43:12 called Y M A G dot XL S. And The reason they've created it is they're effectively trying to show in each of these presentations here's how much incremental money you'll make. if you own double click and you tie it into your existing ad system and they're tweaking the numbers slightly for each one.

1:43:30 So Google then submits their LOI for three point one billion dollars. And it includes a clause where they can't Should the deal around during this. Diligence period. And

1:43:42 So the whole Google team goes to New York, they rent out this big room at a hotel near Double Click's offices. And I'm gonna read an excerpt from the book Yield. The company's counsel, this is double click, checked her BlackBerry and held it up for David Rosenblatt to see. There was an incoming message from Microsoft's corporate development team. They were willing to match the offer for double click, and the message included an email from Steve Ballmer saying that he opened the door for a much higher offer.

1:44:07 Ballmer wrote that if the offer match was not acceptable, Double click should simply mark up the paper to meet its needs. And then sign in. And Microsoft would review and rapidly counter sign to close the deal with minimal negotiation required. Without saying so, Ballmer was communicating, here's a blank check, tell me what closes the deal.

1:44:25 Ultimately. A week goes by And they're in this period where they can't really respond and they're supposed to just kind of proceed with Google. And a day before the LOI is set to expire.

1:44:37 The double click team gets an updated term sheet from Google. The financial terms of the deal are unchanged, that three point one billion, but now the deal includes what they call a hell or high water clause, which means that Google was committed to closing the deal without any substantive diligence or any other conditions. It's just money in the bank. So No more diligence. Double click just signs it, three point one billion.

1:44:59 And the private equity firm turns that one billion. Which was levered. There's something like three hundred million of equity and seven hundred million of debt. into a three point one billion dollar sale to Google. Then it's over. Not bad work if you can get it.

1:45:13 No. So this was Huge. Fair. Google.

1:45:18 Double click. Bringing it into Google did really help with this. fat money pipes, as I was saying. Of dollar flow from At agencies. Yep.

1:45:28 But the biggest thing was Double click was the number one player in the space. There was another company, public company called Aquaniv. That was the number two player. Which Microsoft then bought for twice as much. They were like, We really wish we had gotten double click, and then within months. It was the next month. Right away.

1:45:45 Microsoft turned around and bought a Quanov for six billion dollars. So Twice the price. But Microsoft getting the number two player versus the number one player. slowed them down. We're heading right into Microsoft's search efforts with

1:45:59 Yahoo, and then ultimately Bing. And getting into the advertising business. Worth every penny to Google. Even for the sole reason of keeping the premier number one player. in the display ad space out of Microsoft's hands.

1:46:14 Yeah. Okay, the one thing I will say here, David, is unlike all those other Google products, maps. Gmail. YouTube, the organizing the world's information. This is not.

1:46:27 organizing the world's information and making universally accessible. This is We're running an ad business. And we wanna expand the ad business. And so We're gonna expand and protect.

1:46:39 our business interests by buying this. And it's a chess piece on the table that it being in our hands versus Other people's hands. Is better. That's exactly right. And there's ways that it like systematically advantages you to own the exchange when you also own the network and

1:46:54 This is only checking the box of strengthening our business without checking any of the other boxes. And you basically never heard Google executives get up on a stage where they're inspiring people about the future of the company and talk about basically anything DoubleClick is doing. Yes, correct. And

1:47:11 you know, even fast forward today, unlike YouTube, it's not like this has become A world dominating thing. Right. If you're in the display ads world or you're a publisher, this feels like a huge deal. If your Google, let's just look at the numbers today. Google. In total.

1:47:28 In twenty twenty four. made three hundred and fifty billion dollars of revenue. About two hundred billion of that. is from Google search. About thirty billion of that.

1:47:41 is from Google Network. This falls under Google Network. existed before and would have existed anyway in AdSense. Regardless.

1:47:51 I don't know about that. I don't know that Google would have become the dominant player in Display ads. Absent double click. without buying double click. Yeah. I don't think.

1:48:03 But AdSense was probably doing a billion plus in revenue at the time would have kept scaling. So All that to say, like, in the context of Google This isn't a YouTube. It just doesn't matter that much. Yeah. Two hundred billion in revenue they make from search.

1:48:18 Where they get to keep. Ninety ish percent of that. You know, after paying out traffic acquisition costs. Google Network. They pay out seventy percent.

1:48:27 and they only made thirty billion. So if you start thinking about like gross profit It's comparing Nine billion dollars to a hundred and seventy five ish billion dollars.

1:48:38 Yeah. It's just not that consequential to the story. Alright, so speaking of search. Catch us up on how the search business is doing during these years and why. Microsoft finally said, like, okay, enough. We gotta enter this business ourselves. Yeah. So we've been talking about kind of the sideshows, like trying to add wind to the sales of the web.

1:48:58 And search is cranking on improvements to the core product. And revenue is growing up right along with it. So here's a little timeline to catch us up oh three to oh eight. they start updating the index more often, so the index starts to feel not quite real time, but It used to be that when you would search, you would be getting results that were indexed three months ago. Now the web is feeling a little bit more uh real timey. Recent when you're searching it.

1:49:21 They launch Google Images, Google News, Google Books, Google Scholar. They launch Google Suggest. Which is when it starts auto completing your searches. And later they would launch something called Google Instant. Which was very cool at the time. It's actually kinda gone away now, where it would run a completely new search based on every character you typed.

1:49:41 and show you the results page updated in real time with each next keystroke. Which was pretty amazing. I remember that being so cool when it launched. Yeah. In two thousand and five, they incorporate your search history into your results. So this is when they start doing some personalization stuff with logged in users.

1:49:59 They go from in O four they had three billion in revenue, O five they have six billion in revenue. So Doubled even at that scale. In two thousand seven, they launched universal search across web, images, video, you know, whatever maps. They try to deconstruct your query and understand which of these things are you looking for rather than They used to basically build a completely separate search engine for each media type and then leave it up to you to decide which thing to go search.

1:50:25 That year when they launched Universal Search, they do sixteen point five billion In revenue. This two thousand and seven year This is when they become the largest seller of advertisements in the world.

1:50:37 Not just digital ads. Adds. And digital ads would not overtake traditional media until twenty eighteen, as we talked about earlier. Yeah, I was trying to square this. So I guess that means that the market share that Google has of digital ads is so high that it's bigger than even in the traditional space or the T V space what any one player has. Yes.

1:50:59 So every year for the last eighteen years, Google has been the number one seller of advertising of any kind in the world. Yeah. Wow. This I think helps you understand a little bit what's at stake in the era of AI. I mean, this is literally the trillion or five or ten trillion dollar question. Is

1:51:17 Can Google keep being the number one seller of advertising in the world? Even through this sea change. We should do a whole episode on that, probably. We will say that for next time. But actually there's some great corollaries with the mobile wave that we're about to talk about. And then just to pull forward a few more search improvements that they would do later. In two thousand and nine, that's when they really do some real time indexing of the web.

1:51:40 Twenty twelve they launched the knowledge graph. So when you search about a basically a thing with a Wikipedia page, you always get the kind of snapshot view. on the right hand side of that. Entity.

1:51:52 And so all along the way they're tweaking the algorithm in an attempt to reduce spam. That's effectively. The product changes. On the

1:52:01 they really had solidified themselves as the preeminent computer science research company. at this point. I mean if you were to refer in two thousand and eight to like a really smart programmer, you probably said, Oh, they You know, they're like a Google type.

1:52:16 engineer. They sort of took the mantle from Microsoft and had not yet relinquished it to Facebook or later to the Stripe or OpenAI or Anthropic or any of the sort of companies we would talk about in the future as this like dense concentration of the best engineers. And they had pulled in a lot of the people from the big research labs.

1:52:35 that had been collapsing. So you had Jeff Dean and Sanjay Gemowat coming from deck. David. We did Sanjay a total disservice on the last episode. A lot of the stuff that Jeff did, and of course he became sort of a Google executive. Jeff and Sanjay

1:52:48 Pure program together. Yes, there's an amazing New Yorker article that was published long ago about their friendship and career partnership and everything that they Accomplished together. Yeah, we'll link to it in the show notes. And basically if you look at any big research paper about

1:53:03 giant Google infrastructure stuff that was launched From I don't know, two thousand two ish, maybe even earlier through the twenty teens. Jeff and Sanjay are either the two authors or two of the five authors. I mean, it's amazing how much stuff these two guys invented.

1:53:19 They also got Bill Corrin and Rob Pike from Bell Labs. You had Xerox Park and IBM's labs were sort of losing prominence, and Google's just sucking in all this generational. heavy hitter computer science architecture systems programmers from all of those. And so I think that's sort of how I would

1:53:37 describe where a lot of the technical breakthroughs are really coming from, or at least the culture of technical breakthroughs. We talked about these incredible products, incredible innovations. development of the whole concept of a web application. But that was coming from these people that were coming into the company who were just Like you say, generational talents.

1:53:59 Speaking of That was very convenient. For A couple things. That they needed.

1:54:07 to start doing in two thousand eight. Namely Launching their own web browser. And then shortly thereafter Launching their own

1:54:16 Mobile. operating. It's astonishing that they did both of these things. In the same year. And this isn't like, oh, I'm gonna start a browser the way that you can start a browser today. I mean these all these AI companies are launching browsers. Yeah, they're using Chromium. Right. This is

1:54:32 A giant engineering undertaking. You need Amazing architects. And this is equivalent to Dave Cutler doing Windows N T. I mean it was Earth shattering.

1:54:44 When Google launched. Chrome. Or Everything Jeff Dean and Sanjay did in the early days of Google. Yes. Yeah.

1:54:52 people launching web browsers today are using Chromium. Chromium of course is The open source version of Chrome that Google just gives away for free to anybody. That didn't exist. They had to build it. So In February. Of two thousand eight.

1:55:07 The shoe that Google had been Fearing would drop for Many, many years. Finally. Does drop.

1:55:14 Which is Microsoft is officially gonna enter the search business. They make a bid. Microsoft does to buy Yahoo.

1:55:23 For forty four billion dollars. The giant has finally woken up. Fortunately for Google, they get a little bit of a reprieve. Because Jerry Yang turns it down. So dumb.

1:55:36 One of the worst corporate decisions of all time. Because just two years later Bing after Microsoft would launch Bing the next year in June of two thousand nine. Bing would take overpowering Yahoo Search. For a deal that paid Yahoo.

1:55:51 one billion dollars versus the forty four that two years earlier Microsoft was willing to pay for the whole company. And then Yahoo would sell itself to Verizon for Like three, I think, something like that. Something like that. Yeah. Single digit billions. Yes. So Google though.

1:56:07 Knew this day was gonna come eventually. Unfortunately. By this time in two thousand eight. Google had its competitive response. Uh

1:56:15 Ready? Ready to go. Which was Chrome. And they had actually been working on improving the state of browsers for years.

1:56:24 Oh yes they had. The story of Chrome goes all the way back. to two thousand one. Larry and Sergey wanted to build. A web browser in two thousand one.

1:56:34 For this very reason that we've been talking about the whole episode. All of Google rested on Internet Explorer. And also, I mean it was Larry and Sarke. Of course they wanted to build a web browser. It's the most Google thing. Why wouldn't we build our own web browser? Right. But it was Eric. Who said in two thousand one no. We can't do this now. We can't

1:56:54 Poke the bear. Right now. Like Google is too young, too vulnerable. Calls like this are why Larry and Sergey brought in Eric. Eric. Yes. Actual quote.

1:57:07 From Eric at the time this is in in the Plexes. I don't want to moon the giant in two thousand one. It's a very Eric Schmidt quote. But that doesn't mean that Google Isn't preparing for this. Instead

1:57:20 What they do Is they decide that they are going to become the Primary major benefactor.

1:57:28 For the New Mozilla Foundation. And what would become. Firefox.

1:57:35 Mozilla. was the nonprofit organization that was founded and spun off From Netscape. Yeah. Are they a funder? Are they actually just like giving money?

1:57:46 Well, I think at first it probably was like with grants like giving money. 'Cause again, this is strategically important for Google, but then once Firefox actually gets released. Bye. Is it all, huh?

1:57:59 And deployed out there. The way Google starts supporting Mozilla and Firefox. Is through. paying traffic acquisition cost to them to be the default search.

1:58:09 In the Firefox browser. Spoiler will like they do to Apple for Safari today to the tune of like twenty billion dollars a year. Yes. Firefox is where this all starts with Mozilla. Actually, traffic acquisition costs originated before Mozilla because It's effectively the same thing that they were doing. With

1:58:29 software vendors to include Google Toolbar. Right. And so I think the mechanism of payment over time shifted to more of a rev share. My understanding now is that they share some of the revenue they generate from Queries. That originate.

1:58:46 Exactly. Which is why it ends up being kind of variable year to year. But Yes, Google has a long history of paying for distribution of their search engine and the new form that it is now taking is the Mozilla Firefox browser.

1:59:02 Yeah. Starting with toolbar. So This goes on for a couple years. And by the way, I should say Google becomes a giant contributor of source code.

1:59:11 To Firefox. Well I'm gonna get into this. So Couple years. Google's paying Mozilla for Default search in Firefox.

1:59:22 Basically funding Mozilla. After a little while. Google decides that they're gonna hire Some of the key

1:59:31 Firefox and Mozilla. to come and work at Google directly. But they position this as like, essentially this is the same thing. We are still funding Mozilla and Firefox just like You know, your Mozilla you can't give these employees, these engineers stock options. Like you're a nonprofit. How about instead they do the same thing that they're doing, which is working on

1:59:52 Firefox. They'll just come and work here at Google. And we'll pay their salaries and they'll get Google. Stock options. Otherwise they're gonna get poached, you know, by all these tech companies, et cetera, et cetera.

2:00:03 Fascinating. You can see how this makes sense. This team that comes over from Mozilla into Google. becomes the core of a new quote product client group.

2:00:15 Within Google. Meaning of this being. Products on clients, i.e. installed applications on PCs, not the web apps that the rest of Google is doing.

2:00:26 And The leader of this group. Google hires. From McKinsey. In two thousand four.

2:00:35 Soon Darfajai. Oh, I did not realize that that's where Sundar came from. Yep. Well, again, all of this is very strategic because If you did someday.

2:00:45 Want to build your own web browser. Now you've got the bench of talent. They're employees. So there's a quote from Eric Schmidt in in the Blex. This was Very clever on Larry and Sergey's part.

2:00:56 Because of course these people doing Firefox are perfectly capable of going and doing another great web browser. This group. Sitting there within Google. For a couple years. almost like a latent sleeper cell within Google. They're just ready to activate.

2:01:12 As soon as the Microsoft threat. becomes real. And the way I heard it was a lot of people are working on Google Gears, which is this browser extension that allows for offline functionality. They've built the Google Web Toolkit to make web application development even more advanced, even more sophisticated. And at some point, They kinda lost faith.

2:01:33 That Firefox was going to keep the pace. And that Firefox was going to stay as high quality of a browser as they needed it. And of course they had some divergent technical ideas, like different architecture ideas for how a browser should function that we'll talk about. I think all of these things are true.

2:01:51 However. Having your own Browser. when Microsoft does launch. Hugely, hugely, hugely important.

2:02:01 Imagine if ninety percent of Google happened on Internet Explorer. And all of a sudden. Microsoft launches Bing.

2:02:10 Right. There's no amount of money suddenly that you could pay Microsoft where they would keep you as the default search engine'cause they just want all the traffic to go to Bing'cause they now have a great way to monetize. Absolutely not. Bing, default search engine, done. Right. And the thing that of course Microsoft would fail to realize with Bing is you can't be second place in search. Right. The most liquid

2:02:32 Auction. We'll always win. And Google has already run away with the search ads auction liquidity. And so traffic on Google searches. will forever be worth more.

2:02:43 Then traffic on the second place browser. Sure. Doesn't mean that. Yeah.

2:02:50 Battle wouldn't be hugely damaging to Google. If they didn't have their own web browser. So Two thousand six. They finally decide, okay, it's time to start work. On

2:03:02 Chrome. Yep. And Also, it's clear web apps, JavaScript. Ajax.

2:03:09 Very important thing. And Internet Explorer isn't keeping up with the technology. Yeah. So There's two

2:03:18 Killer features. Arguably maybe three. That they're gonna bake into the The Google Browser. Ooh, I've got six.

2:03:25 Oh so I'm curious which ones you don't think are important. Okay, I'll go through my three and then to see what else you have to add. Okay, great. Number one. Most important. It is going to have a super fast

2:03:37 Super modern, super performant. JavaScript machine. Called V eight. Yep. That is gonna run.

2:03:45 Big web apps fast. And stably. We're the Ajax company, baby. We gotta speed up the job. Ajax company. Yeah. That's right. Two.

2:03:57 Web app's crashed a lot. Back in the day. They don't so much anymore, but they used to crash a lot. And Larry has this quote when they're deciding that they should roll out Chrome, and he kind of explains, We have found the web based service delivery model. To have significant advantages. You don't say.

2:04:14 But it also comes with its own set of challenges, primarily related to web browsers, which can be slow, unreliable, and unable to function offline. Mm-hmm. There you go. And so before Chrome, this is impossible to remember now. But if you had a tab or a window open,

2:04:30 and running a web app and that web app crashed, it took down your whole browser. Yep. Everything that you had open. Gone. Tabs were not their own processes. Nope.

2:04:41 So each tab is gonna be a separate process. On your machine. So if the web app running in one tab crashes All it takes down is that one tab. And it made sense that before this they weren't their own process because one, tabs were kind of a new thing. But two

2:04:56 Web applications were websites. The notion of web applications was only really four ish years old. So those are my big two. I suspect one of yours is WebKit. I'm not including WebKit here because that was an Apple innovation. Yeah. That they borrowed.

2:05:12 I'll let you talk about that in a sec. I don't have anything more to say on that. It was the best rendering engine. Yes. So let's say that's three and then my sort of three and a half. Is The design. So of course the web browser ultimately comes to be called Chrome.

2:05:25 Which is ironic. Chrome is a reference to all the stuff in a web browser, the toolbars, the nav bar, et cetera, that take up space around the content. The idea with Chrome is and the Google web browser is gonna be

2:05:38 Minimal Chrome as little as possible. It's just about the content. Let the web and the web apps shine. Yes. Okay, when you said UI, I thought you were gonna say this. My fifth is the omnibox. Ah.

2:05:52 Yes. Originally there was just the URL bar and then when search became the killer app of the web there's a second little input box that is for search on the right side. So we had that awkward teenage years where browsers had the URL bar on the left and then the search On the right. And it's kinda clean to think about it on its own because Now that we understand that that is sponsored.

2:06:14 that I think for the longest time that was not in the public psyche that whatever search engine appeared in that box in the right hand corner was pay for that placement. That was sort of nice'cause you type in the URL bar and that's your organic typing. And then the other one is your uh I'm willing to give a kickback to Google, probably, but uh it could also be Bing, could be Yahoo, could be whoever. Google is correctly from a user experience perspective, but also just think about their core business model is like The right design for Web browsers.

2:06:44 Is that If you don't type in a URL, it should just search. Just one bar. Why have two bars? Well imagine that generating a whole bunch more page views on search results pages and a whole bunch more opportunities for our advertisers to reach your eyeballs. But I will say they were also correct from a user experience perspective. The fact that URLs ever leaked to the public.

2:07:06 is a mistake. That is letting an implementation detail of the technology It's an accident of history that consumers Type. H TPS colon slash slash. Are you kidding me? Consumers never should have known the Phrase HTTP. New York Times. Yes.

2:07:24 Which AOL tried to do, AOL keywords. So this is effectively leaning into that idea. You can use this box. for typing in URLs, but like really what you use this box for is kicking off the Google search. So brilliantly aligned with our business model. All right, so that's what I got. What else do you have that's not on my list? That's five. And then lastly. Sandboxing. Each tab is a sandboxed environment.

2:07:45 This prevented a ton of malware. This was like a big breakthrough in computer security. Where anything that was operating in that Tab.

2:07:54 was in its own sandbox and couldn't be accessed maliciously. Yeah, that's I guess gosh, remembering back, I mean before Chrome and modern web browsers Browsing the web was like a security threat to your PC, right? Yep, that's exactly right. Great point.

2:08:10 Okay. So they start work officially on this in two thousand six. They launch it. In early September two thousand eight, like a week before Lehman goes down. This is wild. I remember that because I remember sitting in North Carolina at my Cisco office.

2:08:25 And I remember reading the Chrome comic, which I actually just read a couple nights ago for this episode. This like amazing webcomic. The news about the great financial crisis and the world falling apart and Lehman Brothers collapsing. Wow. So

2:08:40 They want it. Early September two thousand eight. With the way this is so Google. The way they decide to launch it. is they hire the famous comic artist Scott McCloud to illustrate

2:08:52 A digital comic book. As like a Introduction to Chrome explaining what it is and like a user manual and a Comic book form.

2:09:01 And it's written for this weird half user. Who's like Kinda technical. But you don't need to be a programmer necessarily. It's written sort of for the tech enthusiast who can understand process independence, understand sandboxing, understand V8 and the JavaScript speed up.

2:09:18 But it's not written for the general public. Yeah. But that was exactly the right Seed crystal user base to get Chrome. Yeah. into. Yeah. It's written for the slash dot reader. The kind of people who are gonna go home for Thanksgiving in a couple of months.

2:09:32 And install it on all their family's computers and say you need to stop using Internet Explorer right now for all of these reasons, Ben, that you just listed. Probably security being number one amongst them. This was actually was me back in the day. Like I'm gonna go home, I'm gonna install Chrome on my parents' computers. So that they don't get hacked and lose their financial information, et cetera. Yep. Within eighteen months they got forty million users. Then let's see they launched it in 2008. By 2010 they had 70 million users, then twenty twelve they had two hundred million users.

2:10:06 Actually what happened is it Destroyed. Firefox's market share. I think the launch of Chrome and the peak of Firefox are right around the same time. And then after that, then it really started eating away at Internet Explorer's market share. And today Aside from

2:10:22 Mostly iPhones, but Apple devices running Safari. It is the browser. I mean to say It worked. is like the understatement of the century. I mean, it totally

2:10:34 Liberates Google from Internet Explorer and Microsoft. When Chrome launched in two thousand eight. Internet Explorer had almost seventy percent. market share of browsers.

2:10:44 And Firefox had most of the rest. Two years later, like you said, Chrome had passed a hundred million users. By twenty twelve So four years after launch. Chrome and Internet Explorer are now tied.

2:10:57 for market share with about thirty percent each. So Internet Explorer has gone from seventy percent Down to thirty percent. And This is both.

2:11:06 Chrome on the desktop side, but you're now also well into the rise of mobile. And so Apple's mobile Safari is now becoming huge. Google's Android that we're gonna talk about in a second is becoming huge. Two years.

2:11:19 After that in twenty fourteen. Chrome is now the clear leader with forty percent market share. Internet Explorer is down to fifteen percent. So It's over.

2:11:30 It's over. And Internet explorers, basically. Truly is dead.

2:11:36 Twenty Thirteen, fourteen. Yeah, twenty thirteen, fourteen. Today it's not even close. Chrome has almost seventy percent market share, according to Cloudflare. Including

2:11:47 iPhones, which all run Safari default. Right. Safari. In aggregate across mobile and desktop of mobile is by far the biggest share of Safari Market share.

2:11:57 is about twenty percent. So Chrome has seventy percent. Safari has twenty percent. There's ten percent left. I think Microsoft, I don't know, has a couple single digit percentage points. Talk about flipping the tables. Chrome was

2:12:13 Massive. And it was just better. It was so much better. And it really kicked off this amazing era for the web between Apple needing to then sort of play catch up and leapfrog in a lot of years it was actually faster than Chrome and they would go back and forth and it really spurred

2:12:30 Apple, who was already a steward of WebKit, and they sort of had their own competitive response to Microsoft. after Steve Jobs hated the fact that he had to keep shipping I as his best option. on Mac. Because that was part of the Microsoft Apple deal, right? When Microsoft saved Apple with the investment was Internet Explorer will become default. Right. On the Mac. So Safari was created for that. But

2:12:52 Over the years, you know, Apple's incentives, especially post iPhone. were not to make it so web apps could be great. Apple's incentives were to make it so native mobile and desktop applications could be great. And so Google really pushing the envelope in. the web's capabilities and what a modern browser could do. forced this like good for the world

2:13:14 race between Apple and Google to both make better browsers. I don't think it is. An exaggeration to say that Chrome kept the web alive. Yeah. As of

2:13:25 Viable platform for applications. Yep. I mean, Microsoft certainly didn't have an incentive to do it in the business model they were in at the time, and Apple doesn't. They had every incentive not to. Right. I mean, who in the world least wants the web to be a viable application platform? Microsoft. Right. At that point in time, Apple now, ironically.

2:13:45 So there's One more. Amazing. Delicious part of The chrome story.

2:13:51 Which is do you remember the Google Chrome frame? Google Chrome Frame. was a plug in. For Internet Explorer. That replaced

2:14:04 I use JavaScript engine. Oh wow. Hold in. The chrome. VA JavaScript engine.

2:14:12 And I think also webkit for layouts. And so for all the corporate users. Who couldn't install a new app. Of America and the world who were stuck with Internet Explorer. This is the only reason that I. hung on to market share for so long was just locked down PCs. For all those poor souls.

2:14:32 Google was there for you with the Google Chrome frame plug in. That let you Run Chrome quality Web apps within

2:14:43 Internet Explorer. Amazing. All right, so I have a question for you on Chrome before we finish this story. Why make Chromium open source? The Answer that I've read to that.

2:14:55 Is Mostly about the Google culture and Trying not to be like too evil about it. Yeah.

2:15:04 I would buy that. Yeah. They're like an open source company. Like it's in their bones to contribute to open source. There's a thin business reason I can think of.

2:15:15 of why they would want to make it open source. Well the reason I can think of is like It doesn't need to be closed source. They make their money from searches. Right. That's the like

2:15:24 It can't hurt. Here's the way it could help. At first I was thinking, Well wait. Google wants to own As many of the browsers

2:15:34 that its searches originate from as they can so they don't have to pay out distribution costs in the form of traffic acquisition. So If someone takes Chromium and then builds a better browser It's kinda bad. Because now you have to pay that

2:15:48 Browser maker. But in practice As long as it's not Microsoft and as long as it's more fragmented, that's probably a trade they're perfectly happy with. If they need to go and split some Rev share and pay You know someone who makes uh

2:16:02 some variant of Chrome based on Chromium and that gets really big and it gets thirty percent of the market. Great, Google's delayed because they d it's not Microsoft. I mean, look, except for traffic acquisition cost, Google's incremental gross margin on search revenue is like 98% or something like that. There's still gonna be an eighty seven percent gross margin business.'Cause the whole point of this was to prevent A

2:16:25 existential risk. And so if they have to do some light rev sharing. even in their worst case scenario where someone builds a successful thing based on their open source project. Oh, so horrible. We go down to eighty seven percent gross margin. Right. Right. It's still perfectly acceptable. Which actually may be the way it plays out if any of these new AI browsers work out. Yeah.

2:16:47 Maybe. Well. Not sure any of these AI browsers would be willing to let Google to pay them to be the big chess game to consider there. Yes. That is the one catch is the owner of the browser still has to be willing to accept the payment.

2:16:59 From Google. Yes. I have one analogy for all of this. That

2:17:05 is a little far afield. But I think is actually the right way to think about this. Okay. Late on me. Walt Disney.

2:17:12 Creates. Disneyland. Goes great. Uh Very

2:17:17 Handcrafted, curated. Auto driven thing. But ultimately he has to play within the rules of things like city government. Okay. They go big.

2:17:28 And get a huge plot of land in Florida to build Walt Disney World. It would be nice if we controlled our underlying foundation a little bit more. So they build their own government district.

2:17:41 Around the park. Right. And they say we make the rules here. It's not totally dissimilar. Yeah. I've been reflecting a little bit on like why basically from nineteen ninety eight onward, Google's biggest threat was Microsoft. And not'cause of Bing, not because of building advertising,'cause of this kind of destabilizing thing.

2:18:03 There's sort of a fine Point on it. Which is that spiritually, Microsoft was the platform of the PC era. And with this platform shift it would be like very convenient to just be like, Oh, Google's the platform of the web era.

2:18:18 But Even though Google is the platform company of the web era. They aren't necessarily the ones building the platform.

2:18:29 Right. Yeah, yeah. They still existed at Microsoft's pleasure. And No one owns the web as a platform. So there's this kind of funky thing where like Microsoft built and owned Windows and then dominated the PC era because of that. Google operates

2:18:45 a search engine that generates advertising revenue. They don't charge anyone for anything. They benefit from the web's growth. And so they're doing this like strange indirection. Yeah, it's the ecosystem building, actually. Yeah, exactly. They're trying to build the ecosystem. They're trying to be the steward of the open web as a platform. And they like put their finger on the scale where they need to and take a little bit more control and ownership, like with Chrome. Or likewise some of these standards bodies. to push the web forward to make sure that the place where they live, their neighborhood, the web, is in good shape.

2:19:16 But it's not their platform in the way that it was Microsoft's platform in that era. All right, maybe the Disney World analogy is uh even better than we gave it credit for a minute ago. That's sort of I don't know, it's a little bit loose, but that's what I've been kicking around. I like it. I like it. Well, No doubt.

2:19:32 Chrome was A huge success. Help. Sundar becomes the CO of the company. No better sign of how successful it was than that. Right.

2:19:41 It short up their future. We could do a classic acquired what would have happened otherwise just for a minute or two here. What if? Google didn't launch Chrome. Let's say Bing launches in two thousand and nine and there is no Chrome and Microsoft still has seventy percent share and will for a while. Yep.

2:19:56 And they make Bing the default. Let's see, mobile would get big three, four years later in the twenty twelve ish time frame. Yep. Still small. So they basically would have like four years of Seventy percent of people using browsers on any devices.

2:20:13 being defaulted to Bing. Now, obviously a lot of people would still want Google. They were used to it. They'd switch back. But like I don't know, man, defaults are powerful. Defaults are powerful. I think you're right. This is why Google pays Apple twenty billion dollars a year. Yeah.

2:20:28 To your point, maybe without Chrome. Bing would have been a serious competitor to Google. There is no more important distribution point for search. Than the web browser. It is the way to monetize a browser.

2:20:40 Basically the single way to monetize a browser. Yep. Which Let's make this relevant to today and stop dancing. If the DOJ's ruling is that Google has to divest Chrome, there is one way

2:20:52 That Chrome is a business, and that is getting paid by Google to drive traffic. to Google as a search engine. It's the only way to operate a business of a browser. And like maybe in the AI era, it's the AI company having it drive traffic, but it's the same exact thing. And so

2:21:10 One of two things has to be true. Google owns Chrome or someone else owns Chrome and then Google pays them. But the thing definitely can't make it legal or I don't really understand. what the goal is if you make it illegal is if you say they both can't own Chrome And they can't. Pay.

2:21:25 web browsers to drive traffic. Chrome has no potential of being a business if that's the case. Yep. So Chrome.

2:21:32 Huge win. In fact, it's so much of a win. That after a couple of years Google starts thinking Well gosh. Maybe we should build Chrome into an operating system in and of itself. Let's go attack Windows. Let's take it to Microsoft where it really hurts.

2:21:48 Chrome OS. Yeah, but i it became successful in schools and education. Yeah, Chromebooks. Yeah, Chromebooks have major market share there. But it's not a major player in the Overall.

2:21:59 PC operating system market. It is wild. How much? D P C computer. operating system market is still dominated by Windows. That has never changed.

2:22:10 You and I live in this world where like everybody uses a Mac. Mac has like 15% market share. Yeah. Windows has like 70% market share of computer operating systems. Well Speaking of operating systems. It's time.

2:22:27 Google's. Big one. Yes. Which is actually The biggest. Operating system in the world.

2:22:34 Over three billion active Android devices now. Totally. Freaking wild. That they bought for$50 million. Well, that's a red herring. They've invested so much more. But just to make the point, it is hit after hit after hit. These things.

2:22:50 Are not Predicated. on Google's distribution. If you're A company

2:22:58 that launches a new widget and you can just distribute it with your old widget. It's not that impressive when your new widget gets dominance. But Google Chrome I mean they could do a little thing and they did push it on Google search pages.

2:23:12 But they managed to get a lot of distribution just by being a great product on the market with viral adoption. that everyone told their friends to use. And it was the David Rosenthal's Going Home to Thanksgiving that were sort of like the seed of it. And then within three or four years they just ran the table.

2:23:29 And it's not Just Chrome. Gmail is that way. Google Docs and spreadsheets were that way. I mean Mass was that way. All these things are Independent great products that

2:23:41 became dominant on their own merits just like Google search did. Yes. I a hundred percent agree. And also helped by the fact that they were all free. Yes. Yes, fair. And massively subsidized. At least in the early years before they

2:23:57 were able to be businesses on their own by the uh the old money printing machine in the basement of Google. Good old Uncle Edward. Yes. All right listeners. Now is a great time to talk about one of our favorite companies, StatIG. Yes, there is a reason why the best product teams rely on StatSig, whether they are iterating on their core product features or shipping AI powered experiences at scale. Yeah.

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2:24:56 So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com slash acquired to get started. All right. Android. So Google's

2:25:13 Office spaces. Are legendary. The first one, of course, being Susan Mujski's garage in Mountain View. Companies. First office.

2:25:24 And then today, the Google Plex, the old S G I Silicon Graphics Campus. In Mountain View. In between Google had

2:25:35 Another office. For a couple years. In downtown Palo Alto. At one sixty five University Avenue. Would also

2:25:46 later be the office that PayPal. Oh really? Lucky Building, yeah. August nineteen ninety nine. When Google moved out of that office.

2:25:57 Do you know who moved in? Based on the direction this is going. Is it danger? Yes it is. Yes Danger. The Company.

2:26:10 Started by Andy Rubin. And Andy, of course, had been an engineer at Apple. And then Left apple with a

2:26:19 group of uh Rebels? I don't know, were they rebels that went to go start General Magic. General magic, of course. Legendary Failed. start up in Silicon Valley in the early nineties, basically was trying to

2:26:31 Create. The iPhone. Just fifteen years too early. Yeah. After General Magic, after it falls apart, he starts. Danger.

2:26:40 Yeah. Andy's initial idea for danger was uh He wanted to to make a wireless version of the Q cat Scanner. What is a Q cat scanner?

2:26:51 This was a device that plugged into your computer. That looked like a cat. But it scanned barcodes. Okay, well then all this general magic stuff we are trying to do. That was too far ahead. What if we think simpler and we just make a wireless version of this to scan barcodes.

2:27:08 Okay, not a big idea. His first employee at Danger. A guy named Hiroshi Lockheimer. Hey, actually, you know, a couple years have gone by.

2:27:19 Maybe we should revisit this general magic stuff. Wait, Hiroshi was with him at Danger? He was the first employee. I did not know that. Yep, yes he was. I mean he of course is instrumental in the Android story later, I did not realize the two of them were at danger together too. I spoke to Hiroshi in research. He told me these stories. Great great guy. Hiroshi Lead.

2:27:40 Android and Chrome. at Google for many, many years. And would be the authority on this. So Russie's like hey hey I don't know maybe let's revisit this general magic stuff. And that led to danger.

2:27:53 Building. The sidekick. And launching it in partnership with T Mobile. This thing was amazing. That thing was so sick. I was jealous of all my friends that had one. It was a messaging focused sort of rich application

2:28:06 Cell phone. I think it was along with Blackberry's The first vision of a cellphone where the primary thing you do on it is not talk to somebody. Is messaging. These things were freaking awesome. They were really big with celebrities. I think it was a plot of an entourage episode at some point in time.

2:28:24 So they And uh Selling this company to Microsoft, right? Yes. Microsoft does end up acquiring the company, but not until two thousand eight.

2:28:33 Which is the same year that Android launches. Andy actually had left Danger. In two thousand three. And started a new company.

2:28:42 Android. Which In the earliest days it was kind of like an open source Competitor to Effectively Blackberry software.

2:28:50 Mm-hmm. Yes, in its own Earliest earliest days. The first version of Android the company.

2:28:58 Remember I was talking about point and shoot cameras and digital cameras back in the YouTube section? Yeah. was actually to build A cross platform open source operating system. For point and shoot digital cameras. Oh wow. Yeah, that was Andy's vision was like, Oh hey, these point and shoot devices, like hundreds of millions of consumers have them now. What if there were

2:29:18 A powerful Operating system. Could that be a Trojan horse to get an operating system? You could sort of imagine it. Right.

2:29:28 If cameras became phones instead of phones becoming cameras, then yes. Yeah. Exactly. But Pretty quickly it does become clear that

2:29:37 Phones are gonna become cameras. So Good thing is though, the software they're writing. Still works just as well on phones. So And he pivots the company and has the delivery vector shift from.

2:29:48 Camera's two. Smartphones. And at the time the smartphone market such that it existed and it did exist. Blackberry Windows Mobile. Well, yeah, so here are the players.

2:30:00 Basically Phone companies either were full stack like Apple and the iPhone is today, where they made the phone and the operating system. So that was Nokia. And then the big player in the smartphone market at least was Blackberry.

2:30:15 Made their own software, made their own devices, huge in the enterprise market. Or You did have OEMs, device makers, who made devices and then they bought An operating system either from Pom Which

2:30:28 Made their own devices, but then s also started selling. operating system to other vendors. Or the big player was Microsoft with Windows Mobile. And this was a license model, as we talked about in our Microsoft part Two

2:30:41 This was you pay Microsoft single digit dollars and you get an operating system and then you build the phone stuff. on top of the operating system. Exactly. And

2:30:53 This was a good business for Microsoft. Obviously it wasn't as big as the desktop market, but You can totally understand why this is their strategy. We are the May Desktop operating system provider. This is our business bottle there. Let's just do the same thing here. It seems to be working. Yep.

2:31:10 And As far as the phone manufacturers, the OEMs And the carriers are concerned. Things are also Pretty good.

2:31:21 These phones that they're making, they can't really do that much, but Because of that. They don't actually cost that much to me. And the consumers, meanwhile, are paying through the nose for these things. You have a smartphone on a carrier contract, you're paying like a hundred bucks a month. And they don't consume that much data either,'cause they're not that capable. Everybody is

2:31:41 Fat and happy. Yeah. So into this Morass. But also Steve Jobs is of course looking at the same thing and saying, This sucks.

2:31:50 Enter Andy and Android. And he goes around and he starts pitching the phone manufacturers. And the carriers. Hey, stop buying an operating system from Microsoft or from Pom. I'll give you a great one.

2:32:05 For free. And oh, by the way, it's gonna be open source and there'll be third party applications that can be written to it and these devices will be super powerful. The ecosystem's like, No, I don't want this. One There's just no way in hell that a startup ATT or Verizon is gonna work with

2:32:25 A little rinky dink startup. That's valued at like ten million dollars and has eight employees. There's billions and billions of dollars at stake here. But the other part of it too. I think the reason

2:32:38 that the smartphone market had stagnated for so long was this. Everybody was happy. Right. It's a non priority to upset the Apple cart. Right. It's almost like a version of um Enterprise software and IT, right? The users don't like it.

2:32:53 But the users aren't actually the customers here, as it's the carriers who are the customers. Yeah. So Two thousand five rolls around. Andy's now two years into the company with Android. He's managed to convince H T C the

2:33:07 Taiwanese manufacturer. to Make a prototype with him. He's showing it to carriers, he's showing it to other OEMs. But for all the reasons we just discussed.

2:33:17 It's tough sledding out there. The company's running out of money. As Andy is Going around trying to gin up investment for another round, he ends up meeting with

2:33:29 Larry Page. Larry immediately is like Forget raising another round. What if I buy you right now? So July two thousand five, Google buys.

2:33:39 Android. For fifty million dollars. Five zero. million. Dollars per Android.

2:33:45 Oh my goodness. But of course that's the fallacy,'cause they would pour billions in. And development. Yeah, yeah, yeah, yeah. They put billions in yeah, yeah, yeah. Oh I know, I know, I know. But like to your point, this episode, Google is the hit factory here. This is the hit parade. Right. The correct way to think about Android.

2:34:02 Is that Google built it in house? with a little kick in the pants from this startup kind of got far enough along with the idea. that forced them to do it. Now.

2:34:14 But they needed the kick of the pants. Yes. Because Why was Larry so excited? Why did they buy Android right away?

2:34:22 Eric and Larry and Sergei, they all knew that they were late. Here we are, it's now mid two thousand five. Hm. were eighteen months away from the reveal of the iPhone. Apple and Google are very close.

2:34:35 Why do you think they knew that they were late? I'm sure they were starting to get Wind from Apple of what was going on. That's true. Eric's on the board at this point, right? Of Apple. He's not yet on the board, but he's about to join the board. But the companies are very close. Okay. There's that. But but even let's say they don't know about the iPhone.

2:34:55 Blackberry is a thing. Yep. Big adoption. Yep. smartphones, you know, and and even Windows Mobile, as bad as it was. prove that there is demand. There is clearly consumer demand for this. Right. They had a version of Google.com for these devices to access and they could see the traffic. And they really knew it, especially from maps. Google Maps on mobile devices, smartphones was it.

2:35:18 Killer application. Google is maintaining I kid you not. three hundred and fifty different versions of Google Maps for mobile for all the just Sea of

2:35:32 Phones. out there. And so like they know. We have built our local government district on the desktop around our Disney World and Uh oh, looks like mobile needs a district too. Yep. So sure, you know, like you're right. They would have done this anyway.

2:35:50 But They were starting to feel already like, Oh, shoot, we should have started this two years ago, buying Android Kickstarts things and like From the Google perspective, thank God they did, because we're eighteen months away from the iPhone launch. And if they Are starting from a cold start.

2:36:06 In January two thousand seven. Good luck. We're not telling this story right now. If they don't buy Android and they don't get started, basically in the month that they did. This market belongs to Microsoft. No. Microsoft. Oh, why do you say Microsoft? There's going to be Two

2:36:23 Players in this. There's going to be a fully integrated player, which Apple was going to be, and then there's going to be an OEM plus. Licensed operating system. And the model would have just been that Microsoft sells operating systems, a mobile operating system.

2:36:39 Great point. To the OEMs who were freaking out that Apple was gonna run away with it. Great point. So Now. Back to it.

2:36:47 Android and why Android was especially so attractive. Andy already had the right business model for Google. It's just that as Android the startup OEMs and carriers are like giving it to me for free. Like that makes you less attractive to me. But now all of a sudden within Google, they can run the playbook that they run everywhere. They go the carriers, the OEMs. It's funny how giving it away for free as a startup

2:37:07 is counter signal. It makes you look desperate. But if you're Google, it's like, Oh, they must have a really good plan here. Yeah. Exactly. So They Start.

2:37:17 Work on Android as part of Google. Here in summer of two thousand five. And The plan.

2:37:24 Initially. Is that they're gonna be Two versions. Yeah. There is a prototype and a device

2:37:32 That'll be more near term to launch called the quote unquote Sooner? Sort of the more Blackberry like device. Not a touch screen device. And then

2:37:42 There was a longer term Advanced research project. Codename the Dream. For a touch screen. Smartphone.

2:37:52 Device. Summer of two thousand six, that next year, Eric Schmidt. Joins. The apple. Sees how far along and how good the iPhone is. Uh-huh. And then

2:38:05 January of two thousand seven. The iPhone. In the greatest. Corporate presentation keynote of all time.

2:38:13 Yeah. Eric. is in the freaking keynote. Steve Jobs invites Eric Schmidt. On stage.

2:38:20 And Android hasn't been announced yet, right? Nope. Nope, nobody knows about Android. This is in January of oh seven. And then July of oh seven's when it shipped. July of oh seven, yes, is when the iPhone shipped. Now, I believe Eric had disclosed to Steve

2:38:34 About The sooner. Project. 'Cause obviously it was public, the Google had acquired Android.

2:38:41 And I believe that Steve Jobs knew that Google was working on like a Blackberry style. T. But he did not know about The dream.

2:38:51 Prototype. So Eric comes on stage. And you go watch this. We'll link to this is in this clip. In the show notes.

2:38:59 It's crazy. It's about a you know, three minute long. Total thing. Eric comes on stage. He makes a joke.

2:39:07 About merging The companies that like Apple and Google are so close they should merge. He says the company should be called Apple Goo. And then he jokes and he says, Well, but here's the way with the iPhone that we can merge the companies without actually merging. He's making these jokes and the camera is focused on Steve Jobs and he just has the ick. Yeah. Yeah. I mean, that's the best way to describe. He's like trying to be a good sport and smile and be like, yeah. But he has the ick. It is unbelievable to watch.

2:39:39 This Knowing everything that would happen over the next Ten, fifteen years. This incredibly close collaboration. There are two apps that launch in the very first version of the iPhone. Remember, it didn't have an app store. It was not open to third party developers.

2:39:54 There is a YouTube app and a maps app, both of which are Google services. Now the apps are written by Apple. The icons are designed by Apple. They're basically just consuming Google's data as APIs. The only icons and apps on the phone are the ones that Apple Puts there. And two of the

2:40:13 Yeah, I don't know how many of there were. Ten twelve, thirteen apps. Or Google apps. It's wild. By the way, the uh

2:40:21 The YouTube icon with the wood green TV. So awesome. So awesome. I heard uh the YouTube team absolutely detested it. They hated it. Yeah, they hate it. Well, because it wasn't the YouTube logo and they they knew all right. I mean, it was obvious this was not going to work because the YouTube team is like Apple didn't put our logo on there. Of course they're gonna start bringing in other video content over time. It was a little bit pre algorithm, but it w the thinking was there of we have to make YouTube a destination and then control the experience and Making the

2:40:52 app icon reminiscent of an old school CRT T V was also just like deeply antithetical to YouTube inventing the video of tomorrow. Yes. Yes. It still looked great though. It fit in with that first iPhone for sure. It totally did.

2:41:08 Do you know? who was the leader of the Google mobile teams that develop the back ends. Or these apps. Oh no. Vic Gandotra

2:41:19 Really? Yes, that was his first job, I think, within uh within Google. First or second job within Google. Vic is gonna Come back up here in a minute. So

2:41:29 The iPhone keynote. Surely. World changing historic event. The Android team, of course, is watching this. And uh

2:41:39 Yeah, that whole Sooner prototype thing, uh the next day. Right in the trash can. Directly in The trash can. The dream. Is no longer a dream. It's happening. No. Get in, kid. You're the A Team now. Yep.

2:41:55 Clearly. Touch screens. are the future of mobile devices. And uh capacitive touch screen at that. Yeah.

2:42:04 So Remember, Eric Smith is on the Apple board. Once Steve Jobs finds out about what the Android team and Google is now doing, he goes Ballistic. Or perhaps to use his word thermonuclear. Yes, yeah, yeah, yeah.

2:42:18 Full on classic Steve Jobs. Supposedly. At an Apple All Hands meeting. This is actually a little later, but His overheard and quoted leaked to the press as saying

2:42:30 We did not enter the search business. They entered the phone business. Make no mistake, Google wants to kill the iPhone. We won't let them. Wow. Which is I mean, to this day fair. Apple has been happy to just take a spif of all the traffic that they send to Google and not compete in Google's core business. Yeah.

2:42:52 Now, I will say I believe Apple reputation launders a little bit. They get a lot of the value of being in the search business without having to do all the uh stuff that they demonize from a privacy and data sharing and all that ickiness perspective. But Fine, whatever. It's doing business. That's fair.

2:43:09 Apple did not enter the search business. So in Walter Isaacson's book Steve Jobs says. I'm going to destroy Android because it's a stolen. I'm willing to go thermonuclear war on this. Yes. He also says

2:43:25 I will spend my last dying breath if I need to, and I will spend every penny of Apple's forty billion dollars in the bank to right this wrong. He was pissed. He was really pissed. Now interestingly He doesn't actually kick Eric Schmidt off the board until two thousand nine. Yeah, it's interesting. So I think it took Steve A little while to realise what The dream.

2:43:47 Yeah. Within. Google. And there's also a reasonable Argument back. Look, both companies

2:43:55 took stuff from each other. A lot of the stuff that You know, Apple touts that they were the first company to ever do multi touch and they own the There were predecessor companies that did multi-touch before them too. The iPhone. debut a lot of technologies for the first time and a lot of them were also

2:44:10 Just at the right time in history. And I think Android arri arrived at a lot of similar conclusions at the same time. True. It's interesting you said multi touch. So multi-touchly becomes the battleground. Because that's the patent that they go to war over? That's the patents that Apple has. So Steve Jobs threatens to sue Google. over implementation of multi touch gestures.

2:44:31 And so as a result, Android for Several years. doesn't have things like pinch to zoom or the sort of swipe operating system UI Navigation, gestures.

2:44:43 And I I'm pretty sure If you remember early Android phones for the first couple of years. Every single one of them had four physical buttons at the bottom of the phone to navigate the operating system. I think this is why. Huh. But let's take the Google side of this argument for a minute.

2:44:59 When Android does launch They have The market. Which today is the Play Store. Apple didn't have an app store.

2:45:06 Yeah. Android had When you swipe down a notification center. with all the notifications from each of your individual apps. You took Apple years to get that. Drag to rearrange apps on the home screen? I mean These are things that Apple then directly copied as well. So

2:45:22 Yeah. Alright, so yeah, let's get into the Great Artist Steel. Exactly. Let's get into the launch of the competition. So November two thousand seven. So what's that? Ten months after the

2:45:35 iPhone reveal and Five months after the launch. Remember, Android launches in two thousand eight. Google announces the formation of the Open Handset Alliance. That's right. And this is a partnership with HTC, Motorola, Samsung, LG, T Mobile, Sprint, Qualcomm, Intel, Broadcom. And Texas instruments.

2:45:55 And this was so confusing at the time. I and everybody else was like What does it mean? What? Is this? Is Google making a phone? Is Google not making a phone? So then A whole year goes by.

2:46:08 With basically nothing. Then in September of two thousand eight. A lot of things happened in September of two thousand eight, Chrome. Android. Lehman Brothers.

2:46:17 Google announces The T Mobile G one. Phone. The G phone. And the T Mobile G one is manufactured by HTC.

2:46:27 Remember Andy and Android's original partner in the prototype. And The product name, the HTC product name for it is the HTC. Dream. Ew. This is the dream.

2:46:38 This was what they were working on and in the US it's called the G one. It actually is a Super interesting little device. I wrote an app in it. I had a class in college. It was like a capstone class or something where I could like pick my own

2:46:51 Project to do. And we had a four person team and one of the guys had a T Mobile G one. And we wrote I think it was like a Java um thing for it. But he then founded the company Daily Booth. after that. Oh wow. Yeah. In fact, it may have even been like a daily booth for Android app.

2:47:10 You had a lot of founders come out of your crew at Ohio State. Awesome. So It has a touch screen. On the front.

2:47:18 With the physical navigation buttons, like I was talking about. It has a slide out horizontal query keyboard, sort of reminiscent of the sidekick back in the days. Unlike the iPhone. It has multitasking. So you can run multiple apps at once.

2:47:34 And it has Third party. Applications. Now. That's a little bit unfair to the iPhone because by the time the G one actually launched, Apple had indeed

2:47:45 Just shipped. The app store. The event where they launch it. It's like T Mobile event. in New York City.

2:47:51 In a commercial kitchen It's a haphazard random launch. You can't even find video of it today. There's like little clips you can find and still images. What is widely reported and you can actually see in photos. Larry and Sergey do show up. They rollerblade into the building.

2:48:08 They rollerblade on stage. There are all these T Mobile and H T C executives there in suits and Pick up layering and ster getting on roller plates on stage. Listeners, join the acquired email list. We'll throw this in the next email that goes out. Yeah. It was haphazard to say. The least. But

2:48:25 The G one slash dream. becomes a pretty decent success. It sells over a million units in the US. And Just this one device, this one phone. Get six percent.

2:48:38 Smartphone market share, which puts it roughly on par with Pom. Like all of Pom. The G one. Kind of matches in. Market share. But

2:48:47 The smartphone market is still. Very small. Yeah. It's important to remember mobile really wasn't a thing. Until two thousand eleven.

2:48:56 Of very obviously the next wave and the next computing paradigm. Yeah. But To be fair to Apple and the iPhone. It is starting to run away with the market. And this is the point of man, if Google had not bought Android when it had, it would have been too late.

2:49:10 So The whole lifetime of the G one, they sell about a million units. The iPhone sold eleven million units in two thousand eight alone. twenty million in two thousand nine. So basically overnight. Apple and the iPhone goes from

2:49:24 Not in the smartphone market at all to over fifty percent. Market share. Of smartphones. But As great as

2:49:31 The iPhone was. It did have a few Weaknesses. No copy paste. No copy paste. Yep. No multitasking. As mentioned before, it didn't multitask. Not very customizable.

2:49:45 I think we're still in the era of you can't even change your wallpaper. On the iPhone. Pretty sure we are. Hm. Think it's still just the black. background. Yep. You can't put your own apps on it from anywhere but the app store even after it launches. Yep. A big knock at the time.

2:50:00 People love that it's a touch screen. People really wanted the physical. Yeah. And the biggest problem with the iPhone, at least in the US You can only get it. on ATT. And you could only get it with the edge network.

2:50:15 It was unusable. That's right. It didn't have 3G. It was so terri. I mean, eventually the iPhone 3G came out within a year, but even that was really slow. It was the network had not caught up to what you wish the device could do for a few years. Yeah. So that brings us To holiday two thousand nine.

2:50:33 And the Motorola droid. Changed everything. It's sort of funny to say now, like oh the motorological like the motorola joy. This changed everything. Yes. The motor I mean, when we interviewed Steve Bomber a couple of months ago, he brought it up. When the droid launched.

2:50:48 It was holiday two thousand nine. And I think you and I were like, Was it really that late? Wasn't it early? And he was like, Nope. Christmas two thousand nine, I will never forget it. That is when Android won the market. This was

2:50:59 the moment. And Google was really willing to put their brand second. Now were they really putting their brand second? It's Android versus Droid, so very convenient. But like If you were to go survey the American public in two thousand nine, ten, eleven, twelve, maybe even thirteen, It'd say do you know about Android.

2:51:19 The Mobile operating system, no. Do you know about Droid? Oh yeah, I have a droid phone. Well, and then there are a couple of years after that where it was like Do you know about

2:51:29 Google and Android. Yeah, maybe. Do you know about Samsung and Galaxy? Oh yeah. I know about that. Yeah. Exactly. So we'll get into that in a sec. The droid. Droid does baby.

2:51:40 Verizon. At this point is getting pummeled by A T. It's been two years. Since the iPhone launch. A T T. Isn't

2:51:49 Just stealing a lot of subscribers from Verizon. Because the iPhone. They're stealing the best subscribers. The people that are willing to pay

2:51:59 The most money. For the biggest price data plans. For smartphones. Verizon finally decides, like, we gotta

2:52:09 change the game here. We gotta be able to compete. With The iPhone. We're gonna go all in on Android. We are going to Buy a device.

2:52:18 And make this our flagship smartphone. Position it against the iPhone. And we're gonna invest. Hugely behind this thing. So the device itself, the actual droid, made by Motorola

2:52:29 It was a great device. It had a Big screen. Big screen for the time. A slide out keyboard. It had a five megapixel camera.

2:52:37 removable battery. All of these things the iPhone. Didn't have. Probably The most

2:52:44 Important Feature it had though. The killer killer. Up.

2:52:51 It was the first Android device. Launched. With Google Maps. Turn by turn navigation. I didn't realize that. So before the droid

2:53:03 There was this whole Consumer electronics product category. of dedicated GPS devices. People old enough to remember my Thomas. TomTom's, uh Navtex, people would buy Garmin. These devices, Garmin, yep.

2:53:20 They would put'em in their cars. And You also paid a monthly subscription fee. For The service of the turn by turn.

2:53:29 Navigation. Overnight. This entire product category gets. Obsoleted. Sherlock.

2:53:36 Gone. Because Google Maps is a better product. With better navigation. And it's free. No more monthly fees. just baked in in your phone and the device you already have with you.

2:53:50 Why on earth would anybody buy, let alone pay monthly. For a standalone GPS product again. Yeah. And you know what doesn't have it?

2:53:59 The iPhone. The Apple version of Google Maps. You had to manually advance the steps. So It would pull up the route and then you could tap the button to be like I have made this turn, now show me the next.

2:54:15 part of it. That's such a funny you're exactly right. I remember that too. Not really what you want to do while you're driving. Man. Yeah. It's crazy how not that long ago this was. Totally. That was the killer.

2:54:27 Yeah. But even more important than the features was the marketing and the muscle, the Verizon put. behind this. They licensed the droid name from Lucasfilm. That's right, and I think Lucasfilm was mentioned at the bottom in the credits of every Commercial. Yes, every commercial.

2:54:43 And they did these series of commercials that we've been referencing. Man, if you lived in the U And you are older. Then like twelve at this time.

2:54:53 This is burned in your memory. It was so great. The first eighty percent of the ad, ninety percent of the ad was a Apple style ad knockoff with the like bright happy upbeat music and the white background. And it had the fading. Apple style text it. It said I don't

2:55:09 Multitask. I don't know have a removable battery, you know, et cetera, et cetera. And then the very last, you know, five seconds of the ad, there was like a hard cut and like static noise. And it was black and it was edgy. And then it said droid does.

2:55:27 It was so good. So the CMO of Verizon. So Verizon did all of this. said that the campaign was designed to quote Wake up the market. And boy.

2:55:40 Did it ever. So That original droid. I think it sold a quarter million units the first weekend it was on sale. And then it sold a million units. faster than the original iPhone had. Like there was just so much pent up demand.

2:55:55 For a real smartphone on the Verizon network. Plus all the you know. Yeah, this has turn by turn navigation. It's but if even like Put aside whether it was better or not. It just was a real smartphone on Verizon.

2:56:08 Time magazine. Name the droid its product of the year for two thousand nine. Wow. The bigger thing though is that like Verizon going all in behind it, even though they would add the iPhone later. It creates

2:56:21 Sort of this. what the Android user base would become today, at least in America, because Verizon. When

2:56:29 All in on Android, all in on Droid. Over the next couple years. They followed the original droid up with, let's see, there was the HTC Droid Incredible, the Droid X, the Droid Two, the Droid Bionic, the Droid Max. All of these had major marketing campaigns behind it. Game over.

2:56:46 For the the segment of the market that is not Apple, this different OEM from Operating system. Google just runs away with it. And before this, it Microsoft had a shot. They really did. They were a systemic disadvantage because

2:56:59 They were going to carriers and saying, Why don't you pay us Five bucks, ten bucks. And Google was going to them and saying, Here you go. This is free. you can have the source code and you can modify it as you see fit.

2:57:13 even today the I think um Samsung has their own OS Samsung One or something like that that looks different. I mean it's Android, but it's the open source version of Android that they've customized. That's the thing that's on I don't know, a billion phones. And three. We aren't Microsoft.

2:57:29 Yeah. You guys don't want to be caught back. Right. Microsoft managed to suck up all the profit and that entire value chain and handset makers, you currently make money. So why would you go work with Microsoft who did that to the PC makers? And then As a little sweetener on top of all this, You know how I mentioned it was free and open source?

2:57:46 It's actually less than free. We're actually gonna pay you. Yeah. Four searches. That originate. On your phone. We will give a little rev share.

2:57:57 Two Both the carrier And The OEM, the handset maker. Yeah.

2:58:04 So this was not widely publicized at the time, as you can imagine. But uh Bill Girly. Wrote a blog post. Where he had heard from friends.

2:58:14 that Google was paying carriers and OEMs. to use Android, even though Android was free. And he wrote this incredible blog post about it called The less than free.

2:58:24 business model. And he basically predicted that like Android's gonna run away with this here. If you're a carrier or an OEM Sure, there's a segment of the market that's gonna demand Apple, that's fine. But Microsoft is dead.

2:58:38 Palm is dead. Blackberry is dead. There's no way you can compete with free, let alone less than free, where they are paying you to take something of value for free. Yep. Yeah. And from Google's side, it's the exact same thing as that thing we talked about with Open source and Chromium. They're happy.

2:58:54 To give a few percentage points in traffic acquisition costs. of their search revenue. to people who are insuring that the platform underneath them doesn't belong to someone else. I mean

2:59:06 There were some risk that it was all Apple. And then that creates two problems for Google. One They pay Apple a lot more money than they pay the combination of the carrier and the

2:59:18 OEM maker, those get a much smaller spiff. Two This means that Google controls more of the underlying environment that they operate in. Imagine how terrible it would be for them if mobile Safari was the new internet explorer and their entire franchise was at risk of Apple saying, and we're gonna point traffic over here now. Google is happy to toss a couple of points. Over to these guys.

2:59:42 I Can't Think of another example. Of A dominant

2:59:48 Technology. business and business model. That has successfully survived and transitioned. A major

2:59:57 platform shift. Yes. And thrived in that next platform as well. Mobile was A platform shift. A huge one. I mean Going from PC to the web.

3:00:09 Was a platform shift. Going from PCM web to mobile was an even bigger platform shift. Well play it out even back further in history than this. IBM was dominant in mainframes and then lost their dominance in the PC era. Microsoft was dominant in PCs and then lost their dominance in the web era. Google was dominant on the web. And stayed dominant in the mobile era.

3:00:30 I mean they didn't derive giant profits from the mobile Like directly off of selling phones or selling the OS, or you know, they make some money on the Play Store, but not giant amounts relative to the rest of their money and what other players like Apple make. But they kept search going. But they managed to stay relevant to consumers with these, you know, hundreds of millions, billions of devices that they shipped. And their business was doing better than ever. I mean

3:00:55 All of these Android phones that are Shipping. Especially in the earlier years. What is the most prominent part of the UI on the touch screen? giant freaking Google search bar right there at the top.

3:01:07 Right. The state of play of being a big tech company and this dates back eighty years is Technology moves fast. and the new paradigms disrupt everyone that came before you. So you get one era and you gotta make the absolute most. of the one era that you grew up in. And after that you're probably gonna lose

3:01:27 relevance. You might keep your money machine going for a long time, famously IBM made more revenue than Microsoft for a lot longer than people think. Or even take Microsoft and Windows. Like Windows is still big today. Yep. But the importance of that platform is gonna fade and fade and fade. But yeah, you won't be able to transition your business model into the next era. Google did it. And occasionally someone, you know, misses the second era but comes back for the third, like Apple figured out mobile. They never won a previous era. They were a player in PCs, but they didn't win. Almost no one gets two, and almost no one gets two successive ones. And that is the really impressive thing that Google figured out how to do here.

3:02:07 Yeah. I mean, guess, like we said, this episode is the hit parade. Android. Basically from End of two thousand nine onward, just

3:02:16 washes over the world like a tidal wave. In holiday two thousand nine when the droid comes out. Total Android. market share of the smartphone market is still in the, you know, the G one range, like five, six percent. Global market share.

3:02:32 One year later. Thirty percent. Wow. They go from five percent to thirty percent in one year. They announced that over two hundred thousand Android devices are shipping every day. around the world. The next year in twenty eleven.

3:02:49 Android's market share is fifty percent. And two years after that, by the end of twenty thirteen, it is Eighty percent Market share. In many ways it's sort of the Visa Network of Networks thing. Where

3:03:02 They don't have to make every phone. They don't have just one horse in the race. They're getting leverage. by having two, three, four, five major manufacturers. of these devices that are all independently doing their own marketing. And there's a very clever arrangement.

3:03:17 We're You can just have the Android open source project. And you can build your own mobile phone. And You know, you can launch it and you don't have our app store, and you don't have to default to Google search and you don't get Google Maps. Like you just have the operating system. And it's great. Anyone can do that.

3:03:34 But why wouldn't you? want to have our app store. It's where the all all the apps are. And if you do that. Then you get all the great Google services. All the apps.

3:03:44 native Gmail and the native maps and all this great stuff we've written. And if you do that Then Google's the default search. We'll pay you for that. And then you make money. Yeah. But by the way, if you want all this stuff that your consumers are gonna demand, you are gonna default to Google search. Like it's a very uh That's the payment. Yeah. That's the offer you can't refuse. Yes. Now, here's the actual sort of crazy thing. As I I said by

3:04:09 twenty thirteen. Android global market share is eighty percent. That's actually higher. Yeah. Today it's down to like I think seventy two percent. An apple is

3:04:20 You know Twine point nine nine nine percent. Apple's share has really grown. No question. Android pushed.

3:04:29 iPhone to be better. on many dimensions. Things like cheaper iPhones. Bigger screens, better cameras. I mean on and on and on and on of things that

3:04:41 I don't think Apple would have done if Android. And been Pushing them.

3:04:47 Probably not big cheap screens. But some of the uh cameras I think so. Maybe. I don't know. I mean, for years the iphones did not have good cameras. Uh big part of that droid marketing push was the five megapixel camera. That's right. The original few iPhones had it.

3:05:00 Two megapixel camera, I think? Like it was Crappy. Yeah. They've definitely pushed each other. Yeah.

3:05:08 So then the other quick thing to mention on Android Hest. There was one. Interesting moment. and tension with Samsung. In the

3:05:16 Early to mid twenty ten's Samsung basically said Oh okay. The iPhone is the premium device.

3:05:23 Android is this incredibly flexible platform. What if we just take Android? And copy the iPhone with Android. And they got really good at it. The Galaxy devices were Just shipping in huge, huge numbers. And then Samsung started stripping out Google.

3:05:40 services and putting their own Samsung services in on some of their devices. That was a bridge too far for Google. So this is when Google started the Pixel program. Google had done the Nexus program making their own hardware before. The pixel though.

3:05:56 Wasn't is A sort of Reference device. That yeah, consumers could buy, but more so to show The rest of

3:06:05 The OEM market, the non Samsung market. Hey, here are reference designs essentially for Great premium devices, great cameras, all the features you want. Here, copy these. It's the same thing as the Microsoft Surface strategy why Bomber was so adamant we gotta make a surface, we gotta show the OEMs. How to do this.

3:06:26 Right. It's funny. So I've been trying to think about what is the business of Android. Google having Android versus Google not having Android. And I tried to pull up the most credible numbers I possibly could. There's basically

3:06:41 Two things that you just have to add together to create the value. One is how much money they make from the Play Store, which has become significant. Didn't used to be, but is now. And then The second is How much money are they saving?

3:06:55 Bye. not having the searches originate from a platform that they don't own. I used to think. Oh, because it's Android. They don't have to pay money.

3:07:04 They have to pay twenty billion dollars to Apple? It's not zero. They do actually have to pay like we talked about David I sort of figured out as we were going through the financial disclosures and stuff. they do pay the OEMs and they do pay the carriers. And the question is how much?

3:07:19 'Cause th once you can kinda figure out how much, then you can do a little bit of napkin math to figure out, okay, well, how much are they still saving by it not being Apple. So Google paid out last year and I'm just using the current numbers. To try to figure out what the splits have always been. They paid out last year fifty five billion in total traffic acquisition costs.

3:07:40 Now traffic acquisition costs are actually the sum of two different numbers from two different businesses because they love to obfuscate things. One, it's what we're actually looking for, it's the acquisition of traffic to Google search, and the other component is Money that we paid. Two Publishers where our ads show up.

3:07:59 In the sort of double click Ad Sense world. Yeah. Now we know that that averages about a 70 30 split, and we know that they made thirty billion dollars last year gross in the Google network. So you could say, okay, they probably paid out about$21 billion of that$55 billion. in the

3:08:19 AdSense double click Google Network world. So that back our fifty five billion down to thirty-four billion. Okay, that's thirty four billion in actual traffic acquisition for Google search. And we know Twenty was iPhone. Right. For Safari searches.

3:08:36 So that means there's fourteen billion that gets distributed to non Apple traffic acquisition distribution partners, which in their annual report they define as browser providers, mobile carriers, original equipment manufacturers and software developers. It's basically fourteen billion to uh the the Android mobile carriers and OEMs.

3:09:00 Plus Firefox. Yeah. What am I missing? I'm gonna guess Firefox is less than a billion, call it Somewhere around half a billion ish.

3:09:10 Yeah. There's Probably. some version of the old portal deals that still exist. Properties on the web that have Google search. Baked into it.

3:09:21 Okay, so let's cut four billion off for Firefox and the other web properties. And other. Yeah. Okay, so ten billion. Go under the carriers and OEMs.

3:09:32 It's actually pretty significant. that ten billion going to carriers and OEMs. It's half of what they're paying Apple. Half of what they're paying Apple, but.

3:09:40 For many, many, many more devices. Right. And so clearly the Rev share. to the carriers and OEMs is a much smaller percent than what they have to pay Apple. I'd guess a quarter? Either way. I actually think after walking all the way through it

3:09:56 The bigger component of this is just de risking their future. It's not how many billions. They don't care about giving 10 billion up for this. Yeah. As we've been saying all episode. Google is more than happy to pay traffic acquisition costs too. Any and everyone. Yes.

3:10:11 And so then direct value that they make from the play store. It actually came out in a lawsuit. In twenty nineteen Play store revenue was eleven point two billion. then gross profit was eight point five billion and seven billion in operating income.

3:10:25 Now seven billion, not nothing, but still a far cry from Google's core business of ads from search, Gmail, and maps. And that same year the core business did almost a hundred billion in revenue. So something like eighty five billion in gross profit is my best estimate. And around thirty ish billion in operating income. So Even though the Play Store made seven billion in twenty nineteen, the important thing is that Android is

3:10:49 still primarily protecting the core search ads business and making sure that traffic doesn't go elsewhere. This levered Google's web business into the mobile era. How amazing is that? Yeah.

3:11:01 That's true. It probably generated Several hundred billion dollars profit dollars. That They may not have had those years otherwise. Yeah.

3:11:12 So I guess what I'm saying is Obviously Android was a giant success and The biggest reason Even though They save I don't know.

3:11:21 ten, fifteen billion a year from not having to pay it to Apple and even though they generate eight billion. I'm sure at this point it's bigger. I don't know, ten, fifteen billion a year. Really it's about just protecting the core, not about saving costs. Yeah. And this one.

3:11:35 They almost missed it. They hadn't bought Android when they had like that window was closing. Fast. And Microsoft did miss it. Fast, fast, fast. Yeah. And so

3:11:45 At some point Andy Rubin leaves and Sundar actually takes over the combined teams. So our hero here who is starting to gather more responsibilities. It was just Uh application clients and then it was Chrome. And in twenty thirteen it becomes Chrome and Android. And whenever you see Sundar on stage, he is very proud of Google's two open platforms.

3:12:07 Yeah. So today there are more than three billion active Android devices. I think it's even higher than that now. This is just silly. There's like seven billion people in the world there acting. Over three billion Active.

3:12:19 Android. Phones. Yes. So you're probably thinking Coming into this. twenty ten, twenty eleven era, they're really feeling themselves over there at Google.

3:12:30 You know, we've jumped over some failures, but it's been hit after hit after hit in a lot of these areas that really matter. Just like we talked about on the Microsoft episodes. It really doesn't matter. when you fail and how many times you fail, even the size of your failures. If your hits Are these giant world changing

3:12:49 platform type tech businesses that endure for decades. And that's what they had on their hands. Yeah. And it sure looked at this time. Like there was another.

3:13:01 Big. technology category out there. That Google should be playing in. of a similar size called Social.

3:13:11 Yes. And this is the Google Plus story. I'd say rest in peace, but I don't think anybody misses it. Yeah. All right, well I wanna start this story.

3:13:22 the way that people expect us to start this story. And I have a little bit of a different take on it as we get part way in. Great. So Google had been interested in social for a long time. They weren't blind blind to it. In two thousand seven, they tried to do open social. And they

3:13:37 basically failed at that because Facebook didn't participate and Facebook was social. So everything else combined didn't really matter. Oh. You didn't start where I thought you were gonna start. The craziest thing is that Google had Facebook before Facebook. Orchid.

3:13:50 Yeah, that's true. Which I think was like a twenty percent time project that then blew up in Brazil. Totally. No, no, yeah. Okay. So there is a Turkish engineer who worked for Google named Orkut Bucokdin. And His passion was Social networking.

3:14:05 And Friendster was a thing at the time. And so January. Two thousand four. Before Gmail before the Google IPO, before Facebook launches on the Harvard campus in his twenty percent time, he uh

3:14:19 Launches a social network within Google. Called Orchid. And it didn't become that big in America, but It got at its peak, I think three hundred million users. It was the biggest social network in Brazil, the biggest social network in India. Wow. And Google was like, I don't know, it doesn't seem that important.

3:14:37 Alright, so open social then in two thousand and seven, Google Wave in two thousand and nine. By the way, can we just pause and say, Two thousand nine, this is like right after Chrome, right after Android. Google is a big place. And Google is a siloed place at this point. I mean it It's kinda crazy that

3:14:53 Android is happening over in this other building and there's this like fight with Apple. And that's the same time that they're doing Google Wave. Like it's weird that this is all sort of concurrent. The company was focused in a lot of different directions. But it was so decentralized. Yeah. It actually worked. Well, worked early. Yeah. It worked really well to get all the stuff off the ground. It was so interesting.

3:15:14 doing the research for this episode because so many of the people we talked to, even people who were leaders of a lot of these products, Because Google was so decentralized and so siloed. They were focused on their thing, on Android or Chrome or whatever. And so we'd ask, you know.

3:15:30 What was the overall strategy? What was the through line to all of this? And we kept getting answers of like, well, it was just Googly. People worked on what they thought was cool and it was good for the web. And like that is absolutely true. But there was this all overlay of This very, very thin layer of strategy that held the whole web together.

3:15:51 I think that the strategy was pretty tight at the top level and they just didn't actually need to communicate it down very far. Most people that I talked to said, I don't know, I was just trying to build great products that people love. I think it was a feature, not a bug, is what I'm saying. That it didn't communicate down because it let the teams below build really, really great products. Yep, and never really think about how is this gonna help the ads business. And that was okay. Yeah.

3:16:14 So Wave failed because really nobody knew what to use it for, despite a dazzling and wonderful first introductory video. Buzz then in 2010. That created this big privacy debacle right at launch. It was super short lived. That shut down. So that in twenty ten, Erz Hulza, very senior Google at this point probably distinguished engineer, senior vice president. Yeah. The guy who created the distributed infrastructure.

3:16:40 Right after the buzz failure. He is inspired to write this memo, kinda like the Bill Gates nineteen ninety-five internet memo. There's a sea change going on. The internet is becoming more people oriented. Social media could be a problem for us. The social media challenge requires a decisive and substantial response involving a significant deployment of personnel right away. Essentially the internet was now starting to organize around people in this web two point oh era, not just pages and applications, were the things that were sort of the domain of Google.

3:17:14 And so Here's why I wanna pause, David, and I'm gonna take it in a little bit different direction than I think you're probably expecting, which is So therefore they went after Facebook. I think it's A little bit more related to the palace intrigue at Google.

3:17:28 And a little bit. Less. on the nail strategic. So If you zoom out and look at the company right now. It's pretty fragmented.

3:17:36 It's got different fiefdoms. with big personalities at the top of each of these fiefdoms. Android. Chrome. Search.

3:17:46 YouTube. developer relations trying to sort of will a Google platform into existence. different products with kind of competing goals. Ultimately they all help Google's overarching mission, but There's a lot of elbows starting to come out. Android was its own fiefdom.

3:18:03 totally off on its own island, fighting an existential battle. Chrome is starting to do the same stuff as Android. They're building their own operating system. It's not clear what belongs in an Android camp versus a Chrome camp and Sundar hasn't unified them yet. Search. Very protected separate team, especially the core people doing search ranking and monetization. No one touches them.

3:18:25 YouTube is totally separate. Gmail is massive and it really is the only one in 2009, 10 at the company that owns identity, since it's the only Google property that you actually have to log into. YouTube has its own entirely different username and password system. It's a mess. Right?

3:18:43 It's a complete mess. So Larry is sensing this. He's not CEO at the time, but he's realizing the company's all over the place. He decides he's just gonna come back and get the company on track.

3:18:53 And so I think Google Plus Is kinda just the thing he picked. as the single thing to try to galvanize and unify the company around. And no matter what they picked and how they executed it,

3:19:07 it was gonna create a lot of carnage. Mm. I can buy that. There was a big Shift that

3:19:14 needed to happen in one way, shape, or form, and Google Plus ended up kind of being the ugly thing they did. Yeah. A recentralizing of authority, so to speak, within the company. Right. So in May twenty ten, they get the top fifty people. uh Google's leadership assembled to discuss what to do. The argument for this is this is more of a convenient crisis. Yeah. Model. And it might be a real crisis also, but it's also exactly what you're saying, David.

3:19:39 So officially then in January twenty eleven, Google announces Larry Page will return as CEO in a few months. That April. Right away Larry moves his office. into what would become the Google Plus building. Wow.

3:19:52 Yep. So they had just come out of this chapter. They've got this amazing business. The whole Chrome and Bing thing was defense against Microsoft, Android was defense against Apple and Microsoft, and Google Plus is now. Defense against. Facebook.

3:20:07 Yep. And legitimately. You could imagine a world where social ends up becoming way more important and The only Places to put ads and the places where people are asking for information. And there were rumors for a long time Facebook was going to build a search engine. You have the attention.

3:20:22 you can hijack it and do other stuff with it. These were walled gardens. Facebook was a walled garden. Google search couldn't index what happened. Inside of Facebook. Right. And so yeah, you could see how this is an existential threat. You said, like the traffic is growing, like Oh my gosh, what if this becomes AOL all over again? Right.

3:20:39 And that's the main thing. One tier down from that is Facebook doesn't even allow other ad servers. At least with AOL we could do a deal with them and power their monetization. Facebook just hired Cheryl Sandberg. They're doing this. They're doing it all in house. Closed loop system. Yeah. So

3:20:54 Google Plus. What was Google Plus and how did it get built? So it was a one year sprint. Following this point, the fifty getting together, And it was built in a very, very ungoogly way. It was not organic, David, like these passion projects you're talking about.

3:21:11 It was Instilled from on high. Down upon all of the products. It was not based on a core technical insight. It was not consensus driven. It was top down command and control style led by the person that you mentioned earlier, Vic Gundotra. Now who was Vic and Dodra?

3:21:28 Vic was this interesting character, like we said earlier. He had been Leading Google's developer. Efforts in the

3:21:36 pre Android days. And he was sort of the front man. He was the M C at Google I.O. Right. If you were looking for somebody Two. communicate and push down. this new top down vision across the company. He would be a logical choice. Yes. I don't know if he raised his hand. I don't know if Larry said, Hey, I really think you should

3:21:53 Do this on our behalf. But what is definitely true is it became Vic's thing. And Eric. And Larry and Sergey.

3:22:03 Step back. And let Vic run with it. And Well he was given an enormous amount of institutional authority. And we should say too, you alluded to this earlier, what was Google Plus? It wasn't

3:22:14 Just A social product in and of itself. It was baked into All Google. It was inserted. into Every other product that Google had.

3:22:25 There's it. Quote from Vic to the press. the time about this, about what Google Plus is. He says, This is the next generation of Google. It is Google. Plus one. Oh boy. Oh boy. There's a lot of these really. Oh gives me the heebie teebs. So yeah, it it was a Facebook style thing, but its goal in addition to being a Facebook style thing was to leverage all of Google's assets and make

3:22:50 All Google things. Google Plus things. So they moved big headcounts out of each team and onto the Google Plus team. They reach deep to integrate with these other products. And it's very clear who the boss was in all these negotiations. You had a clear mandate, like your job.

3:23:05 This half year, this year. is do these Google plus integrations. Yeah, your OKR. Google famously ran on OKRs was now all about plus pluses. And Danny Crichton, who would go on to become the managing editor at TechCrunch, at this point in time was a Google intern and he wrote about it later. And he said due to this integration, much of it was forced. The culture around the company at Google had become deeply poisonous by the time I started. I still remember talking to one member of the Picasa team, who is a Google's photo repository that they bought. Who told me to F off when I asked about integrating Google Plus into the product. He was hardly the only one. Company wide bonuses were based on the success of Google Plus. They even went so far as to put little plus one buttons on mobile advertisements, like those little banner ads at the bottom. Yes, this is the best. Google had bought

3:23:53 Admob. Yes. And the Mobile. Display add units. You could plus one it. Who the hell wants to plus one an ad? I mean this is like Facebook's like button.

3:24:03 but Google Plus's version. And they're like any Google thing should be plus wannable. So They even reached into YouTube comments and YouTube comments became Google Plus posts. Oof. I mean they almost killed the golden goose. Right.

3:24:19 They almost killed all of these golden gooses that they had. Yes. And so Google Plus, from a product perspective, it wasn't just Facebook. They brought a lot of really interesting ideas. Google Hangouts came out of this. Google photos came out of this. There were these things called Sparks. I mean they really rethought a lot of social networking. The issue is

3:24:40 Nobody really wanted to rethink social networking. That was a Google priority to get people to use this, not a user-driven one. And They tried to Essentially put rocket fuel on to scale something that really didn't have product market fit.

3:24:55 Well I really think That Key huge Mistake with Google Plus. You don't need a Facebook when there's already Facebook. Not even that.

3:25:07 Facebook was already dying. Mark Zuckerberg had already realized that the future of social was not What it looked like at this point in time. As Google is launching Google Plus in twenty eleven, June twenty eleven. Twenty eleven, twenty twelve, twenty thirteen, these were the big years for Google Plus. What is Mark Zuckerberg doing? He's buying Instagram.

3:25:27 He's buying WhatsApp. And He's remaking essentially, you know, Facebook into what Meta would become. Of like Hey, what we used to think of as social networking has bifurcated into two things.

3:25:41 public media i.e. you know YouTube, Instagram, UGC. And private messaging. And here's Google I kid you not, this is the craziest thing. Desktop first.

3:25:55 With a desktop only UI to arrange your friends into circles. Circles. That's right. Circles. Which is on its own Uh, it's such a computer science way of thinking about it. Oh, my friends are in sometimes overlapping, sometimes not overlapping groups that I want to carefully label so that I can identify d deterministically who I want to share what with. Right. Nobody wants to do that. Yeah. Here's the thing that just leapt out to me about Google Plus. This was Google's

3:26:25 Windows longhorn slash Windows Vesta. In our Microsoft saga, we talked about how Vista slash longhorn was the most damaging thing. to the company. Because of the distraction and the siphoning of resources. And the best talent away from working on

3:26:42 What really mattered. Now the question I was asking myself and others in research of Okay, what were the negative consequences of that? So like with Microsoft it was clear. Google who is the negative consequence. Like the whole reason Microsoft let Google Faster from

3:26:58 Yeah. perspective for all these years. And didn't kneecap them. Was they were tied up with all the distraction from Vista.

3:27:06 And losing relevance with developers because they keep selling'em a platform that kept not shipping and then when it eventually did ship, it wasn't good. Right. So then I was s sort of trying to figure out like okay, what what are the similar Consequences for Google

3:27:20 of the plus era. And at first I couldn't really think of it. I was like, Oh well, I mean Android's pretty good. YouTube's pretty good. Chrome's pretty good. Search is still pretty good. Gemini AI comes out later. It's all pretty good. But there are two things. Messaging probably. I bet in a a non plus world, WhatsApp, something like that could be owned by Google.

3:27:39 Yeah, two things. One is messaging. Totally miss messaging. So when I was a business school student at Stanford Eric was now executive chairman and he started co teaching a class at GSP and I took his class. I was one of his students during these years. It was awesome. It was one of the best classes I ever took. And the quarter when I was taking the class was when Facebook bought WhatsApp.

3:28:00 And I remember Eric coming into class right after it happened and just being like God damn it. We missed it. We totally missed it. That's because Google was distracted.

3:28:10 So that was one thing and then I realized the other As bigger or bigger thing. It's cloud. Google should have been Massively.

3:28:18 Investing. In cloud. And there are all sorts of reasons that they did. We're gonna save this for the next episode, but He's like, Yeah. Especially think about where the impetus

3:28:29 for this came from from Urs from this memo, the Ursquake memo, as it's known. Ur should have been focused on cloud. He should not have been focused on social. And Google had the wrong strategy in cloud. For many years. And as a result, that's why I'm not going to be able to

3:28:46 Their cloud business is way behind Amazon and Microsoft. And maybe they turn some talent. Maybe there were some good people that got burned by the culture sort of souring. You could argue this destroyed product velocity. Yeah.

3:28:59 So like people complain today that Google's always working on really interesting technology and they just never get cool products out the door. That is by far the biggest complaint you hear about Google from slow and big and bureaucratic and Folks on the inside and outside these days is just like Too slow. And yeah, yeah. That's probably the biggest negative consequences. Maybe you could trace that here. I bet you can. Because think about it. Before this We just spent this whole episode talking about all these amazing

3:29:26 Things they were building and shipping and acquiring and transforming. Until Gemini. And arguably that's a I actually don't know where Gemini stacks. Still a question mark. Until Gemini, what Great.

3:29:38 break through consumer service did they launch. After Google Plus. I got nothing. Oof. Yeah. That's pretty wild.

3:29:46 After having this incredible ten year run. And there was a lot of stuff they tried. I think some things for Android users. Think about Google Now with that predated Google Assistant. Maybe Google Home. These are not world changing products.

3:30:00 Right. It's funny, the thing that I keep thinking about from the Google Plus failure is this big existential Facebook threat they were worried about. I mean, there was a strategy memo in twenty thirteen where Neil Mohan said there is a risk that Facebook becomes the starting point of the internet. Google knew social was the future and tried to win it. But interestingly.

3:30:20 They didn't. And they've been fine. Right, right, right. It was all totally fine. And Facebook was really freaked out too that Google was gonna come in and win it.

3:30:29 I mean, Google was like this giant and Facebook was recently public going through their own problems. So even though it was kind of like A nothing burger and Google Plus was a footnote in history. Both companies were completely all in on this is the big battle. And ultimately Google wasn't a credible threat to Facebook.

3:30:49 And Facebook went in a different direction anyway. Facebook went in d a different direction. Yeah. So it's almost like the end of Burn After Reading. Have you have you ever seen that movie? No. I won't spoil anything, but the feeling you have at the end is you just watched all this crazy stuff happen and you're like

3:31:03 Whoa. Wait. Did any of that matter? That's how Google Plus feels to me. Yeah.

3:31:11 Funny. Google Plus did have two great surviving products, hangouts, which became meet and photos. Yeah. Photos is a billion user product today. Wow. Huge.

3:31:22 The biggest thing And I think this is like kind of getting back to my original postulate of Never waste a crisis. You know what we have today?

3:31:32 Google accounts. Mm. Yeah. You know what Google is today? It's one company.

3:31:39 It's not these little thiefdoms here and there of different people amassing power and building things in different ways. I mean I'm sure there's still plenty of that. Everything about Google got more unified from this era. They have a failed product and a smoking crater to show for it, but a unified look across all their products, a unified login, that would I think be pretty important for them going forward. Anyway, my snarky finish on all this is

3:32:02 It's tempting to say Google lost in social. Because Google Plus was this giant Smoking crater. But actually. All of social ended up pivoting to either look like messaging

3:32:13 Or like YouTube anyway. YouTube is kinda the winning paradigm in quote unquote social media and UGC media. Yeah. So they should have just done nothing. And just watch the money printer go burr.

3:32:26 Yep. To put a bow on it, uh Vic ends up leaving the company in twenty fourteen. In twenty nineteen, they finally Shut Google Plus down. There's a blog post about it. They cite like a big security breach as the reason of like, oh no, we've discovered there's this huge security vulnerability. Thus we need to Shut up

3:32:44 Down all of Google Plus. Dude. It's so bad. There's been fifty Google products that all sound kinda the same. They launched this one called Currents. At one point. And

3:32:54 When they shut Google Plus down. This is horrible. Many people wrote like articles. as posts on Google Plus and they're just gone. Yeah, that's right.

3:33:05 Actually it was sort of an impediment to doing some of the research for this episode'cause these posts are gone. So if you go to plus dot google.com slash anything, it just redirects you to Google Currents. However, Google Currents has now been shut down, so it is a Google Workspace blog post announcing the currents shutdown. Every time you click any Google Plus link anywhere on the web, you go to a blog post that tells you about the shutdown of currents. That's the most googly thing. They gotta do a better job with those.

3:33:36 Well. By twenty fifteen. The bridge to Alphabet. Yeah. It's clear it's time for a new era at Google.

3:33:46 The company announces The It is Reinventing itself. Is becoming.

3:33:52 An entirely different company. Google. is becoming Alphabet. Yeah.

3:33:59 And Larry Page will be the CEO of this new Alphabet. Holding company? Sun Darpachai will be the CEO of Google. Which would be by far. the largest in

3:34:10 Really. Primary operating company. Within Alphabet. Interestingly, they didn't at all decide to

3:34:17 Split up. YouTube or any of the products, etc. Yeah, that's they just spent all these years unifying it all. That's all Google. They broke out Google X. Yes. Google X they broke out.

3:34:28 Waymo is still part of X at this point in time that would later spin out as now part of Alphabet on its own, but the other bets Including an alphabet. Really quite clever the nomenclature here. Yes. Uh word nest that they had just acquired. Google Fiber, Calico, and Verily, their two health companies, Google X.

3:34:47 Lab. And then Google Ventures and Capital G the two. investing entities that they had. So You know then really the question is like, Okay, well

3:34:55 Who why did they do this? Why did Larry become CO of Alphabet. Why did Sunar become C of Google? I think this kinda had to happen as like a healing. After Google Plus. Sooner was a leader who had real cred going back to the early days.

3:35:11 And with Chrome and with Android, like the core great products, two of these core great products, platforms that we've talked about the whole episode. That of the year. really driven the Google flywheel all along. Interestingly, he had never worked in search or ads.

3:35:26 Right. But These are the platforms that it Shoehorn Google into the mobile era.

3:35:33 greatest existential threat. And Just also Sindar's personality. I think was a way to reunify the company and bring everybody back together. Definitely strikes me as a peacemaker among big ego. Yes.

3:35:47 And that Is where We're gonna leave Alphabet. Slash Google. For the moment.

3:35:54 Ben, give us a sense of How big this company had gotten. So at the end of 15, it's gotten huge. It's 75 billion in revenue. 52 billion of that is first party sites, Google websites, AdWords. Gmail. Maps.

3:36:08 fifteen billion the the smaller part. is over in double click Ad Sense Land. And actually that's pretty low margin revenue. So again, the lion's share in Google websites. YouTube is profitable at this point. And They're

3:36:22 Bottom line operating income. Google did about twenty three billion dollars in operating income. And their other bets at this point lost about three and a half billion. Their other bets are extremely interesting and will be the focus of our next episode. But the big takeaway here

3:36:38 The business was still in twenty fifteen and essentially is still today. Search ads. Yep. And what?

3:36:45 So strikes me. Listening to you say those numbers. In twenty fifteen. A They're huge.

3:36:52 But also Google is so much bigger today. On these same businesses with this same business model. Right. There was another five X scaling to go over the next ten years. Yes. It's crazy. Google back then was like twenty percent the size of Google now. And nothing has basically changed when it comes to the business model and products.

3:37:12 I mean nothing's changed since Two thousand two. Right. Well I think this era. What we talked about all the episodes, all the hits were

3:37:19 Stewarding that business through these sea changes. But nothing has changed about what the core business is. It just turned out that that seed of an I that search ads actually scaled to the biggest market in the world. Yeah. I Just like the last episode.

3:37:37 With Gmail at the end. I've got one little coda, one little teaser. For next time. Great. Ben, what if I told you That between

3:37:45 twenty fifteen and twenty sixteen. So this next year, this next twelve months after the Alphabet. Transition. All of the following people We're Google employees.

3:38:00 Alex Kushevsky of Alex Nett. Mm-hmm. Dawn of Machine learning, AI.

3:38:09 Uh his PhD advisor, Jeff Hinton. We do Godfather. Of AI. his collaborator on the Alexnet paper

3:38:19 Ilia said Skever. Founding scientist of Open AI. Dario Amadei? co founder with his sister of Anthropic.

3:38:29 Andre Karpathi until recently chief AI scientist at Tesla. Chris Ola. Nom Shazir. Ian Goodfellow. And of course, the co founders of DeepMind, which Google acquired in twenty fourteen, Demis Hasabas, Shane Legg.

3:38:47 And Mustafa Suleiman? Mustafa runs AI at Microsoft today. Andrew Ng. From Stanford, Quak Lee, Oriole Vinyalis, and oh yeah. In addition to all of those people.

3:39:01 The authors of the Transformer paper because Google invented the transformer and published the paper in June of twenty seventeen. Right, which is the novel mechanism that All LMs today from every big foundational model research lab is based on.

3:39:20 When I was talking to folks in the Research for this episode. An AI came up. One of them said. You know, I have to remind people when I'm talking to partners out in the ecosystem That the T

3:39:32 In chat. GPT. stands for Transformer and that we invented that. Because it is also during this time, while Ilya Is working at Google that he poses the question to his research colleagues in the Google Brain team that is working on all of this. Gosh!

3:39:51 What do you guys think if we just built one really, really, really big neural network. And we set it loose. With training data. On the entire internet.

3:40:02 Which by the way, of course, we can do here at Google because uh, you know Thanks to the accommodation of the search index. We index the entire internet. And all the products that we just talked about on this whole episode. We have all this data. And all of this content out there.

3:40:15 If we did that. Do you think it would learn? Everything? Well, David. That feels like quite the groundwork for the next episode. That feels like a story for next time.

3:40:25 Yeah. But through that lens, there is another way. To view everything. That happens. At Google. during this ten year period we just discussed.

3:40:36 Which is that there? Just collecting. all the access, all the information and all the talent. For AI. It's nuts.

3:40:43 There's a whole other world of research. who would be the people that would drive the next decade or five decades of change. And they basically had them all in one place at one time. They were all employees of Google. So I wanna end.

3:40:57 With one more quote. This time from Larry Page. All the way back. In the year Two thousand.

3:41:05 This is Larry talking in the year two thousand. Artificial intelligence would be the ultimate version of Google. So if we had the ultimate search engine. It would understand any

3:41:17 Everything on the web. It would understand exactly what you wanted, and it would give you the right thing. That's obviously artificial intelligence. To be able to answer any question. Basically because almost everything is on the web, right? We're nowhere near doing that now. However.

3:41:33 We can get incrementally closer to that. And that is basically what we work on. And that's tremendously interesting from an intellectual standpoint. We have all this data. If you printed out our index, it would be 70 miles high now. We have all this computation. We have about 6,000 computers. This is 25 years ago. We have enough disk space. to store like a hundred copies of the whole web. So you have a really interesting confluence of a lot of different things.

3:42:00 A lot of computation. A lot of data that didn't used to be available. And from an engineering and scientific standpoint. Building things that make use of this It's a really interesting intellectual exercise.

3:42:12 So I expect We'll be working on that for a while. Incredible. This is twenty five years ago that he said this. Amazing. All right. Should we do some analysis? Let's do some analysis. All right.

3:42:25 Let's do power. And For those who are new listeners, power is the section where we analyze which of the seven powers does Google have from Hamilton Helmer's framework that enables a business to achieve persistent differential returns or be more profitable than their nearest competitor and do so sustainably. Google is very, very weird to analyze for this because most of the way you think about Google is actually not where the economic transaction is. If you want to analyze the business, it is Why are

3:42:54 advertisers spending a marginal dollar with Google versus spending it elsewhere. And Google has the seven powers that show up in numerous instances all over their business. But I think the interesting way for us to do this analysis, David, is let's look at each one, just assume Google has them all, and say where is the biggest or a very large example in our mind of where each of them show up. Three. I like that. So counter positioning.

3:43:19 typically doesn't show up for incumbents for large companies. This is the exception, though, with Google. Right, where you just look at their sort of new businesses. For example, in this episode Talking about Android, they massively counter positioned against Microsoft. Right. The less than free business. Less than free business model. I mean, this is the clearest example of counter positioning. I think that has ever existed.

3:43:42 Oh hey, my competitors require you to pay them. How about I pay you instead? Right. And my competitors can't do that because they don't have The business model of advertising based on search such that they can justify doing this. Right.

3:43:57 Scale economies. Especially as they're adding all these apps, all these users across all this surface area. Now if you're an advertiser and you wanna reach users, you know, across search or display or video, utility. Google is a one stop shop.

3:44:11 Right. You don't have to sort of independently spend operational time and headcount on all these different platforms. You sort of get the one. And that's not even to mention the scale economies on the infrastructure side we talked about last time, or like they I mean they show up in every business here, but like that's just one example. And the fact that the more advertisers there are and the more users there are. the more profit Google makes because each little individual auction on an every individual search finds a maximal price. Yes. Network economies.

3:44:41 YouTube. Hello. More creators, more viewers, creators. Make money. From having views of their videos. Application developers on Android and users on Android, the two sided network economy is there. Yes.

3:44:58 Everywhere. Not to mention in the core business too in search. More users searching is more valuable to me as an advertiser because I have a deeper pool of people I can advertise to. So I can just deploy more dollars on your channel if it's working. Yep.

3:45:11 Switching costs. How about Gmail? Oh. I've got my last uh twenty years of email history in Gmail, all stored for free. Uh yeah, I'm not switching. In the core business there's not as much switching costs. I suppose there's a little bit of oh, because I've spent a lot of money the

3:45:30 targeting is very good at allocating my spend. But The switching costs in the core business for an advertiser Are not as prominent as other powers. I don't think I continue to spend on Google because it's hard to switch. I continue to spend on Google because they have all the high intent users for products other than you know Amazon. That's one of the two big search boxes in the world where people type in when they want to buy a product. So I'm going to advertise there. Has little to do with switching costs, I think.

3:46:00 Yeah. But for Users of Gmail. Oh and several of the other products like Enormous. For users.

3:46:06 All across the board, yeah. I won't leave YouTube at this point. the algorithms dialed to my interest. Oh yeah. That's a great point of switching costs of the algorithm on YouTube. Yeah. Branding, I think

3:46:19 In the heyday of Google that we're talking about in this episode. When they're launching all these incredible products. Yes, these products, one, because they're incredible and because they were free, but also like there was such a halo around the company. Like if there was a new Google product I would be

3:46:35 Shopping at the bit to go try. Yeah, that's super true. I remember I was desperate for Google Wave invites. Product completely failed, but I was completely dazzled by it and I was desperate to get Invite and access. The Google name meant something.

3:46:47 Yeah. And still does, by the way, which I think held them back in AI for a while. They know the Google name means something, so they or reticent to to throw their name on it and until they got kind of shoved off the cliff. Yeah. Cornered Resource.

3:47:02 Yes. Well certainly heading into the AI era now. YouTube, the YouTube catalog you can train on Yeah. All the data they have. Yeah. It's funny, I was about to say there

3:47:15 infrastructure, but I think that's actually a scale economy. They've built out the the infrastructure they have so they can run all their products as cheaply as they can. Yeah. I think the infrastructure is also a process power. Yeah. In that in the era we've been talking about, they could launch all these products

3:47:31 on their infrastructure just way cheaper than anyone else. You know what's a corner resource? They have built internal software And systems that is better. than what is available outside of Google. Hm. Great point.

3:47:43 A lot of the time they even create open source projects that are similar to their internal stuff, but they don't actually give away the internal stuff. Inside Google they still run Borg. They run far less Kubernetes than they run Borg. And Borg is part of the secret sauce.

3:47:58 Yeah. When you talk to engineers who've left Google. They miss. The infrastructure. So

3:48:06 Google has it all. All of them. And we can need a lot more examples, but we gotta go. Playbook. All right. I tried to get most of'em in as we were going in the story. The first is that Google really wanted to become a platform company. And I was sort of noodling on did they ever do this successfully? And I David, we sort of

3:48:26 They are advancing the platform of the web without owning the platform of the web. So if they didn't have Android. How would you answer the question? Is Google a platform company? Yeah, yeah, yeah.

3:48:42 I'd say it's sort of like a shadow platform company. It's like an ecosystem company. Right. And even with Android, okay, great, they own the target development platform. Their money is still made elsewhere. It's not a platform business. They may have a platform orientation as a company.

3:48:59 They build a bunch of stuff that for developers to build their applications on top of. But where their bread is butter is really as an advertising company. It's important when push really comes to shove on big strategic decisions the company has to make. Yeah.

3:49:14 Like Apple. Pure Play platform company. Microsoft, pure play pl platform company. They either sell software or hardware, and then they need the platform around it. T. bolster their sales. Google's very indirect.

3:49:27 Yeah. Alright, so that was one. The other one is they make tons of small acquisitions. famously. I mean that that run in the twenty tens, aside from the big ones, from YouTube, from Android, from DoubleClick from AdMob, there was also what became Google groups, spreadsheets, docs, Blogger.

3:49:43 They bought semantics with the patents and some of the tech for AdSense. They bought the technology for Google Maps, they bought for Google Analytics, Dodgeball, Feedburner, Recapture, Slide Jamble, Like.com, Wide Vine, Admeld, Punched. Zagot, Sparrow, Wave. I mean, like I could just keep going. Oh yeah. There are hundreds of companies they bought. And talking to folks in the research, there was this. Amazing part of Google culture. that also fit the strategy perfectly of

3:50:12 Help the web and the rich web and web apps bloom. Come work at Google. With these incredible people. Meet your co founders. Go start a startup. Leave Google. Right.

3:50:23 We will then reacquire you back into Google. In a couple of years. It happened dozens or hundreds of times. I remember seeing this happen from the outside and thought Google is nuts to let this happen.

3:50:35 But I realize now, no, this was all part of the strategy. Yeah. It's all good for the web. Yep. You can run very indirect, generous, long term strategies like that.

3:50:46 with a money printer like Adverts. Yes. I know I keep coming back to that, but that is at the core of what drives everything. This one's a little bit less playbook, but just an observation. I watched the Google I.O. keynote with glass and I

3:51:01 watched a bunch of glass content. I even back in the day at a startup weekend launched a Google Glass app. Oh nice. So After watching all this glass content. And it's the butt of every joke now. Meta Ray Bans

3:51:15 And Google Glass. Are the same thing, feature wise. Yep. The gestures on the side. The fact that it could take a photo. I mean, Google Glass was a little more advanced. It could run these like very basic text based

3:51:28 App. But I'm sure when Meta launches their little hologram version. Of the glasses, that's gonna be Eerily similar.

3:51:37 So like of course you could say, Oh, it's just timing. But here's the thing, Google's made you look like a cyborg. Metas is for normal people, and there is no better metaphor for the cultural difference between Facebook and Google than this. Google's a bunch of wacky academics who did not really understand why this would make the product fail. Facebook is founded on the idea that you're trying to be cool. Yeah.

3:52:00 I went and did a partnership with Esteloral Exotica. Two. Get the tech into Glasses. That normal people wear. Yes.

3:52:10 It was crazy watching these demos'cause I'm like, these are the meta AR demos. It just happens to have a cool factor versus not. Yeah. And then my last one is

3:52:22 This idea that they did figure out a way culturally to get people amped about just build great products. Figure out how to do something really hard from an engineering perspective that ends up being really useful. And ship things that people love. It's not that you didn't have to think about a business model, but a lot of the time for many years after launching a product, you really didn't.

3:52:44 Yep, it's like we talked about earlier. There was this thin layer of Really, really, really tight, really great strategy. That was Just like a few people at the top of the company. But below that

3:52:57 It was just make a great product. Yes. Alright, I've got Two for playbook one. That I'm gonna make my quintessence.

3:53:06 We said this in the Android chapter, but like Android was the mother of all winds. It was so big. To win.

3:53:16 With the Android. Nobody stretches a business model across Technology eras nobody. And Google did it.

3:53:26 In a dominant way, where they are they are the dominant company in the next era as well. Yeah. It is the Google version. of Azure from our Microsoft series. It absolves any and all sins. Not that there were many at Google. The only one was Google Plus. The only way it could have gone better is if instead of launching Android, they launched the iPhone and they also got

3:53:45 The iPhone profits. Rather than just Some small dollars that protected their core business. Yep.

3:53:52 That was my Playbook. And then my quintessence is It is wild that this one company Has

3:53:59 Eight. Products. With over a billion Users. And started

3:54:05 This error with just one search. That didn't even have a billion users yet, but Search, Android, Chrome, YouTube, Gmail, Maps. Drive. Photos.

3:54:15 And then if you count the Play Store as separate from Android, which Google does, I think that's a bit of a stretch, but if you do Then they have nine. Products with over a billion users. And just for context. Meta. Is the next

3:54:28 Highest. count of products in one company with over a billion users. They have four. The blue app. WhatsApp. Instagram and Messenger.

3:54:38 Metal likes to claim they have five. They like to say that Meta AI in aggregate has over a billion users embedded across all their own. Yeah, but this whole superintelligence thing is an admission that the active users of meta AI is a little uh stretchy. If the Play Store doesn't really count on its own, then Meta AI for sure doesn't really count on its own. So meta has four. Apple I think only has three Maybe four, so

3:55:03 The three Apple has for sure. our iPhone. I message and Safari. iPad, maybe I don't think so. Mac definitely not.

3:55:15 I basically don't count any iPhone app'cause they all come for free when you get the phone. Okay. So by your definition, Apple has one. With Ivan. I think Apple has one. Okay.

3:55:25 All right. Let's take that same definition. How many of these came for free? at Google. Google search. Android?

3:55:33 Those are two completely different distribution channels. Chrome. Yep. I don't think any of these came for free. I mean Google helped Chrome? No, yeah, these are all independently Have achieved billion plus users.

3:55:45 Gmail and Google Drive sort of advantage each other, so I think you can c sort of subtract one of those out. Yeah, but it's not to the extent that iMessages default with an iPhone. Right. Maps is advantaged by Android. They ship a whole lot of maps, so But probably whatever the phone was would have a great Google Maps app. Yep. Okay. All right.

3:56:03 I buy Apple has one. Microsoft has Two Windows and LinkedIn. Amazon doesn't have any. billion user products.

3:56:12 Google's got eight. Like that's incredible. Uh, call it seven or six. I think is reasonable to subtract out. Okay, fine. But still that's that's exactly right. Whatever. That's my point. This is my quintessence. This period.

3:56:26 At Google. Is a run like Nobody's ever had. Yeah. Absolutely right.

3:56:33 Alright. What you got? So quintessence for me is the thing that I sort of can't stop thinking about from the episode. And I decided this time I knew what it was going in and I decided to hide it all the way until the end. So we haven't talked about this thing yet.

3:56:46 Oh, okay. Almost all of Google's successful products Are based on a core technology insight. that is underneath the whole thing.

3:56:56 Mm. The type of insight that could be In an academic journal. Yeah. Someone told me this And I've been using it as a little litmus test for

3:57:07 Will a product work or not? And as you look through, I mean you look at the original search. That is by definition the page rank algorithm is a core Technology. Insight. I mean they published it as an academic paper.

3:57:21 The way that the ad-based auction works is a core, it's almost mechanical. in its elegance and its brilliance and its simplicity. It is a technology insight that and everything we talked about in Google part one, our first episode. Then you look at everything that succeeded this episode. Gmail.

3:57:38 the way that they are able to do like gigabyte of storage, Ajax, fast responsive web application. You look at maps and docs with real time collaboration, breakthrough Core technology insight. Yeah. YouTube.

3:57:53 Uh. Yeah, totally. Yeah. Serving video on demand to the entire world? Absolutely. Being able to scale that and make it a real going concern.

3:58:02 Chrome four core technology insights, maybe six, maybe seven. In the original comic. Yep. Android.

3:58:10 I can't name one. Magical core insight. This one may kinda be the exception,'cause like, yeah, that's technically hard and all that, but there's not like An elegant thing that's the reason that

3:58:22 Android succeeded. It was perfect execution in a lot of ways strategically, distribution, marketing, partnerships. Okay, well no, I I got what it is. It's the same thing as the iPhone. It was an incredible achievement.

3:58:37 Two Wrestle. OS ten. into iOS and to get it to run on a battery powered mobile device that fit in your pocket. And Android did the same thing with Linux. They wrestled Linux.

3:58:50 into a battery powered Mobile device that fits in your pocket. Yeah. Less of an elegant, satisfying Core insight, I think.

3:58:59 And not the reason that it worked. I mean not the reason why Android. Unlike these other ones, there's a clear line between the it's almost like The Google products that succeed wildly organically Except for Android. are ones where there's almost no product. The technology solution is just so incredible that it is

3:59:19 directly the user experience and you get the technology breakthrough as the experience. Yeah. Yeah, I I sort of see where you're going. But then look at the other ones. Google Plus.

3:59:30 Google Wave. These are like products. These are like user experiences that people come up with that don't necessarily have a breakthrough technology underneath them. Google Photo is actually quite the opposite. All of the AI stuff that's been d happening photos for a very long time That's why it worked. Like people wanted all these incredible magic features that come with Google Photos. It's funny. As someone told me this in the research, I it's been sort of batting around in my head. And then I'm reading Eric Schmidt's book. And Eric Schmidt said he would ask PMs

4:00:01 What is your core technical insight that makes it all work? And if there wasn't a good answer, he wouldn't fund the project. They figured this out at Google too. It's a googly thing. That This Genius technology.

4:00:15 is the product itself. And if you try to craft some cool idea that you have that is not just directly translating Tech breakthrough. It's not gonna be the type of product that succeeds at Google.

4:00:29 They don't know how. Some people can make an Instagram. And those people are not Google. Yeah.

4:00:37 Ironic but Kevin Sistrim was a Firstwhile Google employee who left to start a startup. Yeah. Yes.

4:00:43 Anyway. I think that has made it extremely clear to me when Google products succeed and when they fail. Love it. Spot on. All right.

4:00:52 Carvs. Carve outs. I've got one and then I've got my Long awaited. Follow up.

4:00:59 Oh my God. We've been awaiting with bated breath. Listeners, what game console did David buy? I'm gonna make everybody wait for uh Yeah. My Actual carve out for the episode. Is

4:01:12 When we were In New York for Radio City. My whole family came, the girls came. And we stay for the rest of the week after the show.

4:01:22 And We took The girls. To the bowie. Experience at the camp store.

4:01:28 In New York City. And it was Awesome. Lived up to expectations, lived up to the hype. They basically have recreated

4:01:38 The Bluey House. In This physical space. In New York City. the house is almost a character in the show and they have recreated it.

4:01:49 And they just let you and your kids in. To roam free in the house, then you have a magical moment at the end of the experience. It was cool. Highly, highly recommend if you're in the blueie. Demographic and happen to be in New York. Okay, what game console did you pick?

4:02:05 I bought the Steam Deck. The Steam Deck. I bought the Steam Deck. And it's great, although I haven't Truth be told, head. Much time to play it this past month with everything we've had going on. Radio City and then Preparing.

4:02:16 Yeah. But it's great. How'd you pick? What was the ultimate It ultimately came down to As much

4:02:25 As I desperately wanted My older daughter. To be ready to play Mario Kart with me. She's just not. And so if you're buying a console for just you to enjoy, you went with the Steam Deck. Yeah.

4:02:37 And I was like, uh I would probably enjoy the Steam Deck more. Do you endorse it? Do you recommend it? Yeah, what Valve has done with the Steam Deck. I didn't realize until Buying it and using it. is incredible.

4:02:47 They have abstracted a PC gaming machine into a console. Experience. So I've always liked P C type games.

4:02:57 But I haven't been a PC gamer in many, many years'cause like I'm not gonna build a gaming machine. Or even you could just buy one, but like oh I don't need another PC. Where am I gonna put it? What am I gonna do with it? I want the console simplicity of just Buy the damn thing, turn it on, buy the games. Play them. Right.

4:03:14 Valve has created that in handheld form. It's awesome. You don't have to worry about any of the Drivers or specs. It's really, really impressive. All right. Good to know.

4:03:24 So I will buy a switch too. At some point, probably in the next year or so. But for now, Steam Deck. I What are your carabouts? I've got three

4:03:34 Who can't My first one, and I swear to God this is unrelated to their sponsorship, is Claude. Amazing. It's so great. It's so good. Using AI has completely changed the way that I prepare for these episodes now, and I cannot imagine going back. I hear AI is a thing. I hear AI is a thing.

4:03:51 So that's the first one. I just find myself In it. All day now. Two is the Sony R X one hundred

4:04:00 VI or seven. So I recently bought a different camera, the Fuji X one hundred VI. Or the six? Yeah, that's what you had in New York.

4:04:10 Yeah, and it's great. It's like the internet's favorite camera. It has these amazing film simulation color profiles. It's like a camera though. I carry it around my neck. Because it's like It's a camera that you hold and use and it's very fun shooting thirty five millimeter equivalent. It feels like I'm taking pictures the way that pictures were meant to be taken. It's not a full DSLR, but it is like a

4:04:30 Big thing. Exactly. It's a handheld, but I wouldn't call it a pocket camera. Now the funny thing is the thing that I'm actually talking about as my carve out is the Sony camera. She'll Monot. Tweeted.

4:04:41 Actually this morning I should have been preparing for this episode and I was like reply to him on Twitter instead that he's been considering getting this Sony or another point and shoot camera. And I just kind of remembered how much I love this camera, the Sony RX one hundred seven fits in my pocket. It's very small. It has a giant zoom lens for its size.

4:05:01 And I was just looking at some of the pictures that I've taken with it. It's like the perfect thing to bring with a phone whenever I am space constrained, which is usually I mean, I just don't really want a camera around my neck. The perfect combo is bring a phone and bring the Sony. I am aware that it's not a full frame camera. I'm aware that it's not as

4:05:20 photography as my Fuji, but it is the most practical one for most things that I want to do. And for many, many shots, it is far superior to shooting on a camera phone. So I don't know. I just love it. It's a twenty nineteen camera and they really need to come out with one that has USB C because it's annoying to charge. But other than that. It's just awesome.

4:05:40 So I highly recommend it. A point and shoot camera. Point and shoot camera, especially paired with Lightroom has this great AI feature called denoise that they launched and is now rolled out in production. is incredible. Want it? Then I have one more last one. A listener

4:05:57 recently sent me he started a clothing company called Kerasimi. And It is an incredible garment. It is just this like really, really nice cashmere shirt. I've been wearing it all recording. It's great on a cool day. It's great on a warm day.

4:06:12 It's my current favorite shirt. And so I wanted to uh thank the listener that sent it to me and say you have built A very uh The prices are high, so very nice clothing company. But Just excellent products. Well, I I've been staring at you for the past seven and a half hours here and I've been thinking the whole time, God, Ben is looking good.

4:06:31 My normal thing, if I could just wear it every day, is a long sleeve dark crew neck. So it's like I don't have to think about it. You can look nice in it. It just goes with everything. It's you know, the sort of capsule wardrobe idea and this is the sort of finest version of that that I've worn. It's really great.

4:06:46 Kara Cimi. Nice. All right. With that. Listeners.

4:06:52 We have a bunch of people to think. for contributing to this episode. Yes, yes we do. Hiroshi Lockheimer. Tim Armstrong, Sam Shilis. Hunter Walk, Nick Fox, Shona Brown.

4:07:05 Clay Bavore. A bunch of folks who Help a little bit here, but More gonna be for the next episode. Max Ross, Greg Carrado, Demis Asabis,

4:07:15 And then Ben, you had a bunch of folks who you spoke to as well. Yeah. As always I want to thank Arvin Navaratnam from Worldly Partners for his excellent write up what you can find linked in the show notes. And also Paul Bukite, creator of Gmail.

4:07:28 Bill Corinne. Jonathan Richelle. Bradley Horowitz. John Hanke. Ben Idlesen.

4:07:34 Isar Lipkovitz. And Ben Liebald. And that is in addition to As always, the many folks who helped us, whose names we can't say here, but know you are appreciated. Yes.

4:07:45 And thanks to all of you for listening. Seriously. If you like this episode and uh you're like, Oh wait. There's a Google episode before this. Most of you have probably listened, but if you have not, go check out our first episode on the origin of Google and the creation of the search engine and the search business. And of course

4:08:04 Other side of the story. Two. Everything we talked about here. In addition, our giant episode on meta is probably pretty relevant.

4:08:16 And we referenced it several times. After this episode, check out ACQ2, our second show where we talk to founders and CEOs building businesses in areas that we have covered on the show. Our last one was with Google Legends, really industry legends, Brett Taylor and Clay Bavour about the current state of AI and where we are headed. So search ACQ2 in any podcast player. Come chat with us in the Slack that's acquired.fm slash Slack, and join the email list for all the excellent email goodies. including voting on episodes for this fall. With you.

4:08:50 With that listeners, we'll see you next time. See you next time. Who got the truth? Is it you, is it you, is it you Who got the truth now

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