Ken Auletta - Googled - The End of the World as We Know It

This was round two of the founders’ unease with Schmidt. Page and Brin would whisper to other Google executives, said one recipient of these whispers, “What does Eric do?” This executive believes Page wanted to reclaim his CEO title. Sometime in the summer of 2002, Coach Campbell again intervened. With the fervent support of John Doerr, the coach set out to make the marriage work. Before 2003 was very old, the three men achieved harmony. Asked in 2008 to describe the most important milestones in Google’s success, Doerr does not cite the myriad deals with Yahoo, AOL, or revenue gushers like AdWords or AdSense. Instead, he said, “The biggest milestone was for Larry and Sergey and Eric to conclude they were going to work together. It did not happen overnight. They learned to adapt. Bill was very helpful in that, and I was too, in a less key way.”

By the end of 2003, the Google rocket was cruising. Its search now controlled 60 percent of the market outside the United States, which produced nearly a third of its revenues. Many of its search competitors-AltaVista, Infoseek, Excite, HotBot-had crashed or would soon crash. Yahoo and Microsoft had jumped into the search business, but Google soared far above them. Already it was common to say “I’ll Google it,” rather than, “I’ll search it.”

Google’s employee roster nearly tripled in size between 2002 and 2003, reaching 1,628 at the start of 2004. Like a child outgrowing his clothes, the company had become too big for its two-building campus on Bayshore Parkway in Mountain View. Its new campus, christened the Googleplex, was a stone’s throw from the old one, faced the same mountains and desertlike expanse, and sprawled over so much territory that Google provided bicycles for employees to travel between buildings. It is a measure of Google’s confidence in its own future growth that the company leased 1.5 million square feet of office space in four multistory buildings that once housed Silicon Graphics, and would eventually purchase an additional fifty-six buildings and 2.5 million square feet of building space on sixty nearby acres in Mountain View.

Although its growth was extraordinary, Google remained below the radar of most media companies, unlike Microsoft in the nineties or IBM in the eighties. “Don’t be evil” was a heartfelt, galvanizing slogan for Googlers, but it was also an effective way to brand Google as a nonthreat ening, almost cuddly, company. Google had bumped into book publishers and the AP, but it was not yet widely perceived as anything more than a narrow search company. As a private company, it was not required to reveal its profits or aims, and so the menace Google might pose to the old media-to broadcast and cable television, to advertising, to movies and print and telephone-was not yet apparent. This was about to change.

(2004)

To grow, Google needed investment capital, but its growth forced a difficult decision. In 2003, Google passed the five-hundred-shareholder mark, and federal regulations stipulate that a year after reaching this threshold companies had either to offer their shares for sale or open their books. Either way, the innards of the Google rocket would be revealed. Page and Brin didn’t want to go public, said Schmidt; they were fearful of revealing to competitors proprietary information and the company’s true trajectory, but also of having to cope with what they considered the short-term mania of Wall Street. They abhorred the idea of doling out fees to investment banking advisers, of going on road shows to sell their story to investors, of allowing Wall Street to set the initial stock price-in short, of doing things the usual way.

The founders knew an initial public offering of stock was necessary, but they refused to listen to the experts, or to Schmidt and the three other board members: John Doerr, Michael Moritz, and Ram Shriram. They approached the IPO as if it were a science problem, with Page and Brin crafting their own solution. Instead of allowing bankers to arbitrarily set the floor price of the stock or allocate shares at a predetermined price to favored clients, the founders came up with a more egalitarian method. They would run an auction similar to the one Google used to sell advertising. Google would set a floor price, and anyone who made an online bid that matched or exceeded it could acquire a minimum of five shares. Instead of paying the usual 7 percent fee to Wall Street underwriters who were necessary to sell stock, they would cut this fee to about 3 percent. And to protect what they saw as Google’s “core values” and maintain a long-term focus, they would implement a dual class stock ownership. The class A shares sold to the public would receive one vote; the class B shares, retained by the founders and by Schmidt and senior managers, would receive ten votes per share, and would comprise 61.4 percent of the voting power.

When the founders proposed this stock structure, Doerr and Moritz objected, and strenuously. Like many on Wall Street, the two board members recoiled at the thought of treating some shareholders as second-class citizens, and of potentially insulating management from accountability to shareholders. “It seemed to me vaguely undemocratic,” said Doerr. Shriram was caught in the middle. “I didn’t want to take a position until we reached agreement on the board,” he said. The VCs had another concern, said a participant in these discussions, about the precedent this might set with their other start-up clients. But the founders had done due diligence, consulting with Barry Diller, who serves on the board of the Washington Post Company, which, like the New York Times Company, has two classes of stock. Diller noted that other companies, including Warren Buffett’s Berk shire Hathaway, also have dual voting stock.

The founders were unbending, and Coach Campbell was called upon to help coax Doerr and Moritz to go along. To be even more transparent about their intent, Page and Brin decided to prepare “A Letter from the Founders,” to accompany the SEC filing. Written by Page, the letter began, “Google is not a conventional company. We do not intend to become one.” To ensure Google’s continued creativity and focus on users, rather than investors, they would be unconcerned with “quarterly market expectations,” did not “expect to pay any dividends,” and would not partake in the usual corporate ritual of offering “earnings guidance” by predicting quarterly performance. “A management team distracted by a series of short-term targets is as pointless as a dieter stepping on a scale every half-hour,” the letter declared. They would make big investment bets, even if these only had “a 10% chance of earning a billion dollars over the long term.” They would continue to “run Google as a triumvirate,” even though this management structure “is unconventional.”

They minced no words about the implications of this stock structure: “The main effect of this structure is likely to leave our team, especially Sergey and me, with increasingly significant control over the company’s decisions and fate, as Google’s shares change hands.” They were also telegraphing that the two founders, who together owned 32 percent of the shares, were more equal partners than Schmidt (who owned 6.1 percent), or Doerr, Moritz, and Shriram (with 8.7, 9.9, and 2.2 percent respectively). Years later, Page described his and Brin’s motivation: “We were concerned in going public that we would have to change the way we operated, compromise our principles. It ended up being a good way of stating upfront the kinds of things we were thinking about and making sure that everybody who was participating was comfortable. By going public you take on a lot of shareholders, and the shareholders obviously have some amount of rights. But we, who are running the company, also have some degree of rights. We felt like it was better to be explicit… and allow us to be able to do the kinds of things we wanted to do.” While candid, the letter could have used the skill set of someone with a liberal arts education; say, an editor. Eight times in six pages they repeat a variation of the same messianic vow: to make “the world a better place.”