A Search for Google’s Success Turns Up Two Words: Trust and TechnologyPublished: September 26, 2001 in Knowledge@Wharton
For all the problems faced by dot-coms over the past year, the Internet nonetheless offers stunning services. Type a few keywords into a good search engine and up pops a list of related websites from all over the world. In seconds, a user can do research that might have taken months back when the only sources were old-fashioned libraries. Indeed, searching is the second biggest activity on the Internet, behind e-mail.
Odd, then, that so many well-known search engines have struggled. Excite is in deep financial straits and many analysts expect it to go under. Well-known engines such as WebCrawler, Lycos and Infoseek have either shut down or turned themselves into fronts for other engines. One of the biggest names, AltaVista, has suffered a steep decline in market share.
But then there is Google.com, clawing its way to the top of the heap. Jupiter Media Metrix, the web rating service, reported in July that Google was first among the free-standing search engines, handily beating GoTo, Ask Jeeves and AltaVista. (Search sites associated with portals such as Yahoo are not included.) Among all websites, Google was 15th in usage in July, with 15 million users.
While financial data is limited because the company is privately held, the Mountain View, Ca. firm says it has turned profitable this year, making it the envy of money-losing dot-coms everywhere.
With a combination of top-quality search service and high credibility among users, Google offers some valuable business lessons - not just for search engines but for other types of Internet services as well, according to two Wharton professors.
"Google is a little unusual among dot-coms because it competes based on performance, not glitter," says David C. Croson, professor of operations and information. "It’s simply the best at search, period. It finds pages that other search engines can’t find. And when you search 30 times a day, as I do, performance is what matters."
For any search engine, the problem is to be thorough and finely focused at the same time. No busy user wants to wade through hundreds of thousands of hits, but a search engine that produces only a handful of results has probably missed valuable targets. "Google became a huge web favorite because it’s simple and it works," Wired magazine proclaimed recently.
The details of Google’s search methodology are a proprietary secret. But the company says its trademarked PageRank technology seeks out pages containing the user’s keywords, and then ranks the results according to "votes" that have built up over the time the page has existed on the Internet.
"In essence, Google interprets a link from Page A to Page B as a vote by Page A for Page B," a company description states. In addition, Google ranks the importance of the pages that cast the votes, and those ranked as most important are given more weight. Rankings are also influenced by the prominence of keywords on pages found, based on factors like typeface and positioning.
"Google’s technology uses the collective intelligence of the web to determine a page’s importance," the company says. "Google does not use editors or its own employees to judge a page’s importance."
The company was founded in September 1998 by Larry Page, now 28, and Sergey Brin, now 27. Each was a Stanford University PhD candidate in computer science. They received financing from venture capital firms Kleiner Perkins Caufield &Byers and Sequoia Capital, as well as Stanford and others.
Earlier this year the company, seeking an experienced technology manger, appointed Eric E. Schmidt as its chairman. Schmidt added the role of chief executive in August. Schmidt, 47, is a former chief technologist for Sun Microsystems. Most recently, he had struggled to turn around software maker Novell, where he was CEO.
Analysts say Google has been run frugally. It did not engage in the massive advertising campaigns typical of so many dot-coms in 1999 and early 2000, relying instead on word of mouth. Hence, it has not been forced into the deep cutbacks that have hurt some of its rivals.
Search engines receive much of their revenues from advertising. Some observers say Google has weathered the past year’s ad slump better than its competitors because it relies on text-only ads linked to keyword searches. This is a growing ad niche because of the strong likelihood the user will be interested in the ad. Meanwhile, banner ads, the scatter-shot approach used at many other search engines, have become less profitable; many users find them intrusive and simply ignore them.
Google says it receives the largest portion of its revenue from licensing agreements with approximately 130 other companies. Yahoo, for instance, falls back on Google searches when its own search engine fails to produce a good match for the user’s keywords.
Advertising and licensing are obviously more valuable if a search engine attracts lots of users. Aside from its effective searching, Google has won users’ loyalty by keeping its searches clear of conflict of interest.
Many search engines sell prominent display space to web pages. Thus, the first results displayed in a search are sponsored sites rather than ones the search engine has deemed most relevant. Defenders contend payment makes searches better. Because a website must pay the search engine each time a user clicks on it, the site has a financial incentive to be sure it is relevant to the user, they say. But consumer groups have criticized the industry for being less than candid about this practice.
Google sells "sponsored links" which are sorted and displayed according to the user’s search terms. But the links are prominently labeled as advertising, and they are displayed separately from the search results.
This is appealing to many users who are annoyed by the interference created by unlabeled sponsorship, says Wharton marketing professor David C. Schmittlein, who has studied search engines. Some engines, such as AltaVista, allow users to exclude sponsored sites but do not give this option very prominent display, he says.
According to Schmittlein, for many users, sponsorship – or the lack of it – becomes part of a broader issue of fair treatment. Some users may associate sponsorship with past controversies, such as cases of travel sites that steered users to sponsoring airlines that did not offer the cheapest flights.
Internet users have a number of concerns these days, Schmittlein says. Are Internet companies installing undesirable features such as cookies on one’s computer? Are one’s personal information or search patterns being sold? "If you are getting spam e-mail, why are you getting it?" he asks. Since users generally cannot tell what is going on behind their screens, they may pick Internet services based on a general sense of whether they are treated fairly.
"An organization that is perceived as doing a relatively good job, or of being relatively forthcoming in one area of trust, is seen as doing well elsewhere, too," Schmittlein says. "The value of that trust element has not been going down over time."
The combination of trustworthiness and effective search technology has given Google a solid niche, he says. Few users go to the trouble of using more than one search engine. And many advertisers prefer to stick with one large, effective site rather than paying for placement on many smaller ones, Schmittlein adds.
As king of the mountain, Google may well turn out to be one of the Internet’s long-term successes.