How Google Works

by Eric Schmidt

Rather, they follow the conventional MBA approach of figuring out what they are best at (their competitive advantage, per Michael Porter),64 and then leveraging that to expand into adjacent markets. This approach can be very effective if you are an incumbent that measures success in percentage points, but not if you are trying a new venture. You will never disrupt an industry or transform your business, and you’ll never get the best smart creatives on board, if your strategy is narrowly based on leveraging your competitive advantage to attack related markets.

But Excite@Home’s engineers knew that those older processors didn’t have the horsepower to do anything interesting with a broadband connection, and that customers with those computers who bought their service would have a bad experience.

Jonathan and colleagues marketed to what users said they wanted, but market research can’t tell you about solving problems that customers can’t conceive are solvable. Giving the customer what he wants is less important than giving him what he doesn’t yet know he wants.

The best products had achieved their success based on technical factors, not business ones, whereas the less stellar ones lacked technical distinction. Our

We are entering what lead Google economist Hal Varian calls a new period of “combinatorial innovation.”

The guys in the labs and studios working on new, interesting stuff? Whatever that stuff is, that’s your technology. Find the geeks, find the stuff, and that’s where you’ll find the technical insights you need to drive success.

Another potential source of technical insights is to start with a solution to a narrow problem and look for ways to broaden its scope.

Our favorite example of building upon a solution developed for a narrow problem has to do with those clever early adopters of technology, the adult entertainment industry.

Soon we had a filter called SafeSearch that was far more effective in blocking inappropriate images than anything else on the web—a solution (SafeSearch) to a narrow problem (filtering adult content).

That sort of incremental innovation can work very well for incumbents who are concerned with maintaining the status quo and quibbling over percentage points of market share. But if you are starting a new venture or trying to transform an existing enterprise, it’s not enough.

fairly obvious approach, but it is a lot more difficult to practice

If you are trying to do something big, it’s not enough to just grow, you need to scale.

That doesn’t mean that your strategy can ignore the question of how to scale, just the opposite. Scaling needs to be a core part of your foundation. Competition is much more intense and competitive advantages don’t last long, so you have to have a “grow big fast” strategy.

The ecosystem matters a lot. The most successful leaders in the Internet Century will be the ones who understand how to create and quickly grow platforms.

A platform is, fundamentally, a set of products and services that bring together groups of users and providers to form multisided markets.69 Platforms are increa...

It took the global phone network eighty-nine years to reach 150 million phones.

Amazon always focuses on growth. Now it is one of the most disruptive forces in at least three different industries: retail, media, and computing.

After all, Larry reasoned, when someone did a search they were telling Google exactly what they were interested in.

But it didn’t. Instead it invested in improving the search engine.

The Google founders knew that they would make money from advertising. Initially they didn’t know exactly how, and they were biding their time while scaling their platform, but they were very clear about the general revenue model.

There’s another important benefit of platforms: As they grow and get more valuable, they attract more investment, which helps to improve the products and services the platform supports. This is why, in the technology industry, companies always think “platforms, not products.”

One very compelling—and underappreciated—aspect of the Internet is how it has greatly expanded the potential to build platforms not just in the technology business, but in any industry.

So the twentieth century was dominated by corporations that were large hierarchies—or, at their most expansive, closed networks.

Today, Coase’s framework still holds true—but it leads to radically different outcomes than it did in much of the twentieth century.

Nowadays firms should shrink until the cost of performing a transaction internally no longer exceeds the cost of performing it externally.”

But they miss an important point. In the Internet Century, the objective of creating networks is not just to lower costs and make operations more efficient, but to create fundamentally better products. Lots of companies build networks to lower their costs, but fewer do so to transform their products or business model. This is a massive missed opportunity for incumbents in numerous industries, creating a giant opening for new competitors.

Twitter is not a technology company, it is a publishing company. Airbnb is a platform for the lodging industry, while Uber is one for personal transportation services.

These companies assembled existing technology components in new ways to reimagine existing businesses. They set up platforms for customers and partners to interact, and use those platforms to create highly differentiated products and services.

This is the difference between twenty-first- and twentieth-century economies. Whereas the twentieth century was dominated by monolithic, closed networks, the twenty-first will be driven by global, open ones. There are platform opportunities all around us. The successful leaders are the ones who discover them.

To grow its search platform in the late ’90s, Google focused on one thing: being great at search, which we measured along five axes—speed (fast is always better than slow), accuracy (how relevant are the results to the user’s query?), ease of use (can everyone’s grandparents use Google?), comprehensiveness (are we searching the entire Internet?), and freshness (how fresh are the results?). The company was so intent on getting users the right answers, that Google search results often included links to Yahoo, AltaVista, and Ask Jeeves at the bottom of the page so users could easily try those sites if they didn’t like Google’s results.

Netscape, Yahoo, America Online (AOL)—weren’t that interested in search, and were happy to cut partnerships with Google to let us handle that task.

(Hal Varian calls the Internet “a lab experiment that got loose.”)

Netflix is a case in point: In 2006, the movie-rental company wanted to improve its recommendation algorithm, but internal efforts had plateaued. So they took a previously proprietary data set of a hundred million anonymized user movie ratings and published it, while announcing that the first person or team who could use that data to beat the current algorithm’s accuracy by at least 10 percent would win a $1-million prize. Even the contest was open: Netflix reported top teams’ progress on a public leaderboard, and within three years a winning solution emerged.

A final thought on defaulting to open is the concept of user freedom, a practice that is the opposite of customer lock-in: Make it easy for customers to leave. At Google we have a team whose job it is to make it as easy as possible for users to leave us. We want to compete on a level playing field and win users’ loyalty based on merit. When customers have low barriers to exit, you have to work to keep them.

When you have a product that is demonstrably better (usually because it is based on strong technical insights) and you are competing in a new, rapidly growing market, you can grow quickly without opening up the platform. This was the case with Google’s search and ads engines in our early days, but it is a fairly rare circumstance.

Opening up our search and ads algorithms would severely compromise quality, since there are many parties in the search world who profit from a worse user experience. They don’t want users to view and click on the most relevant results and ads, they want users to see and view their results and ads, even if it is a crummier experience for the user. So the search ecosystem is best served, we believe, by keeping secret the algorithms by which we match results to user queries.

Meanwhile, Apple launched the iPhone, built on a closed iOS, opting for control over scalability. Android stayed open, grew extraordinarily, and helped Google smoothly navigate the platform shift from PC to mobile by giving us a platform that was highly complementary to search (more people online with smartphones means more people searching more often). iOS stayed closed and achieved both massive scale and profitability. From the perspective of a new venture, either path is a win, but keep in mind that Apple’s success with the iPhone, just like Google’s with search, was based on an unusual set of technical insights that yielded an obviously superior product in a rapidly growing space. If you can achieve that sort of extreme impact with a closed system, then give it a shot. Otherwise, default to open.

But as Larry Page says, how exciting is it to come to work if the best you can do is trounce some other company that does roughly the same thing?

you focus on your competition, you will never deliver anything truly innovative. While you and your competitors are busy fighting over fractions of a market-share point, someone else who doesn’t care will come in and build a new platform that completely changes the game.

Larry again: “Obviously we think about competition to some extent. But I feel my job is mostly getting people not to think about our competition. In general I think there’s a tendency for people to think about the things that exist. Our job is to think of the thing you haven’t thought of yet that you really need. And by definition, if our competitors knew that thing, they wouldn’t tell it to us or anybody else.”

Nothing lights a fire like a competitor. When Microsoft launched the Bing search engine in 2009, we were concerned enough to kick off an all-hands-on-deck process to intensify our efforts on search. This planted seeds that led to new features such as Google Instant (search results as you type) and Image Search (drag an image into the search box and Google figures out what it is and uses it as the query). You can draw a line from the launch of Bing to these great new features.

The right strategy has a beauty to it, a sense of many people and ideas working in concert to succeed.

Sergey asked one of his favorite interview questions: “Could you teach me something complicated I don’t know?”

“What is the single most important thing you do at work?” is hiring.

There’s another reason that hierarchical hiring doesn’t work. Leaders (and management book authors) often say they hire people smarter than themselves, but in practice this rarely happens in a hierarchical hiring process.

“Our people are our most important asset” is a well-worn cliché, but building a team of smart creatives that lives up to that statement requires more than just saying the words:

A fine marker of smart creatives is passion. They care. So how do you figure out if a person is truly passionate, since truly passionate people don’t often use the “P-word”? In our experience, a lot of job candidates have figured out that passion is a sought-after trait.

Passionate people don’t wear their passion on their sleeves; they have it in their hearts. They live it. Passion is more than résumé-deep, because its hallmarks—persistence, grit, seriousness, all-encompassing absorption—cannot be gauged from a checklist. Nor is it always synonymous with success. If someone is truly passionate about something, they’ll do it for a long time even if they aren’t at first successful. Failure is often part of the deal. (This is one reason we value athletes, because sports teach how to rebound from loss, or at least give you plenty of opportunities to do so.) The passionate person will often talk at length, aka ramble, about his pursuits. This pursuit can be professional. In our world, “perfecting search” is a great example of something people can spend an entire career on and still find challenging and engaging every day. But it can also be a hobby. Andy

Once they start, listen very carefully. Pay attention to how they are passionate. For example, athletes can be quite passionate, but do you want the triathlete or ultramarathoner who pursues his craft all alone, or someone who trains with a group? Is the athlete solo or social, exclusive or inclusive? When people are talking about their professional experience, they know the right answers to these questions—most people don’t like a loner in the work environment. But when you get people talking about their passions, the guard usually comes down and you gain more insight into their personalities.

The adage is to always hire people who are smarter than you. How well do you follow it?