Hi everybody. We all have experienced the magical effect of Google in our lives. What was once just a plain wide web page has now become such an integral part of our lives that now it's hard to imagine a world without Google. As a result, Google has emerged as one of the most successful companies on the planet with its stock price skyrocketing by 5000% and a market cap of one trillion dollars. But the most surprising fact of all is that back in the day, Google was neither the first search engine in the market, Nor was it the most profitable company in the market.
In fact, in 1998 Google was bleeding money. While it was just a small start up. On top of that, They had killer Rivals like gotocom that made 231 million dollars in Revenue in the very same year through search ads. When Google did not even have a concrete business model, then the question is, how did Google become so successful? What exactly was your business strategy? And as students of business, what can we learn from this legendary Penny? This is a story that dates back to September 1998 When Larry and Sergey founded Google based on an algorithm called page Rank, and they had developed it as PhD students at Stanford. Now, during that time, the problem with search was that majority of the search engines rank the pages majorly based on the text that they contained. And because of this, it allowed spammers to game the system by filling their pages with commonly searched keywords. For example, when you searched for Honda, Instead of giving you Hondacom as a search result, It would show you an adult site that just copy paste It, the word Honda 50 times, but pagerank dived much deeper and evaluated the sides by Authority and influence based on a number of other relevant websites that God link to them in the form of backlinks.
Now, although Google's algorithm was far superior than most of the algorithms in the market, They struggle to make money. Because, unlike today, the standard wisdom back then was that there was no money in search results. Web sites like Yahoo Used their homepage to place banner ads and generate billions of dollars in profits. This is where Google had the first chance to make a million dollars by displaying the same banner ads as Yahoo. But Larry and Sergey hated the idea because it degraded the customer experience. So while other companies were making a million dollars both due to their business model and due to thecom bubble, Google was bleeding money and was wandering around without a business model. That is, when Larry and Sergey started studying there, I will go tocom and back in the day, Although it did not have a great search algorithm, eight minutes 68 million dollars in profit in 1999 Why? Because instead of building their own search engine from scratch will grow as the founder took an existing search engine called in Tommy's engine, and introduced The Twist called the paid search, along with that bill, also introduced a game-changing pricing model called the cost per click pricing.
Now, this model was an extremely successful model back in the day, because it solved three major problems in the market. Number one, in an attempt to downplay the spammers, companies like Honda were very keen on paying more money for their keywords, such that they could get the top spot and not those spammers. And when they paid for the advertising, it automatically pushed down the spammers. Secondly, these key words were placed on an auction. Therefore, it created a competition among the The advertisers, which generated a ton of profits for the website. And thirdly, while in other search engines, advertisers had to pay for an impression, whereas in go to, they only had to pay for the click as in, instead of paying for the advertisement every time it appeared in front of the users They needed to pay only when someone clicked on it. Now, this was a revolutionary idea back then, because it gave the advertisers of confidence of conversion and the uncertainty of wasted money into marketing was Eliminated. This is when Larry and Sergey started dissecting into the model of gotocom.
And when they did, they identified two major problems with the model. The first problem was that because the model was solely based on who pays more money, a large company could abuse its power And by the keywords of other companies. Also, for example, Samsung could buy all the keywords related to Vivo. So even if someone is searching for Vivo, a Samsung sponsored content would pop up. And This was unfair to the small businesses. Secondly, the small businesses were discouraged from placing their ads, merely due to the price domination of the large players there for Larry and Sergey work, day in and day out to come out with two major improvements that turned Google into a trillion dollar company. The question is, what exactly were these improvements? Number one, they came out with the idea of something called the quality score that would filter out content in such a way that the ranking will not just be based on the option Paid, but also on the basis of the relevance of the add with respect to those search. So if you're looking for a Honda, Tesla cannot sabotage on displace and present itself on top. Secondly, they came out with the idea of using a variant of a unique auction model called the weekly auction model. This is a model that was actually proposed by a Nobel Laureate named William We crave, and this is how it works out. Let's say there are four bidders, Mahindra, mg, Tata and Toyota, and the Two bids are 10 Rupees, 20 rupees 30 rupees and 10000 rupees, respectively. And they are bidding for a keyword called XUV.
Now in the standard model, or the first prize Model. Toyota will win the auction, and it has to pay 10000 rupees. Now, although Toyota could have got it for 31 rupees, It has to overpay because of its assumption that the keyword XUV will be costly, whereas in the second prize model or the wickery model, Although Toyota still wins Auction, It only has to pay one rupee more than the second highest bidder, which in this case is startup. So Toyota only has to pay 31 rupees. And in case of Google, Toyota has to pay the price quoted by Tata. That is, the second highest bidder data has to pay What was quoted by mg That is the third highest bidder and so on and so forth. This way advertisers don't have to overpay for the keyword, and they also get insights into the competitive prices in the market, which in turn helps them optimize the future bits Along with this, using the quality score, Google ensure that they don't just ranked the ads based on the bids, but also on the basis of the quality of the content that the bidders are putting forward, Such that the sponsor with the most relevant content always shows up on top, even if they've paid less money. And these two features, ladies and gentleman, turned Google into a revolutionary search engine that was far superior than the rest of the competition, because it did not just have the amazing feature of Sparklink of gotocom, but also saved advertises a ton of money due to the second price auction method.
And most importantly, due to the Quality score, in spite of being the highest bidder, a company could not overpower another bidder solely on the basis of money. And this eventually encouraged authentic advertisements and eliminated the abusers and spirimals. This is how lazy and German in 2002 Google launched Its pay-per-click auction-based search advertising product called Old the Google AdWords select. And from that year onwards, the revenue of the company started skyrocketing. They made four hundred million dollars in Revenue In 2002 15 billion dollars in 2003 32 billion dollars in 2004. And finally, when they went IPO in 2004, the company reached a valuation of twenty three billion dollars. And the rest is history. Now, another important question that needs to be asked to be here is that during such times of Ruthless competition, when Had a predator like Microsoft and a giant like Yahoo As their competition, What was so special about Google that they were able to keep innovating to stay ahead of these well-established companies? And this is what brings me to another important attribute of Google as a company. And that is their culture of innovation.
Did you guys know that some of the most game-changing projects at Google, like Gmail, Google, suggest and even Google news? They were all just side projects, and none of them were officially allocated to any team in the company. In fact, all of them were designed by enthusiastic employees who just happen to do something extraordinary that their manager Never asked them For. The question is, how and why Would these employees working so hard on something that the company is not even asking for? Well, that is because of a wonderful company practice called the 20% Rule. And because of this rule, every employee had to dedicate 20% of their time into projects that interest them, even if they have not been officially allocated by the company. And this was based on the philosophy that even if it leads to 1000 failed projects, even if one of them turns out to be successful, it is enough to make up for the one thousand failures. And this is exactly what happened because today, Gmail alone is being used by 18 billion users. And it is said to generate a billion dollars in profits for the company, Therefore, because of such wonderful practices, not just Sergey and Larry, but the entire organization was not just a bunch of workers, but a bunch of Learners who kept learning and trying new things every single day. And this is what brings me to the most important part of the episode. And that are the business lessons from the case Re and the study materials to help you dive deeper into the concepts of the case study. Before we move on, I would like to emphasize, on the culture of lifelong learning, taking a leaf out of the philosophy of the culture of innovation upgraded.
The online learning platform follows the principle of inspired India's young corporate Executives to not give up on their dreams, but to prepare in every manner for the next big career Jump in your life, upgrades courses are armed with updated business. Case studies, access to the Best in Class faculty Sessions, discussion forums with peers and programs that are designed in collaboration with leading industry experts. These courses include data, science, machine, learning, digital marketing, Etc. From the top recognized universities like triple ID, Bangalore, I and Keiko day. And even IIT Madras upgrade helps you get deeper into the concepts of not just case studies like these, but also gives you a reliable outcome Oriented specialization. Data is annual is probably the code of the century. In this case, Google's data analysis and Engineers are played a crucial role in helping the Build, the most formidable products and services in the market. So if you're Keen to understand how you can optimize your company's data, do check out upgrades data, science programs that will also help you understand data, draw inferences and effectively use the observations to help you bag your a dream job.
Now Let's talk about the lessons from the case study and the study materials to help you dive, deeper lesson Number One, never ever be discouraged If there's already a big player in your Market. In fact, you should be happy because it gives you a opportunity to dissect their strategies and learn from their mistakes Such that it will enable you to build an even better business. In fact, if you look back at the tech Revolution, Napster did not succeed. Spotify Did Myspace did not succeed, Facebooked It. Why? Because the founders of these companies did not make the mistakes made by the first Moors. In this case, It was the dissection of gotocom that motivated Sergey and Larry to design the quality score system and use the We cream order to benefit the advertisers. And this eventually had them build a far superior search engine, not just in terms of tech, but also in terms of business, because they use the cost per click model. Secondly, as a leader of your organization, If you want your company to achieve greatness, you have to find a way to develop a culture of learning and failing such that you build a foundation for failure. And eventually you build a culture where in ideation
Beyond work, Never stops, And even at things cool, no matter who we work with, whether that is a freelancer and intern, or even me, or Posh. We make sure that we push our limits to make sure that we as an organization are learning Beyond boundaries, because we believe that greatness is only achieved with the audacity to fail. And the humility to try. And lastly, to keep you learning. I have attached three study materials for you. First is the talk about organization Culture by a legend called an coil. He's the author of The book called cultural code. Second is the research paper that will help you understand week raise auction model. And lastly,
There's a wonderful video by a YouTuber called Tech alternate that explains the state of Mozilla, which is even to this day, struggling to survive in spite of being one of the greatest companies of all time. And this is happening because it couldn't strike a balance between nobility and capitalism. And this concept in itself is a philosophy called question that needs to be pondered over. So have a look, The video ponder over this question. And do let me know what you think about it in the comment section. And don't forget to check out upgrades free courses from the link in the description. That's all from my side for today guys. If you learn something valuable, please make sure to the like button in order to make YouTube have a happy. And for more such insightful business and political case studies
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