Google’s Hiding Strategy
This is the second blog post in a series of blog posts on my musings from In the Plex by Stephen Levy. You can find the first post here.
Nikola Tesla invented the way almost all of the world’s electricity is generated today and also created wireless communication. However, he died having spent his last few years unable to persuade new investors to fund his latest wild visions.
According to his biography, Prodigal Genius — The Life of Nikola Tesla, in 1885, he told his boss, Thomas Edison, that he could improve his motors and generators. Edison asked him to do it and promised him $50,000. Tesla did as he’d promised, and in return Edison gave him a $10 raise. Tesla quit and formed his own company, Tesla Electric Light & Manufacturing. But he soon disagreed with his investors over the direction of the business. They fired him, and he was forced to dig ditches for a year.
Fast forward a few years to 1985, a 12-year-old boy in Michigan finished reading Tesla’s biography and cried. His name was Larry Page. Like Nikola Tesla, Larry Page had a great idea that could potentially have a huge impact on the world and this time he was going to protect and develop it himself.
Google has always followed a hiding strategy in it’s operations to maintain an edge over it’s competitors — the business model in it’s pre IPO days, the size of its data centers, it’s search algorithms and also technologies like MapReduce. This blog post about 1 such scenario that showcases this.
In the early 2000s, Google had a big secret (even bigger than the secrets of how search works) — and wanted to hide it from everyone. Everyone who knew the secret, almost everyone working at Google, were firmly instructed to keep their mouths shut. Until now, no other company had figured how to make money at scale on the internet in a way that users embrace and Google had cracked this puzzle. How was it feasible to keep this as a secret you may ask — it was easy as none of the experts who were tracking the business of Google believed that this was possible.
Larry and Sergey would go into Venture Capital (VC) meetings and refuse to answer even basic questions like how much traffic was on the site. What’s more was Larry and Sergey didn’t have the language to say things nicely. They’d be kind of blunt and say, ‘We can’t tell you.’ This did frustrate a few VCs and actually one VC did storm out. Page was working the “hiding strategy” even before he had something to hide.
However, as a consequence of going public, the hiding had to stop on April 1, 2004 where Google had announced a gathering for the investors. George Reyes (CFO) and Lise Buyer (Director of Business Optimization) had come up with a plan to reveal the secret Google Style. Since until then Google hadn’t shared any of its numbers, Reyes decided to go straight to it. He put up slides with some figures and you could hear a pin drop. The slides indicated that Google was indeed making pretty good profits - not earthshaking but more than respectable, especially for an Internet business offering a free service supported only by ads. Then Reyes told the bankers he was sorry, but he’d mistakenly put up the wrong slide. April fool! The investors believed that this was a prank by Google and there was no way they would be making this much money.
A slide then appeared with more than double the revenues and profits than the previous slide and it exceeded even the wildest expectations. Fooled indeed — this would be the first April fool prank in what has become a yearly Google tradition!
Here are the numbers — Google’s net revenues jumped in 2001, finishing at $86 million, more than a 400 percent jump from 2000. Then the rocket ship blasted off. Google took in $347 million in 2002, just under a billion dollars in 2003, and 2004 was on track to nearly double that.
Additional Source — http://www.businessinsider.com/larry-page-the-untold-story-2014-4