Google Part II: Alphabet (Audio)

Are you intentionally wearing a black turtleneck for this one?

No. It is actually going to be one of my carveouts, though. Yeah. Amazing. What?

You think I dress up like Steve Jobs for a Google episode? Well, I thought because of the, you know, war between Android and I I walk in and there's this like smirk on your face. [Applause]

All right, let's do it. Who got the truth? Is it you? Is it you? Is it you? Who got the truth? Now,

is it you? Is it you? Is it you? Sit me down. Say it straight. Another story on the way.

Welcome to the summer 2025 season of Acquired, the podcast about great companies and the stories and playbooks behind them. I'm Ben Gilbert. I'm David Rosenthal.

And we are your hosts. In the late 1990s, Google built the best search engine for the rapidly growing internet. With a breakthrough search algorithm, lowcost servers based on commodity hardware, and the best business model of

all time, search ads. They turned that search engine into a cash gushing business and took it public in 2004. But then, curiously, they started doing some things that weren't related to search. They launched a breakthrough email

service in your browser with Gmail. maps that were far superior to the current state-of-the-art docs and spreadsheets with real-time collaboration for the first time. Of course, YouTube, then Android, and their own web browser with

first time. Of course, YouTube, then Android, and their own web browser with Chrome. Astonishingly, today Google has 15 products with over half a billion

Chrome. Astonishingly, today Google has 15 products with over half a billion users. Seven of those have over two billion users. David, that is over 25%

users. Seven of those have over two billion users. David, that is over 25% of humans use seven of Google's products. Just unreal. Can't wait to tell all of

these stories today. Yes. And they've also launched some colossal failures. Plus to try to compete with Facebook, Google Wave, Buzz, and about half a dozen messaging apps. I don't know, maybe a dozen messaging apps over the years. Hot air

apps. I don't know, maybe a dozen messaging apps over the years. Hot air

balloons to provide wireless internet. And of course, oh man, I forgot about the hot air balloons.

Google Glass. Can't forget about that one, unfortunately. So, why did they do all this? And as a business, Google was and still is the company that makes the vast majority of their money from ads on search results on the web. So today, we tell the story

of Google as the innovation factory of the 2000s, their reorganization into the parent company Alphabet, and how all these different products cleverly serve different business purposes, and also how it feeds into Google's original core

mission to organize the world's information. And we'll end this episode story right at the dawn of the AI era. Oh, you're giving away the end.

Oh, spoilers. Sorry. So, is Google a search engine? Is it the platform company of the web era? Or is it an incubator that just happens to have

struck gold with search and perhaps AI? Today, we dive in. Listeners, if you want to know every time an episode drops or get early hints at what the next episode will be, check out our email list. That's also where we share corrections and updates about

previous episodes and we are adding a new bonus. You get to help us vote on future episode topics. So, the first poll is going out soon. Sign up now at acquired.fm/e.

Join the Slack if you want to come talk about this with us and the whole Acquired community. Acquired.fm/slack. Before we dive in, we want to briefly

Acquired community. Acquired.fm/slack. Before we dive in, we want to briefly thank our presenting partner JP Morgan Payments. Yes, just like how we say every company has a story, every company's story is powered by payments and JP Morgan Payments is a part of so many of their journeys from seed to IPO

and beyond. So with that, this show is not investment advice. David and I may

and beyond. So with that, this show is not investment advice. David and I may have investments in the companies we discuss and this show is forformational and entertainment purposes only. David, where are we starting this alphabet story?

Oh, I have a very, very fun beginning for you, Ben. I want to start with a quote from Russ Hanaman, the fictional character Silicon Valley HBO show. Oh yeah. From the TV show. Awesome.

And the quote is if you show revenue, people will ask how much and it will never be enough. The company that was the 100xer, the thousandxer is suddenly the 2x dog. But if you have no revenue, you can say you're pre-revenue. You're a

potential pure play. It's not about how much you earn. It's about what you're worth and who's worth. The most companies that lose money. Immortal

words of wisdom for the technology world. God, that show was so good. Why

do I bring this up? Why do I start here? Why are you talking about this? Google

is a cash gushing machine. Revenue is obviously not the problem for Google.

But what was the problem in 2004, 2005, 2006 was being viewed as, in Russ's terms, pure play. When Google went public in fall of 2004, the stock shot

up, basically doubled in two months. Wall Street loved Google. Adwords, the

search business model, everybody had to own shares. Google had cracked the code on monetizing the internet. The more people use the internet, the more they search. The more they search, the more money Google makes. Simple, easy, pure play, you might say.

search. The more they search, the more money Google makes. Simple, easy, pure play, you might say.

Yep. That is until Google announced fourth quarter 2005 earnings. Full year 2005 revenue, $6.1 billion. That's almost double the 3.1 that it was in 2004, the

first year it went public. But earnings are flat. Profitability is down.

Google's now investing in all these new products and services. Gmail, maps, the forthcoming Google Docs. Later this year in 2006 would buy YouTube for $1.6 billion. Wall Street hates this. Hates it. This is a huge amount of their cash

billion. Wall Street hates this. Hates it. This is a huge amount of their cash they're putting back on the table and betting for the future.

So this is January 2006. The stock falls 27%. Wall Street's like, "God, these guys, what are they doing? They're messing it up. Steven Levy writes in in the Plex that the perception of Google's ventures beyond search at the time was that the

company was tossing balls into the air like a drunken juggler. They were a pure play in investor's eyes and now they're messing it up. They're adding all this other stuff. They don't want the other stuff. Yeah. So then Ben, as you teed up in the

other stuff. They don't want the other stuff. Yeah. So then Ben, as you teed up in the intro, the question is why did they do all this? And I think the way to answer it is to start and just tell the stories of all the individual products.

Let's do it. Strap in. I will say, David, doing the research took me way back to early acquired grading acquisitions. This is the cornucopia of hits of iconic product launches in tech history. So, the first and probably the most

important here because it sets the stage for everything else. The first major non-arch product was on April 1st, April Fool's Day, 2004, Gmail. The most

famous, infamous, non joke April Fool's Day announcement of all time.

Yes. But it sure sounded like a joke. Here's the announcement. In 2004,

entirely webbased email in your browser. You can log in and access it anywhere on any device. Google search is built in. You don't need to spend all this time

any device. Google search is built in. You don't need to spend all this time sorting your mail into folders anymore. And one gigabyte of storage free. No

need to delete your mail. No need to clean up your inbox. No need to do anything ever. And the whole thing is free. Yep. Of course, this sounds like a joke. This

anything ever. And the whole thing is free. Yep. Of course, this sounds like a joke. This

is too good to be true. The universe at the time is Microsoft sells sort of enterprisegrade mail for a lot of money or there's all these free web-based services popping up like Hotmail that Microsoft would end up

buying and Yahoo mail and AOL. You get like 5 megabytes of storage.

Yeah. Not even. At the time, Hotmail, which as you said, Microsoft owns, had 2 megabytes of free storage and Yahoo Mail had 4 megabytes. There's another great story from In the Plex that Steven Levy has. He's interviewing Bill Gates at the

Newsweek headquarters office in New York shortly after Gmail comes out and they started talking about Gmail and Bill can't believe it. He's like offended by Gmail because he thinks that giving people all this storage is just

wasteful. You're doing email wrong. It's morally repugnant to leave all of this

wasteful. You're doing email wrong. It's morally repugnant to leave all of this email sitting right on the servers. I was thinking about it. Until Gmail, the paradigm for email, people treated it like regular physical mail. Sort it. You

file away the important stuff. You throw out the pieces you don't need anymore. I

mean, even freaking Bill Gates operates this way. Yes. So, Gmail, this is radical. This is a radical notion of how email should work. and was also correct. I mean, if you sat

and you thought about it in say 2001 or so when Gmail starts getting worked on within Google and you thought about the combination of the growth of the internet, which obviously Google has a front row seat to, and Moore's law, you

would logically come to this conclusion that the cost of sending and storing and searching email would asmatically go to zero. And thus, as that happened, a

whole lot more email was going to be sent in the world. Yep. So, can I tell you my understanding of where this story starts in 1996? Oh, I was going to go back to 99, but yeah, go for it.

All right. So, I know you're about to bring up the name Paul Bukite. Is that right? Of course. Yeah.

So, Paul was kind enough to speak with me before recording this episode. Paul

famously the inventor of Gmail. In 1996, Paul was a student at Case Western Reserve University in Cleveland, which you may also know this, David, famously was one of Ohio strong. Yes. The first campuses in the nation to

have broadband internet in the dorms and all over campus. Oh, okay. I knew about the Paul fascination with web mail starting in college. But I didn't realize that Case Western had broadband. So this is why when you're living in the universe of

broadband everywhere, he was living like 15 years in the future temporarily for 4 years in college.

Yeah. 1996. Yes. So he realizes email is kind of a bummer if it's a thing that you download and lives on your computer. The information should just exist at my

fingertips all the time. Bits are becoming free to move around. So he kind of gets obsessed with this idea in college that email should exist on the web in a browser without ever having to download it. And he builds a prototype

for web mail when he's in college. Wow. In 2001, famously preipo at Google, Larry Page feels like Google is moving a little bit too slow and gets rid of all engineering managers. So Larry and Wayne Rosing, who is leading engineering, go

engineering managers. So Larry and Wayne Rosing, who is leading engineering, go and meet with each engineer individually to talk about ideas that they could work on. This tells you so much about googliness, but it also tells you a lot

on. This tells you so much about googliness, but it also tells you a lot about the caliber of the engineers they were hiring at the time where they would just approach them and say, "What ideas are you thinking about? Here are some

ideas we have. Can you just full stack own this product entirely yourself?" And

so in Paul's meeting, they knew about his previous interest in email and web-based mail and they sort of float this amorphous idea to him and that's where it comes from.

Ah, so Larry and Wayne suggested it to him. Interesting. Okay. So here's some other stuff that Paul said. So part of the motivation was that they were looking to make something

Paul said. So part of the motivation was that they were looking to make something that would make Google stickier. So you'd have sort of this ongoing relationship for if there was a next Google after Google, there was some reason why you would still have a relationship which obviously you know Yahoo would

have for many many years even though there was a next Yahoo after Yahoo in Google.

We still get emails from people with Yahoo mails. Do you know how Paul found out about Google in 1999? Oh no. Slash dot. Really? That's awesome. And that he sends an email to

jobs@google.com. Unbelievable. fitting that you know he gets hired with an email. Heyo.

jobs@google.com. Unbelievable. fitting that you know he gets hired with an email. Heyo.

Okay, so 2001 Paul gets to work with encouragement from Larry and Wayne.

Do you know what the original seed of the code is? Oh no, go for it.

Google had just bought a company called Deja News, their first acquisition. It

was the corpus of all the old Usenet posts. Oh yeah, then this becomes Google groups right?

That's exactly right. Yeah. And Paul's working on that. And part of that was a feature to do real time indexing of all the posts that would allow you to search the whole corpus. So Paul just applies that to his own personal inbox. The first

corpus. So Paul just applies that to his own personal inbox. The first

instantiation of this is just a search box to search his personal Unix mail directory as if it is the old Usenet posts that they had just bought. That's

the first version of Gmail. Amazing. As he's building on that though, obviously like the first thing he needs is a web front, an interface. Okay, Hotmail's out there, Yahoo Mail's out there, webmail's out there. It sucks. It sucks for a lot of reasons.

There's got to be a way to make it better, make it more performant and better to use as a web page. And so he's playing around with JavaScript and what he can do with JavaScript to make this application, this web application of

email better. The history of JavaScript is fascinating. Brendan Ike created it

email better. The history of JavaScript is fascinating. Brendan Ike created it at Netscape back in 1995. We did a whole episode with Brendan years ago about this. The idea behind JavaScript was to include a programming language as part

this. The idea behind JavaScript was to include a programming language as part of web browsers so that people could make dynamic web pages instead of just static HTML documents. The problem was it was kind of this casualty of the

browser wars with Microsoft and Internet Explorer and everything that killed Netscape. So up until this time, kind of 2001, JavaScript existed, but like it wasn't super popular.

Netscape. So up until this time, kind of 2001, JavaScript existed, but like it wasn't super popular.

It wasn't very powerful. You could do weird stuff like animate something on the page, but I would describe it as toy- like and not a real programming language, for sure.

Yep. And for what the web was up until that point in time, you didn't really need it. Static web pages are kind of fine for most of what's happen. I mean,

need it. Static web pages are kind of fine for most of what's happen. I mean,

even google.com was static. You type a search into the search box, Google servers process the query and they send you a whole new static web page with the results. But you'd imagine for doing something like email on the web or any

results. But you'd imagine for doing something like email on the web or any application on the web, you don't want the site to reload every time you open a new email or you create a draft or you move something around in folders.

You might want to move from a website to a world of web applications.

Yeah. But this is how Hotmail and Yahoo Mail worked. Every time you took an action, I mean, it reloaded the page and so they were super slow.

Yes. And so Paul's like, "Maybe I can use JavaScript to make this better."

He's working on it and he discovers a little known feature of JavaScript

called the XML HTTP request, which lets a web page fetch automatically new XML

data from a server without reloading the page. And Paul's like, "Oh my god, this is gold." And this is the birth of Ajax, asynchronous JavaScript and XML.

is gold." And this is the birth of Ajax, asynchronous JavaScript and XML.

So, David, I assumed you were going to go here. I thought that you get it all laid up.

You've been letting me go. You just been feeding me a rope the whole time.

You trying to tell me that Gmail is the first Ajax application.

Well, the first widely adopted around the world. That's fair to say.

That sort of set the bar for what dynamic web 2.0, you might say, websites could be. Yes.

The origin of the XML HTTP request is a part of Internet Explorer first implemented by Microsoft and used in this part of Outlook called Outlook web access.

I think I did know this when I worked for my high school. I could log in on any computer into my Outlook through their web access and that thing used Ajax and I think it only worked in Internet Explorer. So that is the origin of why this API exists in the

first place. Ironically for another mail client. Oh, not just for another mail client.

first place. Ironically for another mail client. Oh, not just for another mail client.

It's so deeply ironic that this originated for a Microsoft mail client. Yes.

We're going to get deep into that in just a minute here. Yes. So I mean when Paul discovers this, this is almost like Google search all over again when people realize what you

can do to create something that looks and feels and has all the functionality of a application that hereto would have been a program that you installed on your personal computer

or a app on your Mac that maybe you downloaded from the internet but more likely you went to a retail shop like Comp USA or installed on your computer. You can now just do this in a web browser. This is incredible. The web is the platform of the future.

Yep. So Paul builds the prototype, shows it to Larry and Sergey. They're super

jazzed. So supposedly Larry and Sergey become the first beta users of Gmail.

They are the seed Gmail users and they start using it exclusively as their mail service within Google. And then by the time it launches publicly, all of Google

is on Gmail and using it, addicted to it. And it wasn't called this at the time, but it's in the cloud. You don't have to have your mail stored on your machine or a specific server. You can log in, access it anywhere on any network, any device.

All this stuff sounds so boring, but it was completely breakthrough.

So obviously Larry and Sergey are jazzed first because of just the incredible nature of this product. And Larry especially, he is a product person and his view is if we can build a better product and it's on the web, then it's

good for Google and we should do it. And that is a huge part of the motivation underlying Gmail and everything we're going to talk about. But there's also another reason and that's Microsoft. Because Google was doing great printing

money Adwords search greatest product, greatest business of all time.

But they've got a big risk, which is that everything about Google, everything about the web right now flows through Microsoft, flows through Internet Explorer.

Yeah. Google's entire money printing machine was built on top of Microsoft's and at two layers. So to this point over 90% of Google search queries were done

on Windows PCs and 90% were done in Internet Explorer running on those PCs.

So Google's got the killer app for the web in search and the thing under them is a browser owned by Microsoft and the thing under that is an operating system owned by Microsoft.

Yes, they exist at the pleasure of Microsoft at this point in history and Microsoft has a different business model. So Google's business model, the greatest of all time, is people use Google search. They discover more of the

web. They spend more time online on these new sites and services that

web. They spend more time online on these new sites and services that they're discovering. As they're spending more time online, they search more.

they're discovering. As they're spending more time online, they search more.

Searching more leads them to discover even more new sites and services, the cycle repeats itself and Google just monetizes the whole thing. Yes. And web usage isn't bad for Microsoft, but if the platform of the next generation becomes the web and

people are writing web applications instead of Windows applications, that makes Microsoft's platform a lot less valuable versus other operating systems

like say Mac or say a future where we change away from desktop computers altogether. Yes, at a minimum, Microsoft doesn't business modelwise care about

altogether. Yes, at a minimum, Microsoft doesn't business modelwise care about the web because they don't monetize the web. Microsoft makes money by OEM selling PCs that have Windows on them and then Microsoft sells software that

goes on those PCs. So, at a minimum, they don't care. And at a maximum, like you're saying, web apps are at an existential risk to Microsoft. Oh my

god, there's a future application platform that just doesn't really require our participation other than the fact that we control IE. And at least for now, that's really important. And most of Microsoft hasn't realized

this yet. Thank God for Google. Microsoft's distracted with the

this yet. Thank God for Google. Microsoft's distracted with the albatross that was Longhorn that would become Windows Vista. Yes,

a few people in Microsoft realize this, but Google for sure realizes this though. Eric Schmidt for Doubleshore realizes it because he was the CEO of

though. Eric Schmidt for Doubleshore realizes it because he was the CEO of Noville before coming to Google. And who is Noville's competitor? Microsoft. And

Microsoft crushed them. So why Google's so jazzed about Gmail? They need to build up leverage with consumers, with users that they're going to demand rich web applications so that if Microsoft ever tries to disadvantage Google or

disadvantage web apps and things moving to the web, really the only defense against that is if consumers have already adopted this stuff and love it and would revolt. And so this is what Gmail is. Yes. So Gmail developments

trucking along through 2001, 2002, 2003. This is hard to remember now. took three

years to develop Gmail. Long development cycle. Yeah. To be ready to release publicly and then it was in beta for like 10 years. Yeah. I think the reason it took so long was this was all new. There wasn't a lot of depth of knowledge out there about

JavaScript. Certainly not about Ajax and XML dynamic refreshing.

JavaScript. Certainly not about Ajax and XML dynamic refreshing.

It was really hard to program. Today you've got all these nice abstraction layers, these frameworks that people have built to do web development that really didn't exist to make Ajax applications. Yes. Okay. So, Google's finally getting

ready to launch it. We're in 2004. There's a couple questions. One, the

service for all the reasons we just described. Google, Larry, Sergey, Eric, they want it to be so compelling that consumers demand it. It takes off like wildfire. It builds this strategic mode against Microsoft, but it will cost money.

wildfire. It builds this strategic mode against Microsoft, but it will cost money.

There's a reason other people don't do this. Yeah, there's a reason that a gigabyte of free storage seems a little crazy. Even if you assume, and I think this is probably directionally correct, that because of Google's commodity

infrastructure advantage, they could launch Gmail at like onetenth of the cost that anybody else could. Also remember there's no public cloud at this point in time.

So you'd have to go build your own data center to do this. You can't just launch on AWS. There is

no AWS. But even assume that Google has a 90% cost advantage on the infrastructure side. The state-ofthe-art is other competitors are offering 4

infrastructure side. The state-ofthe-art is other competitors are offering 4 megabytes of free storage. Google's going to offer a gig. Sure, knock that down by 90% but the effective cost is still 100 megabytes. So how do you get

around being flooded with cost and infrastructure demand when you launch it? They come up with the invite system. Yes. And this is so brilliant. I actually

it? They come up with the invite system. Yes. And this is so brilliant. I actually

don't know if it was designed as this sort of prestigious growth strategy thing that it became.

Anyone got any Gmail invites? Please, I'll do anything. Yeah. Yeah. Please, please, please. Or

if it was truly because of the infrastructure cost. Either way, it's just brilliant. When they launched it on April 1st, 2004, they send out 1,000

just brilliant. When they launched it on April 1st, 2004, they send out 1,000 seed invites to Gmail. It's a private inviteonly internet service. They send them out to

influencers. You know, the term didn't exist back in the day, but influential

influencers. You know, the term didn't exist back in the day, but influential people. Yes. And journalists. And then each user has a set number of invites

people. Yes. And journalists. And then each user has a set number of invites that they can give to other users to invite their friends. And it was low. It was like five or something. And then it wasn't clear when they would top back up. But you'd give

something. And then it wasn't clear when they would top back up. But you'd give out your five. And then at some point you'd come in and you'd have five more.

You'd have three more. It was like super dynamic and very clearly whatever Google felt like they could give away from their servers at the moment.

Yep. But it was so brilliant. It made it feel like you're in this special world of people in the know that with super incentivized viral word of mouth growth because I'm telling you it's a gigabyte of free storage. It's this incredible service.

They're selling on eBay for 150 bucks. There was a monetary value to these things. Yes. Yes. They were trading on eBay for average price of 150 bucks in

things. Yes. Yes. They were trading on eBay for average price of 150 bucks in the early days. And so I'm giving you this gift. Incredible. And look, everybody wants this, but you need to have the product quality that cashes the check. Yes. It needs to be a real gift,

right? And it was it was just better. It wasn't just something I'd sign up for

right? And it was it was just better. It wasn't just something I'd sign up for and then churn and be like, "Cool, I locked in my username or whatever." It

was something that you actually used every day. or in the words of Larry Page, passed the toothbrush test. It was a part of your daily habit, something you do once or twice a day. Uh, I wish I could only refresh Gmail once or twice a day.

So, David, was this the first software that used a weight list like this?

Because obviously, it's become very popular since, I think. So, so that's how they take care of the cost side of the equation is not running out of control is the invite strategy.

Well, still not making any money though. That's question number two. How are we going to make money from this thing? Because yeah, okay, there's all these strategic reasons to do it. It'll increase more traffic on the web, time spent, people search more, we'll make more money indirectly, but they still

don't really know that. So, they think, okay, we need a monetization strategy baked into the product itself. Yes. Well, how do you make money from anything at Google?

This actually came up during development. So even in the prototyping phase, Paul logs into the database of ads, which it's just funny that at that point in time, Google's got this big database of ads, right? Yeah. I'm just going to access

the ads database, you know, all of them. Yes. And these are the ads that would run when you searched and landed on a search results page. And so he decided to do content matching against your inbox and just show those ads on the

page next to your email. And even though they weren't meant for that, it actually turned out that these search ads were pretty relevant. It actually was a decent ad to be showing you while you're looking at your inbox about similar topics. So he just rolls this out. Even though all these people in Google are

topics. So he just rolls this out. Even though all these people in Google are actually using it as their mail client at the time, people were pissed. I mean,

people were like, "Are you looking at my emails?" You know, all the things that would then sort of come later in the public actually happened inside Google first. But Larry and Sergey loved it. They were like, "Oh, this is so

first. But Larry and Sergey loved it. They were like, "Oh, this is so obviously the answer." Interestingly, this experiment predates AdSense. So,

Google has the display ad offering for website publishers that's called AdSense. That's different than AdWords, which is the keyword advertisements on a

AdSense. That's different than AdWords, which is the keyword advertisements on a search results page. AdSense hasn't launched yet. And there's sort of multiple versions of history here. How much credit for AdSense does Gmail get

in discovering this? But it is safe to say that the idea of display ads that are content matched against your Gmail did contribute to the idea for the first version of AdSense, which are essentially the same thing, content

matched ads just on a publisher website instead of the content of your inbox. So

the product launches publicly April 2004. As you would expect, people go nuts. It is truly a revolutionary product. And Gmail grows over the next

nuts. It is truly a revolutionary product. And Gmail grows over the next 20 years from that a thousand initial public beta user seed base to over 2

billion today. And it's still by far the best email service. Even if you use

billion today. And it's still by far the best email service. Even if you use another front end for your email, for your Gmail like superhuman or whatnot today, you still want Gmail on the back end, at least as a consumer.

Yes. So once Gmail starts to take off, Larry and Sergey and Eric see this and they're like, "Wow,

we should do this a lot. Let's go." Like, let's build as many web applications as we possibly can imagine. What else can go into the browser that

we didn't think was possible before? This fires on every single cylinder for us. Most importantly, grow the web. Grow usage. You grow the web, you grow time that

us. Most importantly, grow the web. Grow usage. You grow the web, you grow time that people spend in web browsers. They will search more. We will make more money.

And beyond that, with some of these products like Gmail, we can monetize the products themselves. Great. Two, we are building our strategic moat against

products themselves. Great. Two, we are building our strategic moat against Microsoft. The faster that we get the internet using public to fall in love

Microsoft. The faster that we get the internet using public to fall in love with and use web applications, the less and less leverage Microsoft has over us.

To use sort of Ben Thompson speak, Google realizes the web can become the point of integration. Maybe the OS isn't what the whole universe has to target.

The hardware makers, the OEMs, the application makers, the users. If

applications start living in the browser, then the web can become the point of integration. Users just need a browser and OEMs just need an operating system that can access the browser. And what's so great for Google because

of their business model? Sure, it's great when they build and own and operate and run and monetize web applications themselves, like they do with Gmail, like they'll do with maps, like they'll do with Docs, like they'll do with YouTube that we're about to talk about. But if they don't, doesn't matter

as long as anybody does it, right? They just need to be wind at the back of web adoption.

Yes. So that leads to a whole flood of Google web products and services to come. But before we tell that story, yes, now is the perfect time to talk

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and just tell them that Ben and David sent you. All right, David. So, Gmail,

we've got our existence proof of a Ajaxbased web app. It's going viral.

People love it. We can really build web applications now. Let's go nuts.

Yes. So the next big web apps following Gmail were maps, docs, and spreadsheets.

All absolutely incredible. And it was not clear that these things were possible with web technologies. These required incredible technical and

product vision. So first maps. We actually did a whole acquired episode

product vision. So first maps. We actually did a whole acquired episode back in the day just about Google Maps. The three companies they acquired.

Yeah. It starts in 2003, so even before the Gmail launch when a young associate product manager APM at Google named Brett Taylor that Brett Taylor

of course of ACQ2 fame Brett Taylor recent ACQ2 guest Brett Taylor. Oh yeah.

Also friend feed founder, Facebook CTO, coco of Salesforce, chairman of Open AI, former chairman of Twitter. Yeah. Yeah. that Brett Taylor starts his

career out of Stanford in 2003 as an associate product manager at Google. He

ends up going to Larry and is like, "We're missing out here." AOL has Map Quest, which they've just bought for a billion dollars. And I'm hearing through

the grapevine that Yahoo is about to make a big push and launch Yahoo Maps.

And so, as you would expect, Larry's like, "Oh, yeah. Is this a web product?"

Yes, of course. Go do this. For all these things that we're studying here, there's a business rationale which might be extremely indirect, but it's there. This idea of increasing web use increases Google search, which increases

there. This idea of increasing web use increases Google search, which increases the money printer. But then there's also an abstract rationale, which is our mission is to organize the world's information and make it universally

accessible and useful. And maps is squarely in the middle of that.

Yeah. Now, the thing was, as big as Map Quest and Yahoo Maps were about to become at the time, and they were big. I remember using them. My parents used them. Everybody on the internet used these services. They weren't what you

them. Everybody on the internet used these services. They weren't what you think of as Google Maps today. They were static web pages. Yep. They didn't use Ajax. And the whole

point was to get driving directions that you could print out. Exactly. And the business model for these services was on the printed piece of paper that people would print out,

you would put ads on there. Yep. It was like a Trojan horse newspaper business, right?

So Brett and Larry and Marissa are looking at this like, I think we can do better than this. So they go out and they buy a little company in Australia

called Where to Technologies which was started by these two brothers Lars and Yens Rasmusen

who were incredible engineers and they had built a real time interactive maps application except it was a installed desktop app. And so they're

meeting with them and Larry's like, "Okay, this is what we want, but we need it on the web." I think actually the quote was, "We like the web at Google."

And this is how good of engineers the Rasmusson were. They go off and in I think three weeks they rewrite and rearchitect the entire application to

run as a web app and they basically independently discover and implement a lot of the JavaScript and Ajax features that Google was working on internally for Gmail. Gmail still hadn't launched yet. Amazing. So Google ends up buying where to that

for Gmail. Gmail still hadn't launched yet. Amazing. So Google ends up buying where to that becomes the core of Google Maps. Around the same time they also acquired two other companies. Zip Dash that did traffic data and keyhole which would

other companies. Zip Dash that did traffic data and keyhole which would become Google Earth. Now Google Earth was an installed desktop application.

Ultimately everything that Google Earth was building would get folded back into maps later.

It's actually not true. I thought that and just last night I realized you can still go to earth.google.com and get a completely different 3D experience than Google Maps.

Oh, no way. It's all in the web now. It's unbelievably powerful. Oh, so it is a web app, but it's separate than maps. Yes. Oh, I didn't know that. Oh, I got to check that out.

It's amazing. That's awesome. Yes. Keyhole and Google Earth, I think, is my favorite part of our first Google episode earlier this year that the whole thing ended up just being a Trojan horse downloader to get Google Toolbar installed on Internet

Explorer on people's systems. was there organizing the world's information and making it universally accessible and useful, but also it comes with Google Toolbar.

Yeah. The greatest distribution hack for Google search of all time. Yes.

Anyway, back to Google Maps and where too. February 2005, Google Maps launches. People go nuts. Live mapping dynamic web application. Do you want to

launches. People go nuts. Live mapping dynamic web application. Do you want to know my favorite Easter egg for the first day launch of Google Maps? I don't

know if you know this. When you loaded up maps.google.com, do you know what visually you saw?

I have no recollection. You saw a great big ocean and North America and then floating in the middle of the Atlantic Ocean, you see the UK and then there is nothing past it. They hadn't built it yet.

They hadn't built it yet. Europe, Asia, Africa, not included. It's not even like it's off limits. It looks like there's an ocean where Europe should be.

How do you decide what the MVP is or the minimum viable product to ship on the map? That's amazing.

All right, there's one more really important piece of maps, which is the next year in 2006, they released the API. And this is what really kicks off the web 2.0

era, Gmail and JavaScript and Ajax had inspired developers out there for sure to make richer web apps and people were doing that. When Google releases the maps API,

this thing called mashups starts happening. You remember this? Absolutely.

It's now super easy to grab Google Maps and build stuff on top of it. And it's

really hot and this enables startups. So like Zillow, Uber, eventually Door Dash, Airbnb. Think about all the companies that just couldn't exist without the Google Maps API.

Airbnb. Think about all the companies that just couldn't exist without the Google Maps API.

There was that whole web of geo related companies too. Remember that era of mobile social local mo?

Oh yeah, forsquare and gowala and yeah, all those all this existed because Google maps existed. So back to Google's overall strategy here and adoption of web apps

existed. So back to Google's overall strategy here and adoption of web apps and sort of building this moat and defense against Microsoft. This is just

incredible. I mean here's maps itself as a first class rich web application that

incredible. I mean here's maps itself as a first class rich web application that tens eventually hundreds today billions two billion plus users use and love every day.

And now here's this API that's making it really easy to help other startups and other companies go build great web apps, too. The lock in just keeps getting deeper and deeper and deeper for the web. Yep. And at first, the API was

notoriously free or very inexpensive at very high limits for a long time. That's

different now. But for the longest time, it was just this is a part of the mission, so we're doing it and we'll figure out the business later. It was a very sort of founder driven thing. Now, it's popular to create maps. I mean,

Apple at some point flipped into doing it and there's these sort of other thirdparty companies and there's the Open Street Maps and all this stuff. For

the first five to maybe 8 years, Google was kind of the only ones that had a passion for this and a willing to spend into the giant hole that you need to create maps of the whole world. I mean is they incredibly hard data and

engineering problem. And you know they had to go draw all their own maps from

engineering problem. And you know they had to go draw all their own maps from scratch, acquire the data, figure out how to get fresh data all the time, create a crowdsourced thing among Google, was it Google maps explorers or

something like that? All the people that would update these things. This is a extremely googly problem and a founder bet to be like, "Nope, we're gonna go spend hundreds of millions of dollars, billions of dollars on this, drive cars

around, taking pictures of everything. figure out how to not overshare personal information on this. Do it dynamically because you're capturing a huge amount.

I mean, it's just it's a wacky wacky engineering problem that is daunting and they took it on.

Yep. And we're not going to talk about this today, but put a pin in for the next episode is one of the most incredibly strategically valuable data

assets for the AI era and specifically for self-driving cars. Yes. But today,

MAPS has over two billion active users this year. They don't break out revenue, but estimates are that Maps does well over five billion in revenue, maybe even 10 billion in revenue. The larger part of that is ads. You see recommended

places to go around you all the time whenever you open Google Maps now that are sponsored ads just like on Google search. And then the smaller part of that is from the API licensing, David, that you were talking about. But this is

a real business for Google today. Yep. All right. Next ones that we got to talk about, docs and spreadsheets. So these aren't the biggest Google apps out there today. I think if you lump them all together into workspace and ad

there today. I think if you lump them all together into workspace and ad drive, it is over a billion users. That whole suite is among their most used products.

That whole uh you call it off office suite. Is that what you would call it? Yeah.

Sounds like a office type suite. It's a good idea. Someone should do that.

So docs and spreadsheets hit Microsoft right where it hurts. office. So people

have tried both before Google and after Google to compete with Microsoft in productivity forever.

Word Perfect, Lotus Notes, Lotus 123. We talked all about that on our Microsoft episode. By the way, Word Perfect acquired by and run by Noville,

Microsoft episode. By the way, Word Perfect acquired by and run by Noville, who is the CEO of Noville, Eric Schmidt. Eric knows all about this.

But here's what I will say, David. If you were starting on the foot of competing with Microsoft or trying to build a word processor or trying to build a spreadsheet, you would be doomed for failure. What Google was doing was

saying there is something that is uniquely possible with web applications and Ajax in this web 2.0 era for the first time. And that thing is real time

collaboration. real time multiuser collaboration. These were the first

collaboration. real time multiuser collaboration. These were the first I've tried to rack my brain. I talked to Sam Chillis, the founder of rightly

which Google acquired which became Google Docs. He believes these were the first real time multi-user collaborative pieces of software in history. It just

wasn't possible before the web. Yeah. Jonathan Rashelle, the founder of the company that would be acquired that would become Google spreadsheets, basically said the same thing. His comment was, "We actually didn't know if it was possible to do this in the web." Google said, "Based on the success we're

seeing with Gmail, I bet we could do actual spreadsheets in the browser with real-time collaboration." And when the Sheets team came in, it was truly an

real-time collaboration." And when the Sheets team came in, it was truly an open question of can we make it so you and another person can party on the same very basic spreadsheet at the same time. Interesting. the Docs team. So Docs was

an acquisition. It was a company called Wrightly that was founded by Sam and his

an acquisition. It was a company called Wrightly that was founded by Sam and his two co-founders who were great programmers. They've worked together for many years.

I used Wrightley before it became a Google. No way. You were like one of very few people who did that. Yeah. Cuz it was not an independent company for long. Product launched August 2005. Google

did that. Yeah. Cuz it was not an independent company for long. Product launched August 2005. Google

bought the company in March 2006. So you had about a six-month window.

Wow. But yeah, they built real time collaborative word processing as a web app inspired by Gmail and everything that was going on at Google. The whole

company started as, oh, for our next project, let's explore what we can do with JavaScript and Ajax and oh, what would it be like if we put a word processor on the web? They weren't actually even thinking about

collaboration at first, but then as they were working on it together, they naturally started collaborating and thought, "Oh, this is the killer feature."

That's funny. That's different than the spreadsheets team. Their whole thing at first was, "We're not going to make a better spreadsheet than Excel. So, if we put it in the web, it has to be about sharing collaboration." Yep. And so, to your earlier point,

nobody can compete with Microsoft in productivity software. One, because

they'd been doing it so long, they had this feature wall of so many features that people needed two proprietary file formats. They had a network effect of the file format.

You built your big model in Excel. Good luck. Other people need to be able to run it on their installed desktop applications. Good luck getting somebody to try downloading or buying a new piece of software and installing it on their

machine. But three, I mean the biggest by far the enterprise agreement. This is

machine. But three, I mean the biggest by far the enterprise agreement. This is

Microsoft's whole entire business model, right? You don't have to be best in breed in any specific thing. You just have to be a platform with everything.

Yep. And IT departments will buy it. And especially for productivity software, really all the money is in B2B and work applications. And so if IT departments are buying the Microsoft enterprise agreement, they're getting everything.

Good luck unseeding Microsoft Office. And I'm not sure you could do this as an independent business cuz think about how long Google went with these things before they were adopted by bigger companies. For the longest time it was oh a Google doc that's like a thing for either you use that for your personal

life or maybe like a startup would use it. But even a medium-sized company you can't be serious. Get out of here with that. And Google was basically able to subsidize it because they had a giant existing business. You are so right.

Nobody except Google could do this for a whole bunch of reasons. One, you talk about subsidizing. Imagine trying to build this software as an independent

about subsidizing. Imagine trying to build this software as an independent company or really even as any other company. It would require a lot of infrastructure, real time multi-user collaboration in a web app. Gosh, that

seems like really complicated server and backend infrastructure. For Google, it's what they do. running Docs and Sheets, the incremental load to Google's infrastructure was trivial compared to search. They already had it built out. It was super cheap.

Yeah. Two, they don't need to make money from it. This is the big reason why nobody else could compete. Microsoft has all the dollars completely on lockdown because of the enterprise agreement. Big dollars. These small and medium

businesses would of course pay for something, but those dollars don't add up to be nearly as big.

Right. Exactly. Google though that's fine. Microsoft can keep all the dollars. All we care about is people use the web. And in this instance, particularly with Office and

dollars. All we care about is people use the web. And in this instance, particularly with Office and productivity, really this is about putting the screws to Microsoft a little bit and

distracting them. And from Google's point of view, this is a cheap

distracting them. And from Google's point of view, this is a cheap distraction. If this gets Microsoft all spun up, Microsoft is now all of a

distraction. If this gets Microsoft all spun up, Microsoft is now all of a sudden getting asked all the time, "What's your web strategy for Office?

When are you going to add collaboration to Word and Excel, etc., etc." They don't have any answers. I literally worked on this. My internship was at Microsoft and I worked on adding headers and footers to the Microsoft Word web

app. We were porting the Windows code to have perfect document fidelity to the

app. We were porting the Windows code to have perfect document fidelity to the web. So when you looked on the web and then printed from the web, the document

web. So when you looked on the web and then printed from the web, the document would be laid out pixel for pixel, character for character, exactly how it would look on the printed page. When you have that requirement, that is a hard

hard engineering task and it's still not as good as Google Docs, right? I love it that this launched your technology career. Yes. Amazing. But yeah, from Google's

right? I love it that this launched your technology career. Yes. Amazing. But yeah, from Google's perspective, this is amazing. Microsoft is now forced to bring their crown

jewels to the web, which they don't want to do. And Ben, to your point, because they have to make it look and feel and function exactly like the installed desktop apps, this is going to take them a long time and be a big investment. Fantastic.

And no matter what, it's going to be more complicated because with Google, it's install free. There's no licensing. Someone just shares a Google doc with you. If you have permission to view it, you view it. With Microsoft, I remember

you. If you have permission to view it, you view it. With Microsoft, I remember at first it was sort of antithetical. It was like, "But what if I haven't bought Word? Can I just use Word for free in the web then?" Right? Is Microsoft okay with that? Am I going

Word? Can I just use Word for free in the web then?" Right? Is Microsoft okay with that? Am I going to hit some weird usage tier? Like what? So, it's confusing for users. It forces

the company to think about pricing and packaging. It was a master stroke by Google.

Yep. So, fast forward to today. It's hard to get real actual apples to apples data on Google Workspace versus Microsoft Office users. But basically

the way to think about the market is that Google has the vast majority of users and usage of productivity software and Microsoft still has the vast majority of dollars and that's fine. Google's super happy about that.

Is that true that there's more active users of Google Workspace than there is of Office?

Yeah. I mean I think if you look at users of docs or sheets or slides it's in the billionish 500 million billion range for each of those. Office I think has

couple hundred million users worldwide. Whoa. Yeah, that's crazy. I didn't realize that.

Pretty wild, right? But to my point about the dollars, so Microsoft's productivity and business process segment, which is mostly office, I think

LinkedIn is now part of this too. Last year generated over $120 billion in revenue. Google reports workspace as part of the cloud segment. So all of

revenue. Google reports workspace as part of the cloud segment. So all of cloud inclusive of their infrastructure as a service all the AI infrastructure

all that the whole cloud segment for Google last year did about $50 billion in revenue less than 50 so Microsoft's productivity segment 120 office is the big piece and that's high margin revenue high margin revenue Google's office

products are some small portion of a $50 billion revenue segment so yeah Microsoft's still got all the money Google's got all the users and everybody's happy.

But you're so right. Everyone is happy. This is exactly what Google wants.

Yeah. And ultimately today, Microsoft is fine with this arrangement too. The

ultimate fun KOD though is Sam Schillis, founder of Wrightly. He would go on to manage you all of Docs and Sheets and I think he actually managed maps at some

point too. He is now the deputy CTO of Microsoft. Careers are long. Amazing. The interesting thing

point too. He is now the deputy CTO of Microsoft. Careers are long. Amazing. The interesting thing reflecting on Google's actual business here and comparing it against all the things that we're talking about, Google essentially won search by the mid late

2000s. I mean, I know Bing hasn't even launched yet, and we'll get to that, but

2000s. I mean, I know Bing hasn't even launched yet, and we'll get to that, but search was going to continue becoming a more and more giant market. And so, all this stuff they're doing, it's like, oh, we've won, and this market is naturally

going to become large. I guess let's just fuel it getting larger and try to do a bunch of stuff under the umbrella of our mission. But what do we really need to do? And the slightly more altruistic answer, I suspect if Larry Page was sitting next to us, he would say, "What is the goal of a company?"

The goal of a company isn't build the largest business necessarily. It's to

fulfill its mission. And yeah, we got a money printing machine from Search and we're investing a lot of money still in Search and making that better. But all

these things fulfill our mission, too. Yep. And I think these things are all true. Yes.

So on the back of the success of maps, Docs spreadsheets really starts to inform Google's strategy here. And specifically, they've seen, hey, we can acquire

strategy here. And specifically, they've seen, hey, we can acquire these web app web 2.0 companies, bring them into Google, turbocharge them,

offer these magical experiences to consumers. We get all this strategic value out of them both on the offensive and defensive front. We can operate these things at a fraction of the expense that it would cost anyone else

to do so standalone company or part of other big companies. And some of the things we could buy actually fit into our core ads business quite well. Yeah. What if we went big with this?

like really big, like something super expensive to run that requires storage of massive videos and bandwidth for streaming these massive videos and lawsuit protection.

Yep. Probably also costs a lot to buy it cuz it's wellunded from Sequoia.

That leads us to YouTube. But before we do that, now is a great time to thank friend of the show, Anthropic, and their AI assistant, Claude. So, as we were researching Google's

expansion here from just search into being a real platform company here in the 2000s with Gmail, Chrome, Android, Workspace, everything we're going to get to later in the episode. The complexity just skyrocketed with all these

interconnected systems that needed to scale to billions of users and keep information flowing between all the various products and services that Google was launching. The funny thing is how quaint that problem seems today compared to the scale, speed, and interconnectedness that you need in the

AI era. If you're an enterprise building today in AI, you need to deal with all of this times 10.

AI era. If you're an enterprise building today in AI, you need to deal with all of this times 10.

Yes. So, enter Claude. What makes Claw different for the enterprise is sustained performance on complex tasks. We're talking about the kind of work that would typically take your senior engineers weeks, like refactoring entire

code bases or synthesizing thousands of regulatory documents. I wouldn't know anything about that. Claude can handle these multi-hour projects while maintaining context and fewer hallucinations throughout. Claude is actually the most adopted AI within

hallucinations throughout. Claude is actually the most adopted AI within enterprises when it comes to their API. Yep. That's because Claude integrates seamlessly with existing workflows through their MCP connector system. They

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Claude. And we've got a special offer for acquired listeners to try out Claude before making the enterprise commitment. Halfpric Claude Pro for 3 months. Go to claude.ai/acquired

to get started. And just tell them that Ben and David sent you. All right, David. The YouTube story.

The big kahuna. The big kahuna. Ah, the most embarrassing thing in acquired history was our early episode on YouTube. All right, I have got a proposal for you.

Okay, I'm ready for it. You want to take it out of the feed? Delete it

today. We're setting the record straight. When we finish this section, we are regrading YouTube. We are updating the acquired cannon. It's happening.

Oh, let's do it. We're bringing grading back baby. Great. I'm glad you're into it.

I love it. I love it. Awesome. All right, YouTube 2003. So, same time frame as everything we're talking about here. Gmail hasn't even launched yet. Google starts working on

Google video. And the idea is that there's a lot of information in video

Google video. And the idea is that there's a lot of information in video and thus it fits Google's mission, Ben, as you were saying earlier. And also,

well, there's just so much more advertising dollars in TV than anywhere else in the global economy.

To this point in time, TV was the bulk of ad spend. Yep. If you go look at some of the old Mary Maker Internet Trends decks, remember from this time period, and you look at the share of global ad dollars spent on TV versus any other category,

it's just so much bigger than anything else. David, I am so glad you did this. We are

brothers. I did the exact same thing to try to tee this up. Amazing.

I have the stats in front of me. For listeners, digital advertising, you know, Google's universe would not eclipse TV until 2017, 2018. Wow.

So, almost 15 years in the future from when we're talking about here in 2003.

Yes. That is the wildest thing that TV was bigger than digital for that long.

Mary Mer famously had this point that she made every single year that the attention was all in the digital economy, but there was this gap and the ad monetization hadn't caught up yet. And it took all the way till 2018 for

the flip to finally happen where digital overtook television thanks to YouTube. Yes.

And Facebook and Meta and Tik Tok and etc. And the rest of Google too.

I know. I know. So this Google video project actually came out of the ads or it didn't come out of engineering and the rest of the Google product or yeah it

was motivated by hey there's a lot of money in TV and of course this fits the mission. There's

a lot of information in video. We should totally do this. Here's how Larry describes it. Google

Video was first launched in 2005 as a search service for television content. Yes.

Because TV closed captioning made search possible and userenerated video had yet to take off. But it subsequently evolved into a site where individuals and corporations alike could post their own videos. They were digitizing TV because

the transcription wasn't as good as it is today. So they needed the closed captioning data to make it searchable. And they were almost like meta-arching.

They were looking for other websites that allowed people to upload video and including that in the search results also. Yep. Sure. You can see how this

conceivably could be a product vision you could have at the time, but Google video was the wrong product. The problem was one, you couldn't actually watch the

video. It was just search that then directed you just like Google's main

video. It was just search that then directed you just like Google's main search business model off of Google video to go consume it somewhere else.

Yeah. In the beginning it didn't even have a player. Whoa. I didn't realize that.

Yeah. Crazy. And the bigger problem though, well that's a pretty big problem. Another big problem, shall we say, was that the focus was on

problem. Another big problem, shall we say, was that the focus was on traditionally produced head kind of content, not longtail, not usergenerated content. It was really tied to TV. There was a press release that said that they

content. It was really tied to TV. There was a press release that said that they could search the content of TV programs, find programs containing the content they're looking for, and discover when and where the program will next air.

Yeah. So meanwhile obviously here we are in 2004, five six consumer generated digital video is

becoming a thing either via standalone new devices like the flip cam that's coming out from Flip was a startup, right? And then Cisco bought it. Yeah, my other internship employer bought Flip while I was there. Yeah, this is like Ben Gilbert personal

history. But more commonly, so I mean there were dedicated devices like the

history. But more commonly, so I mean there were dedicated devices like the Flip Cam, but digital point andoot cameras had gotten so good by this point in time. This is going to come back up later in the episode.

in time. This is going to come back up later in the episode.

People thought this was the big consumer electronic device vector before smartphones. People were really, really excited about how good and how

smartphones. People were really, really excited about how good and how universally adopted digital cameras were. All of a sudden, in the mid-200s,

for the first time, anybody could make a video at any time. And iMovie was just becoming a thing.

So, you could shoot it on your point and shoot and you can edit on your computer.

That's right. So, YouTube in early 2005, three PayPal employees, the PayPal mafia, actually fairly junior employees at PayPal, Chad Hurley, Javeid Kareem,

and Steve Chen, leave PayPal and create YouTube. Okay, Ben, I have two deep cut YouTube corporate history trivia items for you. H number one, do you know what YouTube's

original tagline was? The name of the company was YouTube. What was the tagline and the value prop?

I have no idea. Tune in hookup. Really? It was a video dating service. I did know that.

And they actually posted Craigslist ads in the Bay Area for attractive women to make videos to post as profiles on the site. Unbelievable. And they got like no responses as you

would expect. Thank goodness for them and Google though because then they

would expect. Thank goodness for them and Google though because then they pivoted into a general purpose video uploading site that anybody could upload anything that they made YouTube. Okay, so that's trivia question number one. Okay,

trivia question number two. Do you know who Chad Hurley, Chad was the CEO, who Chad's father-in-law at the time was? Oh, no. I have no idea. Jim Clark of SGI and Netscape

of Silicon Graphics and Netscape. Jim Clark. Jim Clark. Didn't know that.

Yeah. So, not only were they part of the PayPal team and PayPal mafia, like they had the best adviser of all time. Wow. To navigate the Silicon Valley ecosystem

and the internet ecosystem in Jim Clark. So, the brilliance of YouTube and it really was absolutely brilliant was three-fold. One, it was super easy for

anyone to upload a video. So they had a killer content acquisition model. Anybody anytime anything.

And as soon as the servers process it, we'll put it live. No copyright checks.

Unlike Google video, which would take one to two days, all about copyright for humans to pour over it, make sure that it was all good, and bless it, and then put it live, which of course won't scale in the UGC era. YouTube's just

like, "Whatever, upload it." Yeah. two, super easy for anyone to watch a video. You need a really good viewer in the web app to view the videos. Google video didn't have it at the beginning. So, killer content

videos. Google video didn't have it at the beginning. So, killer content consumption model. Go to youtube.com, find something or find a link or number

consumption model. Go to youtube.com, find something or find a link or number three brilliant thing about YouTube, see a YouTube video embedded on another

website. Boom, you're watching the video. killer growth in distribution

website. Boom, you're watching the video. killer growth in distribution model. And also, YouTube pretty much from the beginning had great search. You

model. And also, YouTube pretty much from the beginning had great search. You

can search YouTube and find videos that you're looking for. Pretty quickly,

YouTube became and still is, Google talks about this all the time, the second largest search engine on Earth behind Google. It's amazing. Is searches happening on YouTube.

That happened quickly. I always thought that was a more recent last 10 years phenomenon. I think that happened very quickly. YouTube traffic scaled so fast

phenomenon. I think that happened very quickly. YouTube traffic scaled so fast and so big. So you can see how YouTube here, not only are they the correct

video platform for the web and just doing it much better than Google's doing it with Google video, there's actually some version of the world where they might become a real competitor to Google's core business. If all these searches are happening, they could add search for other things on YouTube, too,

right? I don't think they had any plans to do that, but it's the same rationale

right? I don't think they had any plans to do that, but it's the same rationale of Mark Zuckerberg saying, "Uh oh, everyone's using WhatsApp for messaging, whether or not they put in a social media feed stream. They always could."

And so, it's really dangerous to me for them to be out there aggregating all the users and attention and habits when they always could do something like that.

Exactly. Same dynamic. And whereas in the previous categories of apps that we talked about, Google had the advantage of uniquely being able to do it as

Google in a way that startups couldn't. Here it's a little bit the opposite.

YouTube as a small startup has the advantage of oh copyright rules, laws, but I don't know. We're just a platform. We're just a startup. Anybody upload

anything. Google by this point in time is a public company. No way they could behave like this.

Well, it's funny. They could, but they wouldn't. They actually could do it and stay in business, whereas YouTube can say, "Eh, whatever." But then they're going to go out of business because they're going to get sued out of business. So it's this really

interesting sort of catch22 of this is the way to start and get all the users because this is the best user experience and at the same time it will not work as

a resource constrained small company once it is started it needs to be part of Google right yes obviously we're going to get to that but in the beginning though oh my gosh I mean the embeds were a beautiful distribution growth mechanic for YouTube

but people were just uploading copyrighted video that people could watch for free. I mean, it's almost like Gmail. It is so unbelievably compelling to a consumer when your friend tells you about YouTube or just sends you a link

or you see an embed page of, "Whoa, I can go watch Lazy Sunday from Lonely Island and Saturday Night Live in my web browser anytime I want for free with no commercials." Yes.

Yes, I want that. And in fact, when users started uploading Lazy Sunday, the Lonely Island skit from Saturday Night Live to YouTube, this is in that brief phase where YouTube was an Ascendant startup and not yet part of Google. That

one skit increased YouTube traffic by 83%. Wow. Unbelievable. And so they very quickly raised money from Sequoia. Is that right? Yep. So it was basically incubated at

from Sequoia. Is that right? Yep. So it was basically incubated at Sequoia when the three founders left PayPal. Sequoia invested right away. I

think it was Ruf both's first investment when he joined cuz RUF knew them from PayPal. He's also

part of the PayPal mafia. Exactly. And then Sequoia led another round pretty quickly thereafter because the infrastructure costs started as you would imagine scaling astronomically here. Yeah. So three things that are very

expensive. Two of which are ongoing. One is a onetime cost. It's the onetime cost

expensive. Two of which are ongoing. One is a onetime cost. It's the onetime cost but still expensive is encoding the video. This might eventually play on multiple types of devices and multiple browsers. So there's a lot of encoding

that has to happen. Two then are just big ongoing variable costs. You have to store all this video. And the biggest of all the networking, the bandwidth becomes extremely expensive and costs you every single time someone plays the

video. Your biggest cost driver scales with minutes watched. So that is

video. Your biggest cost driver scales with minutes watched. So that is eventually going to kill you unless you have an aligned business model.

Yep. By the way, it would also be really nice if whoever owns and operates this had its own really good, really cheap infrastructure with all of these things built into it. Y

So yeah, pretty quickly within a little over a year of launching, YouTube is in way over its head. the content issues, the copyright issues, the infrastructure scaling issues.

It's all exactly what they wanted. It's going as well as they could have hoped and it isn't way over its head. Yes. And if this had happened today, you could probably raise enough capital from the private markets to address this

and scale up as a company fast enough, especially with public cloud that you could probably build this as a standalone company. Yeah. I mean today you can go raise billions of dollars as a series A startup if you're in the right space

doing the most interesting things with the big market. 2005 2006 not the same kind of private capital available and of course there's no way the company could go public with all these issues or anything right in particular there was a giant suit from Viacom.

Yes. So because of these things YouTube ends up basically putting itself up for sale. I mean they have no leverage in content negotiations with rights holders

sale. I mean they have no leverage in content negotiations with rights holders and infrastructure is killing them. So in November 2006 which is less than 18

months after the product launched Google buys YouTube for $1.65 billion in stock.

In stock. I'm glad you caught that too. Stock. Yes. We heard in the research that after this deal, Patrick Bashett, I think was the CFO of Google at the time.

He said, "Never again." Right? This was our biggest mistake. Said, "Never again. This is the last stock deal that we ever do." Google's market cap has 20xed since the day that this deal closed. If they had paid in cash, they would have made an

extra 20 times multiple on whatever you already think the multiple is on their purchase of YouTube.

Yep. The thing is though, this is we will correct the acquired record at the end of this section. Either way, even if Google paid 20 times $1.6 billion for this, they got a screaming deal. YouTube is so valuable. All right. I have some

of the numbers from the first few years that I was able to cobble together and then I want to talk about some of the product evolution over the years. Yes. Great.

All right. So, Google buys it for $1.65 billion. And interestingly, Shashir Miraa this week went on the Grit podcast, the Kleiner Perkins podcast, and laid out a bunch of data on this. And I actually didn't have a chance to

reach out to Shashir yet cuz it just came out, but a lot of this is from that conversation. So after the acquisition, he said, and Shashir was the head of

conversation. So after the acquisition, he said, and Shashir was the head of product and basically the CPO CTO at YouTube, not right after the acquisition, but within a year kind of came in for four or five years. So after

the acquisition, he said it was doing about 30 million in revenue. Okay.

So they did have revenue. I believe just to foreshadow our next chapter that was in the form of programmatic advertising that was on the doubleclick ad exchange that they were using to make money. They were losing about a billion dollars a

year run rate on 30 million in revenue. The amount of money they lost was almost exactly equal to a penny per view. So just imagine every time you loaded YouTube in those years, Google would just flush a penny down the drain. They

got to figure out something to do about this. So for the first couple years, the CFO at the time was terrified of it scaling. Like, please don't scale in its current state. But of course, there's nothing they can do. The cat's out of

current state. But of course, there's nothing they can do. The cat's out of the bag. It's scaling. And the CFO was exploring, hey, can we sell this to one

the bag. It's scaling. And the CFO was exploring, hey, can we sell this to one of the other companies who was bidding on it? That's right. Because Yahoo and the media companies also wanted to buy YouTube. Yes. So Shashir says, "We were broadly

known as Google's first mistake." Well, back to my tea up in the intro being a pure play. Investors didn't like this for a long time. This was a huge knock. I mean, gez, when we did our episode 10 years ago about YouTube, we

knock. I mean, gez, when we did our episode 10 years ago about YouTube, we said it was a terrible acquisition. Yes. The thing we haven't talked about, music licensing was really expensive. They were one of the top revenue sources

for the music industry for a long time. Maybe even still one of the top few to the music industry.

Yeah. Right up there with Spotify. Yep. So, kind of on the product side of things early on, as you were saying, the way that you found YouTube is you would see it embedded on a different site. You would click through and then you may stick around to watch something after, but then you'd leave and your entry

point to YouTube again was another embed. Most sessions did not start on YouTube.com. So you weren't going to YouTube with the idea of that they'll

YouTube.com. So you weren't going to YouTube with the idea of that they'll recommend something to me. And then even the people who did go to YouTube.com in this sort of four year 5year period after the acquisition 90% of that traffic was there to search and they just ignored anything that you

recommended to them. I mean it takes a long time a to build habits and b to build out the technology to make any sort of recommendation or browse or anything good.

Yep. For first with related videos and then ultimately the feed. And just for a sense of scale, there was a report that estimated that YouTube that year in 2007

consumed as much bandwidth as the entire internet did in the year 2000. So just 7 years before. I have an extremely similar stat from Shashir, which is it's

years before. I have an extremely similar stat from Shashir, which is it's a later period. It's 2014, but it's apples to apples rather than comparing that '07 to 2000. He said in 2014, YouTube was 20% of the bits on the internet. Wow.

I mean, this stat, but especially your stat, illustrates just how much this thing took off and also just how much more bandwidth video took up than any other media type on the internet. Yeah. But the long-term play here

obviously is the Mary Maker slide of yes, video the reason that it gets consumed so much is this is what humans want, right? And you can advertise against it.

And Google realized this. So I think they they were very smart to rather than trying to continue investing in Google video to basically say they got the lightning in the bottle, they have the consumer brand, they have the attention, let's just go buy that thing and on a expected value basis if you're making a

bet. Sure, you could build it on your own cheaper, but your chance of

bet. Sure, you could build it on your own cheaper, but your chance of succeeding is so unlikely relative to buying that thing that it's actually a deal to get it for 1.65 billion plus the billion that we'll need to invest every year for a few years to run it in the red. So 2009 is the year where the

business really starts working. Google actually discloses nothing about profitability but that the ad revenue tripled in one year in 2009.

2010 2011 they turned profitable. There was a report that in 2012 they were estimated to make about $4 billion in revenue but roughly break even. Then the

2012 134 I think they were small profitable but profitable. Then in 2013 to 2015, that time period on the product side, that's when things really changed.

So the north star really became users should go to YouTube to be entertained for 15 minutes. And it's our job to do whatever we need to do to make that true. And a few things really helped with this. One was the shift to mobile.

true. And a few things really helped with this. One was the shift to mobile.

In mobile, and remember they were a launch partner on the iPhone. Oh, we're going to get into it.

Okay. There were a lot more low intent sessions. So people who open the app rather than clicking through from an embed page. Low intent being low intent of watching a specific thing. Yes. It's a beautiful thing on mobile that you can sort of say I've got

something to recommend to you. And obviously short form vertical video like Tik Tok and YouTube shorts and all that these days is that on steroids. Mobile

also made it the case that any given user was more likely to be logged in.

That way all the personalization, all the algorithm stuff works well. They

also adjusted their core metric internally away from views and to watch time. And YouTube was very early to the concept of creator monetization. For a

time. And YouTube was very early to the concept of creator monetization. For a

long time, it was the only place on the internet where creators could make money, share revenue with creators. And in our old episode, we sort of knocked them. We said, "Look, this business has to give its first 50% off the top of any revenue it makes to the

creator of the video. That's a way worse business than say Google search ads or Facebook who you know Facebook has influencers on their platforms too all the meta platforms Instagram and their rev share if it's anything sure sure

isn't 50% it's probably closer to zero and YouTube right early on said you're a 50-ish% partner which takes you a decade longer to get profitable but helps you build that base

just creates amazing incentives for people to build businesses and careers is on this. I mean, YouTube is the ultimate instantiation of the internet

to me and the power that it can provide to individuals to make a living. It

abstracts the need at all to create or run a business. It really just simplifies it down to make content that people watch, you will get money for it.

You don't have to do anything else in between. There's a little slight of hand that you did there, David, which is that people watch. Well yes.

So, YouTube internally went back and forth for years on this, and I think we're sort of in this no man's land that we've landed today. Camp one is, hey, the way to make people most engaged is by getting them to follow creators and

they curate the information sources they want. Camp two is in algorithms we trust. It turns out camp 2 is actually correct, which is unfortunate. It's a

trust. It turns out camp 2 is actually correct, which is unfortunate. It's a

messed up incentive. Most of the time, if you show someone something that they're subscribed to or you show someone something that the very smart computers have figured out, you will watch and then watch another video after

that. Usually the algorithmic approach is right. And so there is sort of this

that. Usually the algorithmic approach is right. And so there is sort of this internal conflict there where they say, "Yeah, of course you should subscribe, but your views are only loosely related to how many subscribers you have."

Yep. This is the dark side to the YouTube economy. Yes. But putting that aside, just the sheer concept of anybody and everybody in the world has a video camera today

can create something and if it's good and people watch it and the definition of good being the algorithm likes it, you will make money with no other steps in between that can only happen on the internet. It's pretty interesting because it kind

of has these two business models in core Google land. They have the Adwords business model where they're the first party media site. Each search result page is a form of media and they run ads on that and then they keep approximately

100% of the revenue generated from that ad. The advertiser pays them and they share some in the form of traffic acquisition costs that we'll talk about later, but it's a largely a first party ad. And then they have this other form

AdSense and the Google content network when they show display ads on other people's websites where they share like 70% of the revenue most of the revenue out to the the publisher publisher the content owner right who actually is the reason why

there's an ad there in the first place and YouTube was sort of a interesting mix between the two they were comfortable and familiar with the idea that we can manage a platform where we actually share a a lot of the revenue

with those producing the content, which is is interesting. Like, if they had never gone into the AdSense world and they were purely a search engine, I think it would have probably been more of a fight to try to do this 50% split

with creators. All right. So, there's a thing that I mentioned earlier, this

with creators. All right. So, there's a thing that I mentioned earlier, this notion of people on mobile are more likely to be logged in than people who

just hit a web page on desktop. Loggedinness is essential for YouTube's success.

That is actually new to Google. Loggedinness is not essential to the effectiveness as of a search engine or even the monetization of a search engine. We've sort of flirted with this idea. You can kind of hear it through

engine. We've sort of flirted with this idea. You can kind of hear it through our episode of things like Gmail are good because then you're logged into Google, but there's not a giant lift. It's sort of like a nice to have.

Yes. search, especially on the advertising side, is already so bottom off funnel, right? The intent is right there. I don't need to know what your demographics are. I know what your

right? The intent is right there. I don't need to know what your demographics are. I know what your intent is, right? You search for a shovel, I'm going to sell you a shovel. Yeah.

That's a stark contrast to YouTube where the whole YouTube flywheel really only works with logged in users, right? Not just for serving videos and content for you to watch, but also for advertising. This is how the television

advertising ecosystem works. It's about targeting. You know, why does Chevrolet advertise on football games? You need demographic data, right? All right. So, David, are you ready to regrade the acquisition of YouTube by Google? Yes. We got to set the context of how

big it is today. All right. So, back in 2016, we had two knocks on YouTube. One is that it wasn't a destination site. Narrative number two was they only get to keep 50% of their total gross revenue and then they've got these crazy infrastructure costs and

they'll never be able to outrun them. Well, they sure have solved both of these issues. Clearly a destination site. Actually, more than anything, a

these issues. Clearly a destination site. Actually, more than anything, a destination app. You open YouTube and an algorithm we trust. It's what I do every night before I go

destination app. You open YouTube and an algorithm we trust. It's what I do every night before I go to bed. Yes. And you know, it's some mix of things you're subscribed to and things

to bed. Yes. And you know, it's some mix of things you're subscribed to and things you're not, but things YouTube believes will grip your attention at that moment.

On the infrastructure costs, let's just start by unpacking their financials. So

last year in 2024, YouTube ads alone did $ 36 billion in revenue. So half goes to creators. They have 18 billion left to play with, and they've had two decades

creators. They have 18 billion left to play with, and they've had two decades to figure out how to get their variable cost down for video hosting, bandwidth, compute, for encoding, music licensing, all that stuff. They now do insane feats

of engineering including doing their own custom silicon to do video encoding.

They also have a whole bunch of crazy things that they do like change the video encoding that is used depending on how many views the episode has. Interesting.

So they do like vanilla H.264 264 when you first upload it and then when it hits some number of views it switches to a more computationally expensive to encode but then smaller to distribute format and then when you hit another one

when you have like 5 million views or something then they do it yet again they re-encode the video and make the file size even smaller. So they have figured out all these little optimizations to make any given stream as inexpensive as

possible on the sort of variable cost basis. Brilliant. On the revenue side, they have gotten much better at selling ads and most estimates is that YouTube is actually quite profitable. Now, on top of the 36 billion in advertising

revenue, Google reported that if you include subscription revenue, so this is things like YouTube Premium, YouTube Music, NFL Sunday Ticket, they're now doing over 50 billion in revenue. Wow. So, David, this now makes YouTube the

second largest media company by revenue after only Disney. And Disney has so many other things contributing to that revenue. Theme parks, cruise ships, merchandise, etc. Yes. So, YouTube is already bigger than Disney's media business, and this year

Yes. So, YouTube is already bigger than Disney's media business, and this year will likely become bigger than Disney's entire business. The question is, how does that revenue

figure compare to Netflix? I'm glad you asked. Netflix annual revenue for 2024 was 39 billion. So,

they've alreadycliped Netflix. Wow. So, there you go. Google doesn't

release usage data for YouTube, but I'm pretty sure that YouTube is the biggest single property on the internet in terms of minutes spent by humans on it. It's not I believe that

the biggest number of users on the internet. Both Facebook Blue app and WhatsApp are bigger in terms of total number of users, but I think YouTube probably dwarfs them in terms of time spent by users on the app. I think it is

the biggest. I could see that human attention time sync known to man.

the biggest. I could see that human attention time sync known to man.

So then the question becomes how profitable is the 50 billion in revenue and officially we don't know but there's these great things called research firms out there that uh make our jobs at acquired here much easier. So storied

firm Moffett Nathansson published a report earlier this year that they think YouTube does about $8 billion in operating income. 8 billion a year. So,

I want to diff that against their total investment into Oh, yeah. Okay, great. This is the way to grade it. Okay, here we go. Yes. Now, we're getting into grading here. We're landing the YouTube plane. The definitive acquired regrading of YouTube.

here. We're landing the YouTube plane. The definitive acquired regrading of YouTube.

So, as mentioned earlier, I don't think they ever lost much more than a billion a year, and I think they got break even within conservatively 5 years. So after

the $1.7 billion purchase price and the 5 billion in additional costs, Google paid $6.7 billion. I'd bet it's closer to 5.56 to own something that spits off

$8 billion a year in profit today and revenues are growing 10 to 15% every year. By the way, also since I think the theme of this whole episode is sort of

year. By the way, also since I think the theme of this whole episode is sort of like the dual bottom line to Google of everything they're doing of both revenue and profits and strategic insulation versus other large tech companies.

Oh, but David, you're forgetting the third of organizing the world's information.

Okay, the triple bottom line. There we go. The triple bottom line. Google itself,

not including YouTube, pretty much whiffed on social. really really

strategically good for them that they own YouTube, isn't it? Now that you know Meta and Tik Tok exist. Well, here's the crazy thing. They whiffed on social and then what ended up happening was social became YouTube. Yes. Yes. It's the craziest thing. We don't open

apps anymore to look at what our friends are posting, a place where Google has no presence. But you open Meta's most important property with Instagram and

presence. But you open Meta's most important property with Instagram and you look at Instagram's mostused thing, reels, or you look at Tik Tok, and what do you see? You see videos from people you don't know. I mean, it's crazy that

the rest of social media or almost like userenerated media pivoted into Google space. Yeah, this was the big D Montto to our meta episode last fall was, hey,

space. Yeah, this was the big D Montto to our meta episode last fall was, hey, social networking such as the conception of it existed in the mid200s and 2010s

is dead. It's gone. It bifrocated into private messaging and public media.

is dead. It's gone. It bifrocated into private messaging and public media.

Yes. The sort of middle ground of wide group of people you kind of know is effectively dead. It's close friends and it's I don't really care where it came

effectively dead. It's close friends and it's I don't really care where it came from, but it's entertaining. Yep. So you could do a discounted cash flow on this thing that I just gave you this call it 6 billion of investment and

now 8 billion growing at 10 to 15% every year but there's additional strategic value too in addition to this thing you just said this becoming the winner in the short form era they have the largest corpus of video to train on for the AI era.

Yeah let's go. So Moffett Nathansson estimated that if this was publicly traded, it would be worth about $500 billion as a standalone company. And

even conservatively, if you sort of take media company comps and do a revenue multiple and you discount all the strategic future value, it's still like $200 billion.

So this is officially one of the best acquisitions of all time. And I am raising my grade from a C to an A+. I am obviously right there with you. This isn't a plus+.

Now, it's not really fair to say that it's like turning 6 billion into 500.

That initial 1.7 was largely Google stock that they traded. So, that had real opportunity cost, but it's still ridiculous. Like I said earlier, a screaming deal either way.

Yes. All right. There we go. We have revised history. Corrected the record.

Yes. All right. Well, for our next chapter, I motion that we go back closer to Google's core business of advertising on the web and maybe also

stay closer to acquire its original uh raison detra of discussing the greatest acquisitions of all time. We may as well follow up YouTube with Doubleclick. But before we do that, it is time to talk about one of our

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Ben and David sent you. So, double click. Well, if buying YouTube in October 2006 for $1.65 six

five billion dollars was a lot. Google decided to basically double that a few months later

in April of 2007 when they bought Doubleclick for $3.1 billion in cash this time, not stock. And this is on the display ad side of the house. So

Google's got two advertising businesses at this point. There's Adwords when you search and you get the blue links that show up above the blue links and then there's the off property or the Google network ads and at this point in time

Google just is operating something called AdSense which is this ad network that they've started.

Yeah. So Doubleclick actually has a fascinating company history before Google that I did not know.

Yeah. not a hot rising startup like YouTube that they bought for, you know, a couple billion dollars, though it once was. Yes. All right. So, here's the Double Click story. And huge thank you. There's a new book that actually just came out by Ari

story. And huge thank you. There's a new book that actually just came out by Ari Paparro. The book is called Yield. Doubleclick was originally founded in 1995. So, before Google,

Paparro. The book is called Yield. Doubleclick was originally founded in 1995. So, before Google, before Google, the founders were Kevin O'Connor and Dwight Marryman and their

headquarters were in New York City. The original idea was twofold. One, build

software that could let advertisers serve ads across websites. This is

called an ad server. And the network of websites and media, the advertisements.

When people talk about paid media, it's the advertisements themselves that would run. Over the next 5 years, they end up building and acquiring their way to

run. Over the next 5 years, they end up building and acquiring their way to being the leading display ad network and ad server. And they went public during this time. Right.

Yep. 1998. shining success of the dot industry. However, do crash happens. 70%

of DoubleClick's customers not only churn but go out of business. A huge

amount of DoubleClick's advertisers were actually VCbacked startups. Brand

dollars hadn't really spread to the web yet. Like we talked about, the digital advertising was so early and so nent. Yeah. It was pets.com that was advertising on other.com properties. Exactly. They're almost levered on the

bubble is probably the right way to think about it. So, easy come, easy go.

So, in 2002, after they're sort of limping along for a while, they sell that ad network division off for under $15 million with an M. Wow.

So, now all they've got left is the software, the sort of ad server part of the business. So flash forward to 2004, they're this kind of sleepy, slow growth

the business. So flash forward to 2004, they're this kind of sleepy, slow growth company with a shrinking market cap. The ad server, their software was still widely used, but digital marketing on the web just wasn't actually having that

much spend flow through it. They decided to put themselves up for sale. Google

actually took a meeting to look at it to see if they wanted to buy it. They

decided not to and eventually they sold it to private equity. Two different

firms, Helman and Freriedman and JMI Management, bought it in 2005 for about a billion dollars. IPO day was double this final price tag that they would sell it to private equity for. And in many stories, this is kind of the end of

the story. This is the start. Yeah, it's sort of crazy given the fact

the story. This is the start. Yeah, it's sort of crazy given the fact pattern that you just told us that two years later, Google's going to buy this thing for $3 billion.

Yes. So, David Rosenblat becomes CEO and he has a very familiar name that all of you will probably recognize who becomes Neil Moan. Yes. The head of product and strategy at

the company, Neil Mohan. Neil, of course, is the CEO of YouTube today. Yep.

So, from DoubleClick originally, many would argue the best thing that Google got in the DoubleClick acquisition. You could argue that. Now, here's the amazing thing. What happens under the

acquisition. You could argue that. Now, here's the amazing thing. What happens under the private equity ownership is that they launch a completely different product.

This new thing called an ad exchange when the concept of an ad exchange is first invented. Remember it was very straightforward before this. There was

first invented. Remember it was very straightforward before this. There was

just an ad network and some software called an ad server. The ad exchange is this sort of brilliant idea that we can cross route demand between ad networks.

And at first what this is sort of used for is like the remnant or unsold inventory. Oh, we've got some page loads. We don't currently have a buyer

inventory. Oh, we've got some page loads. We don't currently have a buyer in our ad network forum. So, throw them up on this exchange and see if programmatically some people will bid on it and we'll get more dollars this month

for the same number of page views. But technically, what was going on is it was really sophisticated and it allowed for some crazy stuff to get done. You could

bid in real time, including against the publishers direct sold ads. You know,

let's say the New York Times has done a specific deal with Ford, then in a real-time basis, right? If somebody else is willing to top forward, then you can displace them. Yep. Yep. Exactly.

right? If somebody else is willing to top forward, then you can displace them. Yep. Yep. Exactly.

Gosh, this sounds a lot like Google, doesn't it? It really created the modern programmatic display advertising for better or for worse. That's basically

what happened here. And as a publisher, when you start working with an ad exchange, you can incorporate multiple different networks, agency trading desks, cuz this became a big thing with ad agencies. You can stand up these complex rules engines. Effectively, what happened is you sort of jumped in front

of the ad networks. you almost disintermediated them. You're the lowest level building block that everything else has to integrate with and eventually what started as this ad exchange that just became used for

remnant and unsold ultimately becomes the primary way that digital media is bought on the biggest advertisers with the biggest publishers and all of course

bought and sold through these big agencies. Google is running this little thing called AdSense. It's kind of for smaller publishers and it's very like DIY self-s

called AdSense. It's kind of for smaller publishers and it's very like DIY self-s serve. It's almost like a techie utopian's version of how do you run ads

serve. It's almost like a techie utopian's version of how do you run ads on websites. Whereas this ad exchange is let's acknowledge all the complex

on websites. Whereas this ad exchange is let's acknowledge all the complex realities that exist in all these business relationships, all these purchasing decisions. the way Madison Avenue has evolved from the Madman era

purchasing decisions. the way Madison Avenue has evolved from the Madman era to, you know, this moment in time in the early 2000s. And let's essentially construct fat

pipes for money to flow through all this. And what I mean by that is direct integrations into ad agencies financial systems and the ad agencies control the budgets for all the big brands and all the big dollars that are flowing. That's exactly right. So, if only Google

had a way of unlocking and now participating in these deeply integrated money flows, Google had a few other problems. The way DoubleClick worked and performed a lot of really fancy stuff like frequency capping to make sure you

don't see the same ad 46 times is third party cookies. Google was

philosophically opposed to using third party cookies, so they couldn't do stuff like that, but DoubleClick could. Google didn't have a lot of these big sales relationships since at the time again they're very obsessed with self-s serve

web pages. Advertisers just log in and upload and transact. So Google ends up

web pages. Advertisers just log in and upload and transact. So Google ends up kind of locked out of the best ad inventory. Advertisers on Google could really only be placed on the long tale of websites which advertisers were

willing to pay less to appear on those websites. Again, we're all in the AdSense part of the world, not search ads. Yes, there's all sorts of things that make them not enterprisegrade here. So, Google decided they'd like to buy DoubleClick.

enterprisegrade here. So, Google decided they'd like to buy DoubleClick.

Yes. Well, that's sort of the story out there. The reality is, think back to how you started and when I interjected and I said, gosh, a lot of what Doubleclick is doing, it really sounds a lot like what Google is doing, right? Well, we were

talking to Tim Armstrong for research for this episode. Tim of course was head of sales at Google for many years and we were asking Tim about Double Click and he was like well I was close with the Double Click guys and I wanted to meet with them here in

kind of late 2006 early 2007 and just so happened I was going to be in Seattle for some stuff and I was emailing with them and they were like uh oh you're in Seattle actually we're in Seattle too right now we can get together here. Tim

immediately sounds the alarm inside Google to Eric and Larry. They're in Seattle. Why are they in Seattle? This is a New York based company. There is only one reason why the DoubleClick

Seattle? This is a New York based company. There is only one reason why the DoubleClick guys are going to be in Seattle, and that would be if Microsoft is going to buy the company.

Yep. Now, back to everything we've been talking about all episode. What does

Google absolutely not want to have happen here? Well, one was Microsoft to kneecap them by making changes to Internet Explorer or Windows or whatnot.

They basically neutralized that through the whole web app web 2.0 strategy. Now

the threat is, oh, Microsoft is finally going to wake up and do what they should have done 10 years ago and compete with us, build their own search engine, right? Be willing to be an adbased business. Their DNA was, "Yeah, we'll do

right? Be willing to be an adbased business. Their DNA was, "Yeah, we'll do some ad stuff and MSN kind of has to because it's a media business, but we sell software.

We sell software. That's what we do primarily. And we would never trade our ability to sell software to make money on dirty ads." Yep. Well,

Microsoft is realizing that for some set of users, Google's actually making more money on any given PC user than Microsoft is. And they're not happy with this. And say, "Fine, we at least just need to be in that game, too." Yep.

this. And say, "Fine, we at least just need to be in that game, too." Yep.

So, the negotiations are kind of happening with Microsoft and DoubleClick. Tim told us this great anecdote where he's invited to present and he still thinks it's like a early stage conversation in the negotiations and somehow he gets sent to the wrong

floor. The person who is escorting him into the Doubleclick building sent them

floor. The person who is escorting him into the Doubleclick building sent them to a floor and they sort of freak out when the door opens and they're like trying to close the door like please go to the other floor. And Tim is like what's going on here? He steps out. He runs down the hall and he sees a

conference room full of all the Microsoft people and their accountants and their lawyers and he's like, "Oh my god, oh my god, you guys, you're you're about to sign this deal with Microsoft. You got to." So he gets them to hold off

so he can kick the tires, do his diligence, submit a counter bid. This is

a crazy process that goes back and forth. Yahoo gets involved. There's a

whole presentation series that happens where Yahoo, Microsoft, AOL, and Google are basically all getting the pitch and DoubleClick is now. I'm imagining they're all like in an auditorium and Double Click is presenting on stage. Dude, there was a spreadsheet called YMAG.XLS.

And the reason they've created it is they're effectively trying to show in each of these presentations, here's how much incremental money you'll make if you own DoubleClick and you tie it into your existing ad system. And they're

tweaking the numbers slightly for each one. So Google then submits their LOI for $3.1 billion.

And it includes a clause where they can't shop the deal around during this diligence period. And so the whole Google team goes to New York. They rent

diligence period. And so the whole Google team goes to New York. They rent

out this big room at a hotel near Double Click's offices. And I'm going to read an excerpt from the book Yield. The company's council, this is Double Click, checked her Blackberry and held it up for David Rosenblat to see. There was an incoming message from Microsoft's corporate development team. They were

willing to match the offer for DoubleClick and the message included an email from Steve Balmer saying that he opened the door for a much higher offer.

Balmer wrote that if the offer match was not acceptable, Doubleclick should simply mark up the paper to meet its needs and then sign it and Microsoft would review and rapidly countersign to close the deal with minimal negotiation

required. Without saying so, Balmer was communicating, "Here's a blank check.

required. Without saying so, Balmer was communicating, "Here's a blank check.

Tell me what closes the deal." Ultimately, a week goes by and they're in this period where they can't really respond and they're supposed to just kind of proceed with Google. And a day before the LOI is set to expire, the

DoubleClick team gets an updated term sheet from Google. The financial terms of the deal are unchanged at 3.1 billion. But now the deal includes what they call a hell or high water clause, which means that Google was committed to closing the deal without any substantive diligence or any other conditions. It's

just money in the bank. So no more diligence. Doubleclick just signs it.

3.1 billion. And the private equity firm turns that 1 billion, which was levered.

It was something like 300 million of equity and 700 million of debt into a $3.1 billion sale to Google. Then it's over. Not bad work if you can get it. Nope.

So this was huge for Google. Doubleclick bringing it into Google did really help with those fat money pipes as I was saying of dollar flows from ad agencies.

Yep. But the biggest thing was DoubleClick was the number one player in the space. There was another company, public company called Aquaniv that was the number two player

the space. There was another company, public company called Aquaniv that was the number two player which Microsoft then bought for twice as much. They were like, "We really wish we had gotten Double Click." And then within months, it was the next month. Right away,

Microsoft turned around and bought a Quanivive for $6 billion. So twice the price. But Microsoft getting the number two player versus the number one player

price. But Microsoft getting the number two player versus the number one player slowed them down. We're heading right into Microsoft search efforts with Yahoo and then ultimately Bing and getting into the advertising business worth

every penny to Google even for the sole reason of keeping the premier number one player in the display ad space out of Microsoft's hands. Yep. Okay. Hey, the

one thing I will say here, David, is unlike all those other Google products, maps Gmail YouTube, the organizing the world's information. This is not organizing the world's information and making universally accessible. This is we're

running an ad business and we want to expand the ad business and so we're going to expand and protect our business interest by buying this. And it's a chess piece on the table that it being in our hands versus other people's hands is better.

That's exactly right. And there's ways that it like systematically advantages you to own the exchange when you also own the network. And this is only checking the box of strengthening our business without checking any of the other boxes. And you basically never heard Google executives get up on a

other boxes. And you basically never heard Google executives get up on a stage where they're inspiring people about the future of the company and talk about basically anything Doubleclick is doing. Yes. Correct. And you know, even fast

forward today, unlike YouTube, it's not like this has become a world dominating thing, right? If you're in the display ads world or you're a publisher or this

right? If you're in the display ads world or you're a publisher or this feels like a huge deal. If you're Google, let's just look at the numbers

today. Google in total in 2024 made 350 billion of revenue. About 200

today. Google in total in 2024 made 350 billion of revenue. About 200

billion of that is from Google search. About 30 billion of that is from Google network. This falls under Google network. Plenty of which existed before and would

network. This falls under Google network. Plenty of which existed before and would have existed anyway in AdSense regardless. I don't know about that. I don't know that Google would have become the dominant player in display ads absent double click

without buying double click. Yeah. I don't think Yeah. Yeah. But AdSense was probably doing a billion plus in revenue at the time. would have kept scaling. So all

that to say like in the context of Google, this isn't a YouTube.

It just doesn't matter that much. Yeah. 200 billion in revenue they make from search where they get to keep 90ish% of that, you know, after paying out traffic acquisition costs. Google Network, they pay out 70%. And they only made 30

acquisition costs. Google Network, they pay out 70%. And they only made 30 billion. So if you start thinking about like gross profit, it's comparing $9 billion to $175ish

billion. So if you start thinking about like gross profit, it's comparing $9 billion to $175ish billion. Yep. It's just not that consequential to the story. All right. So speaking of search, catch

billion. Yep. It's just not that consequential to the story. All right. So speaking of search, catch us up on how the search business is doing during these years and why Microsoft finally said like, "Okay, enough. We got to enter this business ourselves."

Yeah. So, we've been talking about kind of the sideshows like trying to add wind to the sales of the web and search is cranking on improvements to the core product and revenue is growing up right along with it. So, here's a little

timeline to catch us up 03 to08. They start updating the index more often. So,

the index starts to feel not quite real time, but it used to be that when you would search, you would be getting results that were indexed 3 months ago.

Now, the web is feeling a little bit more uh real timey, recent when you're searching it. They

launched Google images, Google News, Google Books, Google Scholar. They

launched Google Suggest, which is when it starts autocompleting your searches.

And later they would launch something called Google Instant, which was very cool at the time. It's actually kind of gone away now, where it would run a completely new search based on every character you typed and show you the results page updated in real time with each next keystroke, which was pretty amazing.

I remember that being so cool when it launched. Yeah. In 2005 they incorporate your search history into your results. So this is when they start doing some personalization stuff with logged in users. They go from in ' 04 they had

three billion in revenue. 05 they have 6 billion in revenue. So doubled even at that scale. In 2007 they launched universal search across web images video

that scale. In 2007 they launched universal search across web images video you know whatever maps. They try to deconstruct your query and understand which of these things are you looking for rather than they used to basically build a completely separate search engine for each media type and then

leave it up to you to decide which thing to go search. That year when they launched universal search they do 16.5 billion in revenue. This 2007 year this

is when they become the largest seller of advertisements in the world. Not just

digital ads ads. And digital ads would not overtake traditional media until 2018 as we talked about earlier. Yeah, I was trying to square this. So I

guess that means that the market share that Google has of digital ads is so high massive that it's bigger than even in the traditional space or the TV space what any one player has. Yes. So every year for the last 18 years, Google has been the number one

seller of advertising of any kind in the world. Wow. This I think helps you understand a little bit what's at stake in the era of AI. I mean this is literally the trillion or five or 10 trillion dollar question is can Google keep being the

number one seller of advertising in the world even through this sea change. We

should do a whole episode on that probably. Maybe we'll maybe for next time.

But actually there's some great corlaries with the mobile wave that we're about to talk about. And then just to pull forward a few more search improvements that they would do later in 2009, that's when they really do some

real- time indexing of the web. 2012 they launched the knowledge graph. So

when you search about a basically a thing with a Wikipedia page, you always get the kind of snapshot view on the right hand side of that entity. And so

all along the way they're tweaking the algorithm in an attempt to reduce spam.

That's effectively the product changes on the people side of things. They

really had solidified themselves as the preeminent computer science research company at this point. I mean, if you were to refer in 2008 to like a really smart programmer, you probably said, "Oh, they, you know, they're like a

Google type engineer. They sort of took the mantle from Microsoft and had not yet relinquished it to Facebook or later to the Stripe or OpenAI or Anthropic or any of the sort of companies we would talk about in the future as this like

dense concentration of the best engineers." and they had pulled in a lot of the people from the big research labs that had been collapsing. So you had Jeff Dean and Sanjay Gemma coming from deck. David, we did Sanjay a total

disservice on the last episode. A lot of the stuff that Jeff did and of course he became sort of a Google executive. Jeff and Sanjay peer programmed together.

Yes, there's an amazing New Yorker article that was published long ago about their friendship and career partnership and everything that they accomplished together.

Yeah, we'll link to it in the show notes. And basically if you look at any big research paper about giant Google infrastructure stuff that was launched from I don't know 2002ish maybe even earlier through the 201s. Jeff and Sanjay are either the two

authors or two of the five authors. I mean it's amazing how much stuff these two guys invented. They also got Bill Corin and Rob Pike from Bell Labs. you

had Xerox Park and IBM's labs were sort of losing prominence and Google's just sucking in all this generational heavyhitter computer science architecture systems programmers from all of those. And so I think that's sort of how I would describe where a lot of

the technical breakthroughs are really coming from or at least the culture of technical breakthroughs. We talked about these incredible products, incredible innovations,

technical breakthroughs. We talked about these incredible products, incredible innovations, development of the whole concept of a web application, but that was coming from these people that were coming into the company who were just like you say,

generational talents. Speaking of, that was very convenient for a couple things

generational talents. Speaking of, that was very convenient for a couple things that they needed to start doing in 2008. namely launching their own web browser

and then shortly thereafter launching their own mobile operating system.

It's astonishing that they did both of these things in the same year.

And this isn't like, oh, I'm going to start a browser the way that you can start a browser today. I mean, the all these AI companies are launching browsers.

Yeah, they're using Chromium, right? This is a giant engineering undertaking. You need amazing architects. I mean this is equivalent to Dave Cutler doing Windows NT. I mean it

architects. I mean this is equivalent to Dave Cutler doing Windows NT. I mean it was earthshattering when Google launched Chrome or everything Jeff Dean and Sanjay did in the early days of Google. Yes. Yeah. And when I say people launching

web browsers today are using Chromium, Chromium of course is the open- source version of Chrome.

Yeah. That Google just gives away for free to anybody. That didn't exist. They had to build it.

So, in February of 2008, the shoe that Google had been fearing would drop for many, many years finally does drop, which is Microsoft is officially going

to enter the search business. They make a bid, Microsoft does, to buy Yahoo for $44 billion. The giant has finally woken up. Fortunately for Google, they get a

$44 billion. The giant has finally woken up. Fortunately for Google, they get a little bit of a reprieve because Jerry Yang turns it down. So dumb

in one of the worst corporate decisions of all time because just two years later, Bing, after Microsoft would launch Bing the next year, in June of

2009, Bing would take over powering Yahoo search for a deal that paid Yahoo $1 billion versus the 44 that two years earlier Microsoft was willing to pay for the whole company. And then Yahoo would sell itself to Verizon for

whole company. And then Yahoo would sell itself to Verizon for like three I think something like that. Something like that. Yeah. Single digit billions.

Yes. So Google though knew this day was going to come eventually. And

fortunately by this time in 2008 Google had its competitive response all ready ready to go which was Chrome. And they had actually been working on

improving the state of browsers for years. Oh yes they had. The story of Chrome goes all the way back to 2001. Larry and Sergey wanted to build a web browser in

2001 for this very reason that we've been talking about the whole episode. All of Google rested on I didn't realize that Internet Explorer and also I mean it was Larry and Sergey. Of course they wanted to build a web browser. It's the most Google thing. Why wouldn't we build our own web browser, right?

Google thing. Why wouldn't we build our own web browser, right?

But it was Eric who said in 2001, "No, we can't do this now. We can't poke the bear right now. Like Google is too young, too vulnerable. Calls like this are why Larry and Sergey

brought in Eric. Eric. Yes. The actual quote from Eric at the time this is in in the Plex is, I don't want to moon the giant in 2001. It's a very Eric Schmidt quote.

But that doesn't mean that Google isn't preparing for this. Instead, what they do is they decide that they are going to become the primary major benefactor for

the new Mosilla Foundation and what would become Firefox. Mosilla was the nonprofit organization that was founded and spun off from Netscape when AOL bought Netscape.

Are they a funer? Are they actually just like giving money? Well, I think at first it probably was like with grants like giving money because this is strategically important for Google. But then once Firefox actually gets released

by Mozilla and deployed out there, the way Google starts supporting Mozilla and Firefox is through paying traffic acquisition costs to them to be the

default search in the Firefox browser. Spoiler alert, like they do to Apple for Safari today to the tune of like$20 billion dollars a year. Yes,

Firefox is where this all starts with Mozilla. Actually, traffic acquisition costs originated before Mozilla because it's effectively the same thing that they were doing with software vendors to include Google Toolbar, right?

And so I think the mechanism of payment over time shifted to more of a rev share. My understanding now is that they share some of the revenue they generate

share. My understanding now is that they share some of the revenue they generate from queries that originate searches that happen in the browser.

Exactly. Which is why it ends up being kind of variable yeartoear. But yes,

Google has a long history of paying for distribution of their search engine and the new form that it is now taking is the Mozilla Firefox browser.

Yep. Starting with toolbar. So, this goes on for a couple years. And by the way, I should say Google becomes a giant contributor of source code to Firefox. Well, oh, is that where you're going?

I'm going to get into this. So, couple years, Google's paying Mozilla for default search in Firefox, basically funding Mozilla. After a little while,

Google decides that they're gonna hire some of the key Firefox engineers at Mozilla to come and work at Google directly. But they position this as like essentially this is the same thing. We are still funding Mozilla and Firefox

just like you know you're Mozilla. You can't give these employees, these engineers stock options like you're a nonprofit. How about instead they do the same thing that they're doing which is working on Firefox. They'll just come

and work here at Google and we'll pay their salaries and they'll get Google stock options. Otherwise, they're going to get poached, you know, by all these

stock options. Otherwise, they're going to get poached, you know, by all these tech companies, etc., etc. Fascinating. You can see how this makes sense. This

team that comes over from Mozilla into Google becomes the core of a new quote product client group within Google. Meaning of this being products on

clients, i.e. installed applications on PCs, not the web apps that the rest of new Google is doing.

clients, i.e. installed applications on PCs, not the web apps that the rest of new Google is doing.

And the leader of this group, Google hires from McKenzie in 2004, Sundar Fai.

Oh, I did not realize that that's where Sundar came from. Yep. Well, again, all of this is very strategic because if you did someday want to build your own web browser, now you've got the bench of talent. They're employees. So, there's a quote from Mer Schmidt in

in the Plex. This was very clever on Larry and Sergey's part because of course these people doing Firefox are perfectly capable of going and doing another great web browser. So this group is sitting there within

Google for a couple years almost like a latent sleeper cell within Google.

They're just ready to activate as soon as the Microsoft threat becomes real.

And the way I heard it was a lot of people are working on Google Gears, which is this browser extension that allows for offline functionality.

They've built the Google web toolkit to make web application development even more advanced, even more sophisticated. And at some point they kind of lost faith that Firefox was going to keep the pace and that Firefox was going to stay

as high quality of a browser as they needed it. And of course they had some divergent technical ideas like different architecture ideas for how a browser should function that we'll talk about. I think all of these things are true. However,

having your own browser when Microsoft does launch Bing hugely, hugely hugely important. Imagine if 90% of Google happened on Internet Explorer and all of

important. Imagine if 90% of Google happened on Internet Explorer and all of a sudden Microsoft launches Bing, right? There's no amount of money suddenly that you could pay Microsoft where they would keep you as the default

search engine because they just want all the traffic to go to Bing because they now have a great way to monetize. Absolutely not. Bing default search engine done, right?

And the thing that of course Microsoft would fail to realize with Bing is you can't be second place in search, right? The most liquid auction will always win and Google has already run away with the search ads auction liquidity and so

traffic on Google searches will forever be worth more than traffic on the second place browser.

Sure. doesn't mean that that battle wouldn't be hugely damaging to Google if they didn't have their own web browser. So 2006 they finally decide okay it's

time to start work on Chrome. Yep. And also it's clear web apps, JavaScript, Ajax very important thing and Internet Explorer isn't keeping up with the technology.

Yeah. So, there's two killer features, arguably maybe three, that they're going to bake into the Google browser. Oh, I've got six. Oh. So, I'm curious which ones you don't think are important. Okay, I'll go through my three and then I'll see what else you have to add.

Okay great. Number one, most important, it is going to have a super fast, super modern, super performant JavaScript virtual machine called V8. Yep. that is going to run big web apps

fast and stably. We're the Ajax company, baby. We got to speed up. We are the Ajax company.

That's right. Two, web apps crashed a lot back in the day. They don't so much anymore, but they used to crash a lot. And Larry has this quote when they're deciding that they should roll out Chrome, and he kind of explains, "We

have found the web-based service delivery model to have significant advantages." You don't say.

But it also comes with its own set of challenges primarily related to web browsers which can be slow, unreliable and unable to function offline.

There you go. And so before Chrome, this is impossible to remember now. But if

you had a tab or a window open and running a web app and that web app crashed, it took down your whole browser. Yep. Everything that you had open gone.

Tabs were not their own processes. Nope. So each tab is going to be a separate process on your machine. So if the web app running in one tab crashes, all it takes down is that one tab. And it made sense that before this they

weren't their own process because one, tabs were kind of a new thing. But two,

web applications were websites. The notion of web applications was only really fourish years old.

So those are my big two. I suspect one of yours is WebKit. I'm not including WebKit here because that was an Apple innovation. Yeah, that they borrowed. I'll let you talk about that in a sec. I don't have anything more to say on that. It was the best rendering engine.

Yes. So, let's say that's three. And then my sort of three and a half is the design. So, of course, the web browser ultimately comes to be called Chrome,

design. So, of course, the web browser ultimately comes to be called Chrome, which is ironic. Chrome is a reference to all the stuff in a web browser, the toolbarss, the navbar, etc. that take up space around the content. The idea with

Chrome is and the Google web browser is going to be minimal Chrome as little as possible. It's just about the content. Let the web and the web apps shine.

possible. It's just about the content. Let the web and the web apps shine.

Yes. Okay. When you said UI, I thought you were going to say this. My fifth is the omni box. Ah yes.

Originally, there was just the URL bar and then when search became the killer app of the web, there's a second little input box that is for search on the right side. So, we had that awkward teenage years where browsers had the URL

right side. So, we had that awkward teenage years where browsers had the URL bar on the left and then the search on the right. And it's kind of clean to think about it on its own because now that we understand that that is

sponsored that I think for the longest time that was not in the public psyche that whatever search engine appeared in that box in the righth hand corner was paying for that placement. That was sort of nice because you type in the URL bar and that's your organic typing. And then the other one is your uh I'm willing to

give a kickback to Google probably, but it could also be Bing, could be Yahoo, could be whoever. Google correctly from a user experience perspective, but also just think about

their core business model is like the right design for web browsers is that if you don't type in a URL, it should just search just one bar. Why have two bars? We

imagine that generating a whole bunch more page views on search results pages and a whole bunch more opportunities for our advertisers to reach your eyeballs.

But I will say they were also correct from a user experience perspective. The fact that URLs ever leaked to the public is a mistake that is letting an implementation detail of the technology.

It's an accident of history that consumers type https slash. Are you kidding me? Consumers

never should have known the phrase HTTP. They should just type New York Times.

Yes. Which AOL tried to do. AOL keywords. Yeah. So, this is effectively leaning into that idea. You can use this box for typing in URLs, but like really what you

that idea. You can use this box for typing in URLs, but like really what you use this box for is kicking off the Google search. So, brilliantly aligned with our business model.

All right. So, that's what I got. What else do you have that's not on my list?

That's five. And then lastly, sandboxing. Each tab is a sandboxed environment. This prevented a ton of malware. This was like a big

environment. This prevented a ton of malware. This was like a big breakthrough in computer security where anything that was operating in that tab was in its own sandbox and couldn't be accessed maliciously. Yeah, that's I guess gosh remembering

back I mean before Chrome and modern web browsers browsing the web was like a security threat to your PC, right? Yep, that's exactly right. Great point. Okay, so they start work officially on this in 2006. They launch it in early September 2008,

like a week before Lehman goes down. This is wild. I remember that because I remember sitting in North Carolina at my Cisco office and I remember reading the Chrome comic, which I actually just read a couple nights ago for this episode. This like amazing web comic

at the same desk where I read the news about the great financial crisis and the world falling apart and Leman Brothers collapsing. Wow. So they launch it early September 2008 with the way this is so Google. The way they decide to launch it is they

hire the famous comic artist Scott Mloud to illustrate a digital comic book as like a introduction to Chrome explaining what it is and like a user manual in a

comic book form. And it's written for this weird halfuser who's like kind of technical, but you don't need to be a programmer necessarily. It's written

sort of for the tech enthusiast who can understand process independence, understand sandboxing, understand V8 and the JavaScript speed up, but it's not written for the general public. Yep. But that was exactly the right seed

crystal user base to get Chrome Yeah. into. Yeah. It's written for the slash dot reader. The kind of people who are going to go home for Thanksgiving in a couple

reader. The kind of people who are going to go home for Thanksgiving in a couple months and install it on all their famil family's computers and say you need to stop using Internet Explorer right now for all of these reasons, Ben, that you

just listed. Probably security being number one amongst them. This is

just listed. Probably security being number one amongst them. This is

actually was me back in the day. Like I'm going to go home. I'm going to install Chrome on my parents' computers so that they don't get hacked and lose their financial information, etc. Yep. Within 18 months, they got 40

million users. Then let's see they launched it in 2008. By 2010 they had 70

million users. Then let's see they launched it in 2008. By 2010 they had 70 million users. Then 2012 they had 200 million users. Actually what happened is

million users. Then 2012 they had 200 million users. Actually what happened is it destroyed Firefox's market share. I think the launch of Chrome and the peak of Firefox are right around the same time. And then after that then it really

started eating away at Internet Explorer's market share. And today aside from mostly iPhones but Apple devices running Safari it is the browser. I mean

to say it worked is like the understatement of the century. I mean it totally liberates Google from Internet Explorer and Microsoft. When Chrome

launched in 2008, Internet Explorer had almost 70% market share of browsers and Firefox had most of the rest. 2 years later, like you said, Chrome had passed

100 million users. By 2012, so four years after launch, Chrome and Internet Explorer are now tied for market share with about 30% each. So, Internet

Explorer has gone from 70% down to 30%. And this is both Chrome on the desktop side, but you're now also well into the rise of mobile. And so, Apple's mobile Safari is now becoming huge. And Google's Android that we're going to

talk about in a sec is becoming huge. Two years after that, in 2014, Chrome is now the clear leader with 40% market share. Internet Explorer is down to 15%. So,

it's over. It's over. And Internet Explorer is basically dead at this point. And today,

it truly is dead. 2013 14. Yeah, 2013, 14. Today, it's not even close. Chrome has almost 70% market share according to Cloudflare including iPhones which all run Safari default

right Safari in aggregate across mobile and desktop of mobile is by far the biggest share of Safari market share is about 20%. So Chrome has 70%. Safari has

20%. There's 10% left. You know I think Microsoft I don't know has a couple singledigit percentage points. Talk about flipping the tables. Chrome was massive.

And it was just better. It was so much better. And it really kicked off this amazing era for the web between Apple needing to then sort of play catchup and leaprog. In a lot of years, it was actually faster than Chrome and they

leaprog. In a lot of years, it was actually faster than Chrome and they would go back and forth. And it really spurred Apple, who was already a steward of WebKit. And they sort of had their own competitive response to Microsoft

of WebKit. And they sort of had their own competitive response to Microsoft after Steve Jobs hated the fact that he had to keep shipping IE as his best option on Mac cuz that was part of the Microsoft Apple deal, right? When Microsoft saved Apple

with the investment was Internet Explorer will become default, right, on the Mac.

So Safari was created for that. But over the years, you know, Apple's incentives, especially post iPhone, were not to make it so web apps could be great. Apple's

incentives were to make it so native mobile and desktop applications could be great. And so Google really pushing the envelope in the web's capabilities and

great. And so Google really pushing the envelope in the web's capabilities and what a modern browser could do forced this like good for the world race between Apple and Google to both make better browsers. I don't think it is an

exaggeration to say that Chrome kept the web alive. Yeah. As a viable platform for applications.

Yep. I mean, Microsoft certainly didn't have an incentive to do it in the business model they were in at the time. And Apple doesn't. They had every incentive not to, right?

I mean, who in the world least wants the web to be a viable application platform? Microsoft,

right? At that point in time, Apple now, ironically. So there's one more amazing delicious part of the Chrome story which is do you remember the Google Chrome

frame? Google Chrome frame was a plugin for Internet Explorer that replaced IE's JavaScript engine.

frame? Google Chrome frame was a plugin for Internet Explorer that replaced IE's JavaScript engine.

Oh wow. and pulled in the Chrome V8 JavaScript engine and I think also WebKit for land.

And so for all the corporate users who couldn't install a new app of America and the world who were stuck with Internet Explorer, this is the only

reason that IE hung on to market share for so long was just right lockown PCs. For all those poor souls, Google was there for you with the Google Chrome frame plugin that let you

run Chrome quality web apps within Internet Explorer. Amazing.

All right, so I have a question for you on Chrome before we finish the story.

Why make Chromium open source? The answer that I've read to that is mostly about the Google culture and trying not to be like too evil about it. Yeah, I would buy that.

Yeah, they're like an open-source company. Like it's in their bones to contribute to open source. There's a thin business reason I can think of of why they would want to make it open source. Well, the reason I can think of is like it doesn't

need to be closed source. They make their money from searches, right? That's the like it can't hurt.

Here's the way it could help. At first, I was thinking, well, wait, Google wants to own as many of the browsers that its searches originate from as they can, so they don't have to pay out distribution costs in the form of traffic

acquisition. So if someone takes Chromium and then builds a better

acquisition. So if someone takes Chromium and then builds a better browser, it's kind of bad because now you have to pay that browser maker. But

in practice, as long as it's not Microsoft and as long as it's more fragmented, that's probably a trade they're perfectly happy with. If they

need to go and split some revshare and pay, you know, someone who makes uh some variant of Chrome based on Chromium, and that gets really big and it gets 30% of the market, great. Google's deated because they it's not Microsoft. I mean,

look, except for traffic acquisition cost, Google's incremental gross margin on search revenue is like 98% or something like that, they're still going to be an 87% gross margin business. Cuz the whole point of this was to

prevent a existential risk. And so if they have to do some light rev sharing, even in their worst case scenario where someone builds a successful thing based on their open source project, oh, so horrible. We go down to 87% gross margin.

Right. Right. It's still perfectly acceptable, which actually may be the way it plays out if any of these new AI browsers work out. Yeah, maybe.

Well, not sure any of these AI browsers would be willing to let Google to pay them to be the default. Big chess game to consider there. Yes, that is the one catch is the owner of the browser still has to be willing to accept the payment from Google. Yes.

I have one analogy for all of this that is a little far a field, but I think is actually the right way to think about this. Okay. Lay it on me. Walt Disney creates Disneyland. Goes

great. Uh very handcrafted, curated, aurorriven thing, but ultimately he has to play within the rules of things like city government. Okay. they go big and get a huge plot of

land in Florida to build Walt Disney World. It would be nice if we controlled our underlying foundation a little bit more. So they build their own government district around the park, right? And they say we make the rules here.

It's not totally dissimilar. Yep. I've been reflecting a little bit on like why basically from 1998 onward Google's biggest threat was Microsoft and not because of Bing, not because of building advertising, because of this

kind of destabilizing thing. There's sort of a fine point on it which is that spiritually Microsoft was the platform of the PC era. And with this platform shift, it would be like very convenient to just be like, oh, Google's the

platform of the web era. But even though Google is the platform company of the web era, they aren't necessarily the ones building the platform,

right? Yeah. Yeah. They still existed at Microsoft's pleasure.

right? Yeah. Yeah. They still existed at Microsoft's pleasure.

And no one owns the web as a platform. So there's this kind of funky thing where like Microsoft built and owned Windows and then dominated the PC era because of that. Google operates a search engine that generates advertising

revenue. They don't charge anyone for anything. They benefit from the web's

revenue. They don't charge anyone for anything. They benefit from the web's growth. And so they're doing this like strange indirection. Yeah. It's an ecosystem building

growth. And so they're doing this like strange indirection. Yeah. It's an ecosystem building exercise. Exactly. They're trying to build the ecosystem. They're trying to be the

exercise. Exactly. They're trying to build the ecosystem. They're trying to be the steward of the open web as a platform. And they like put their finger on the scale where they need to and take a little bit more control and ownership like with Chrome or like with some of these standards bodies to push the web

forward to make sure that the place where they live, their neighborhood, the web, is in good shape. But it's not their platform in the way that it was Microsoft's platform in that era. All right. Maybe the Disney World analogy is uh even better than we gave it credit for a minute ago.

That's sort of I don't know. It's a little bit loose, but that's what I've been kicking around.

I like it. I like it. Well, no doubt Chrome was a huge success. Hell, Sundar

becomes the CEO of the company. No better sign of how successful it was than that, right? It shored up their future. We could do a classic acquired what would

right? It shored up their future. We could do a classic acquired what would have happened otherwise just for a minute or two here. What if Google didn't launch Chrome? Let's say Bing launches in 2009 and there is no Chrome

and Microsoft still has 70% share and will for a while. Yep. And they make Bing the default. Let's

see. Mobile would get big 3 four years later in the 2012ish time frame.

Yep. Still small. So they basically would have like four years of 70% of people using browsers on any devices being defaulted to Bing. Now obviously a lot of people would still want Google. They were used to it. They'd switch back. But like I don't

know, man. Defaults are powerful. Defaults are powerful. I think you're right.

know, man. Defaults are powerful. Defaults are powerful. I think you're right.

This is why Google pays Apple 20 billion a year. Yeah. To your point, maybe without Chrome, Bing would have been a serious competitor to Google. There is no more important distribution point for search than the web browser. It is the way to monetize a browser.

Basically, the single way to monetize a browser. Yep. Which, let's make this relevant to today and stop dancing. If the DOJ's ruling is that Google has to divest Chrome, there

is one way that Chrome is a business and that is getting paid by Google to drive traffic to Google as a search engine. It's the only way to operate a business of a browser. And like maybe in the AI era, it's the AI company having it drive

traffic, but it's the same exact thing. And so, one of two things has to be true. Google owns Chrome or someone else owns Chrome and then Google pays them.

true. Google owns Chrome or someone else owns Chrome and then Google pays them.

But the thing definitely can't make illegal or I don't really understand what the goal is if you make it illegal is if you say they both can't own Chrome and they can't pay web browsers to drive traffic. Chrome has no potential of

being a business if that's the case. Yep. So, Chrome, huge win. In fact, it's so much of a win that after a couple years, Google starts thinking, well, gosh, maybe we should build Chrome into an operating system in and of itself.

Let's go attack Windows. Let's take it to Microsoft where it really hurts.

Chrome OS, you know, but it became successful in schools and education.

Yeah, Chromebooks. Yeah, Chromebooks have major market share there, but it's not a major player in the overall PC operating system market. It is wild how

much the PC computer operating system market is still dominated by Windows.

That has never changed. You and I live in this world where like everybody uses a Mac. Mac has like 15% market share. Yeah, Windows has like 70% market share of

a Mac. Mac has like 15% market share. Yeah, Windows has like 70% market share of computer operating systems. Well, speaking of operating systems, it's time

I think it's probably time to talk about Google's big one. Yes.

Which is actually the biggest operating system in the world. Over three billion active Android devices now. Totally freaking wild. That they bought for $50 million.

devices now. Totally freaking wild. That they bought for $50 million.

Well, that's a red herring. They've invested so much more. But just to make the point, it is hit after hit after hit. These things are not predicated on Google's distribution.

If you're a company that launches a new widget and you can just distribute it with your old widget, it's not that impressive when your new widget gets dominance. But Google Chrome, I mean, they could do a little thing and they

dominance. But Google Chrome, I mean, they could do a little thing and they did push it on Google search pages, but they managed to get a lot of distribution just by being a great product on the market with viral

adoption that everyone told their friends to use. And it was the David Rosenthal's going home to Thanksgiving that were sort of like the seat of it.

And then within three or four years, they just ran the table. And it's not just Chrome. Gmail was that way. Google Docs and spreadsheets were that way. I

just Chrome. Gmail was that way. Google Docs and spreadsheets were that way. I

mean that way it's everything everything all these things are independent great products that became dominant on their own merits just like Google search did. Yes, I 100% agree and also helped by the

fact that they were all free. Yes. Yes. Fair. And massively subsidized at least in the early years before they were able to be businesses on their own by the uh the old money printing machine in the basement of Google. Good old Uncle Edwards. Yes.

But before we tell the Before the Android story, now is a great time to thank one of our favorite companies Verscell. Yes, we have talked throughout the season about Verscell has become the

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That's verel.com/acquired and try it out. Build something real and just tell them that Ben and David sent you. All right, Android. So Google's office spaces

are legendary. The first one of course being Susan Wajiski's garage in Mountain

are legendary. The first one of course being Susan Wajiski's garage in Mountain View company's first office. And then today the Google Plex, the old SGI

Silicon Graphics campus in Mountain View. In between Google had another office

for a couple years in downtown PaloAlto. at 165 University Avenue would also later be the office that PayPal was started in. Oh really? Very lucky building. Yeah. August 1999

when Google moved out of that office. Do you know who moved in based on the direction this is going? Is it danger? Yes, it is. Yes, danger.

the company started by Andy Rubin and Andy of course had been an engineer at Apple and then left Apple with a group of uh rebels I don't know were they

rebels that went to go start General Magic. General Magic of course legendary failed startup in Silicon Valley in the early 90s basically was trying to create

the iPhone just 15 years too early. Yep. after General Magic, after it falls apart, he starts Danger. Now, Andy's initial idea for Danger was uh he wanted

to make a wireless version of the QC cat scanner. What is a QCAT scanner?

This was a device that plugged into your computer that looked like a cat, but it scanned barcodes. And so Andy's idea was, okay, well, man, all this general

scanned barcodes. And so Andy's idea was, okay, well, man, all this general magic stuff we were trying to do, that was too far ahead. What if we think simpler and we just make a wireless version of this to scan barcodes? Okay,

not a big idea. His first employee at Danger, a guy named Hiroshi Lockheimer, convinces him that hey, actually, you know, a couple years have gone by. Maybe

we should revisit this General Magic stuff. Wait, Hiroshi was with him at Danger.

He was the first employee. I did not know that. Yep. Yes, he was.

I mean, he of course is instrumental in the Android story later. I did not realize the two of them were at danger together too. I spoke to Hiroshi in research. He told

me these stories. Great great guy. Hiroshi led Android and Chrome at Google for many many years and would be the authority on this. So Hiroshi's like,

"Hey, hey, I maybe let's revisit this General Magic stuff." And that led to Danger building the Sidekick and launching it in partnership with T-Mobile. This thing was amazing.

That thing was so sick. I was jealous of all my friends that had one.

It was a messaging focused sort of rich application cell phone. I think it was along with Blackberry's the first vision of a cell phone where the primary thing you do on it is not talk to somebody is messaging. These things were freaking awesome. They

were really big with celebrities. I think it was a plot of an entourage episode at some point in time. So they end up selling this company to Microsoft right? Yes.

Microsoft does end up acquiring the company but not until 2008 which is the same year that Android launches. Andy actually had left Danger in 2003 and started a new company Android which in the earliest days it was kind

of like an opensource competitor to effectively Blackberry software.

Yes. In its earliest earliest days, the first version of Android the company, remember I was talking about point andoot cameras and digital cameras back in the YouTube section.

Yeah. Was actually to build a cross-platform open-source operating system for point-and-oot digital cameras. Oh wow. Yeah. That was Andy's vision was like, "Oh, hey, these point- and-oot devices like hundreds of millions of consumers

have them now. What if there were a powerful operating system? Could that be a Trojan horse to get an operating system? You could sort of imagine it, right? If cameras became phones instead of phones becoming cameras, then yes.

right? If cameras became phones instead of phones becoming cameras, then yes.

Yep. Exactly. But pretty quickly it does become clear that phones are going to become cameras. So, good thing is though, the software they're writing

become cameras. So, good thing is though, the software they're writing still works just as well on phones. So Andy pivots the company and has the delivery vector shift from cameras to smartphones. And at the time the

smartphone market such that it existed and it did exist. Blackberry, Windows Mobile.

Well, yeah. So here were the players. Basically phone companies either were full stack like Apple and the iPhone is today where they made the phone and the operating system. So that was Nokia. And then the big player in the smartphone

operating system. So that was Nokia. And then the big player in the smartphone market at least was Blackberry. Made their own software, made their own devices, huge in the enterprise market. Or you did have OEMs, device makers who

made devices and then they bought an operating system either from Palm which made their own devices but then also started selling the operating system to other vendors or the big player was Microsoft with Windows Mobile. And this

was a license model as we talked about in our Microsoft part two. This was you pay Microsoft singledigit dollars and you get an operating system and then you

build the phone stuff on top of the operating system. Exactly. And this was a good business for Microsoft. Obviously it wasn't as big as the desktop market, but you can

for Microsoft. Obviously it wasn't as big as the desktop market, but you can totally understand why this is their strategy. We are the main desktop operating system provider. This is our business model there. Let's just do the

same thing here. It seems to be working. Y and as far as the phone manufacturers, the OEMs and the carriers are concerned, things are also pretty good. These

phones that they're making, they can't really do that much. But because of that, they don't actually cost that much to make. And the consumers, meanwhile, are paying through the nose for these things. cuz you have a smartphone on a carrier contract, you're paying like a hundred bucks a month. And they don't consume that much data

either because they're not that capable. Everybody is fat and happy. Yeah. So into this morass that also Steve Jobs is of course looking at the same thing and saying

this sucks. Enter Andy and Android. and he goes around and he starts pitching

this sucks. Enter Andy and Android. and he goes around and he starts pitching the phone manufacturers and the carriers, hey, stop buying an operating

system from Microsoft or from Palm. I'll give you a great one for free and oh, by the way, it's going to be open source and there'll be third party applications that can be written to it and these devices will be super powerful. The

ecosystem's like, no, I don't want this one. There's just no way in hell that a startup AT&T or Verizon is going to work with a little rinky dink startup that's valued

at like $10 million and has eight employees. There's billions and billions of dollars at stake here. But the other part of it too, I think the reason that the smartphone market had stagnated for so long was this. Everybody was happy,

right? It's a non-priority to upset the Apple cart, right? It's almost like a version of um

right? It's a non-priority to upset the Apple cart, right? It's almost like a version of um enterprise software in it, right? The users don't like it, but the users

aren't actually the customers here as it's the carriers who are the customers. Yep.

So 2005 rolls around. Andy's now two years into the company with Android.

He's managed to convince HTC, the Taiwanese manufacturer, to make a prototype with him. He's showing it to carriers. He's showing it to other OEMs. But for all the reasons we just discussed, it's tough sledding out

there. The company's running out of money. As Andy is going around trying to

there. The company's running out of money. As Andy is going around trying to jin up investment for another round, he ends up meeting with Larry Page. Larry

immediately is like, "Forget raising another round. What if I buy you right now?" So July 2005, Google buys Android for $50 million. 50 million dollars per

now?" So July 2005, Google buys Android for $50 million. 50 million dollars per Android. Oh my goodness. But of course that's a fallacy because they would pour billions in in

Android. Oh my goodness. But of course that's a fallacy because they would pour billions in in development. Yeah. Yeah. Yeah. Yeah. They put billions. Yeah. Yeah. Yeah. Oh, I know.

development. Yeah. Yeah. Yeah. Yeah. They put billions. Yeah. Yeah. Yeah. Oh, I know.

I know. I know. But like to your point, this episode, Google is the hit factory here. This is the hit parade, right? The correct way to think about

here. This is the hit parade, right? The correct way to think about Android is that Google built it in house with a little kick in the pants from this startup kind of got far enough along with the idea that forced them to

do it now. But they needed the kick in the pants. Yes. Because why was Larry so excited?

Why did they buy Android right away? Eric and Larry and Sergey, they all knew that they were late to mobile. Here we are. It's now mid 2005. Hm.

Were 18 months away from the reveal of the iPhone. Apple and Google are very close.

Why do you think they knew that they were late? I'm sure they were starting to get wind from Apple of what was going on. That's true. Eric's on the board at this point, right, of Apple.

He's not yet on the board, but he's about to join the board. But the companies are very close. Okay,

there's that. But but even let's say they don't know about the iPhone. Blackberry is a thing. Yep.

Big adoption. Yep. Smartphones, you know, and even Windows Mobile, as bad as it was, proved that there is demand. There's clearly consumer demand for this, right? They had a version of Google.com for these devices to access and they could see the traffic and they really knew it, especially from

maps. Google Maps on mobile devices, smartphones, was a killer application.

maps. Google Maps on mobile devices, smartphones, was a killer application.

Google is maintaining, I kid you not, 350 different versions of Google Maps for mobile for all the just sea of phones out there. And so like they know

we have built our local government district on the desktop around our Disney World and uhoh, looks like mobile needs a district too. Yeah. So sure you like you're right.

they would have done this anyway, but they were starting to feel already like, "Oh, shoot. We should have started this two years ago, buying Android kickstarts

"Oh, shoot. We should have started this two years ago, buying Android kickstarts things." And like from the Google perspective, thank God they did cuz

things." And like from the Google perspective, thank God they did cuz we're 18 months away from the iPhone launch. And if they are starting from a cold start in January 2007, good luck. We're not telling this story right now.

If they don't buy Android and they don't get started basically in the month that they did, this market belongs to Microsoft. Apple. No Microsoft. Oh, why do you say Microsoft?

There's going to be two players in this market. I see what you're saying.

There's going to be a fully integrated player, which Apple was going to be, and then there's going to be an OEM plus licensed operating system, and the model would have just been that Microsoft sells operating systems, a mobile operating system. Great point.

To the OEMs who were freaking out that Apple was going to run away with it.

Great point. So now back to Android and why Android was especially so attractive. Andy already had the right business model for Google. It's just

attractive. Andy already had the right business model for Google. It's just

that as Android the startup OEMs and carriers are like giving it to me for free. Like that makes you less attractive to me. But now all of a

free. Like that makes you less attractive to me. But now all of a sudden within Google they can run the playbook that they run everywhere. They

go the carriers the OEMs. It's funny how giving it away for free as a startup is counter signal. It makes you look desperate. But if you're Google it's like oh they must have a really good plan here. Yeah. Exactly. So they start work on Android

as part of Google here in summer of 2005. And the plan initially is that they're going to be two versions of Android. There is a prototype and a

device that'll be more near-term to launch called the quote unquote sooner sort of the more Blackberry like device, not a touchscreen device. And then there was a longer term

advanced research project cenamed the dream for a touchscreen smartphone device.

Summer of 2006, that next year, Eric Schmidt joins the Apple board.

Sees how far along and how good the iPhone is. Uhhuh. And then January of 2007, the iPhone is revealed in the greatest corporate presentation keynote of all time. Yeah,

Eric is in the freaking keynote. Steve Jobs invites Eric Schmidt on stage.

And Android hasn't been announced yet, right? Nope. Nope. Nobody knows about Android.

This is in January of ' 07. And then July of 07 is when it shipped.

July of 07, yes, is when the iPhone shipped. Now, I believe Eric had disclosed to Steve about the Sooner project because obviously it was public

that Google had acquired Android. And I believe that Steve Jobs knew that Google was working on like a Blackberry style phone, but he did not know about the

Dream prototype. So, Eric comes on stage and you go watch this. We'll link to

Dream prototype. So, Eric comes on stage and you go watch this. We'll link to this in this clip in the show notes. It's crazy. It's about a, you know,

three minute long total thing. Eric comes on stage. He makes a joke about merging the companies that like Apple and Google are so close they should merge. He says the company should be called Apple Goo. And then he jokes and

merge. He says the company should be called Apple Goo. And then he jokes and he says, "Well, but here's the way with the iPhone that we can merge the companies without actually merging." He's making these jokes and the camera

is focused on Steve Jobs and he just has the ick. I mean, that's the best way to describe.

He's like trying to be a good sport and smile and be like, "Yeah." But he has the ick.

It is unbelievable to watch this knowing everything that would happen over the next 10, 15 years.

This incredibly close collaboration. There are two apps that launch in the very first version of the iPhone. Remember, it didn't have an app store.

It was not open to third party developers. There is a YouTube app and a maps app. Both of which are Google services. Now, the apps are written by

maps app. Both of which are Google services. Now, the apps are written by Apple. The icons are designed by Apple. They're basically just consuming

Apple. The icons are designed by Apple. They're basically just consuming Google's data as APIs. The only icons and apps on the phone are the ones that

Apple puts there. And two of the Yeah, I don't know how many there were, 10, 12, 13 apps are Google apps. It's wild. By the way, the uh the YouTube icon with

the wood green TV. So awesome. So awesome. I heard uh the YouTube team absolutely detested it.

They hated it. Yeah, they hated it. Well, because it wasn't the YouTube logo and they they knew already. I mean, it was obvious this was not going to work because the YouTube team is like Apple didn't put our logo on there. Of course,

they're going to start bringing in other video content over time. It was a little bit pre-algorithm, but it was the thinking was there of we have to make YouTube a destination and then control the experience when they're in. And

making the app icon reminiscent of an old school CRT TV was also just like deeply antithetical to YouTube inventing the video of tomorrow.

Yes. Yes. It still looked great though. It fit in with that first iPhone for sure.

It totally did. Do you know who was the leader of the Google mobile teams that developed the backends for these apps? Oh no. Vic Gondotra. Really?

Yes. That was his first job, I think, within uh within Google. First or second job within Google. Vic is going to come back up here in a minute. So, the iPhone

keynote truly worldchanging historic event. The Android team, of course, is watching this. And uh yeah, that whole Sooner prototype thing uh right in the trash

watching this. And uh yeah, that whole Sooner prototype thing uh right in the trash the next day, right in the trash can. Directly in the trash can. The dream is

no longer a dream. It's happening now. Get in, kid. You're the A team now.

Yep. Clearly, touchscreens are the future of mobile devices and a capacitive touchcreen at that.

Yeah. So, remember Eric Schmid is on the Apple board. Once Steve Jobs finds out about what the Android team in Google is now doing, he goes ballistic. Or perhaps, to use his word,

thermonuclear. Yes. Yeah. Yeah. Yeah. Fullon classic Steve Jobs supposedly at an Apple all

thermonuclear. Yes. Yeah. Yeah. Yeah. Fullon classic Steve Jobs supposedly at an Apple all hands meeting. This is actually a little later, but he's overheard and quoted

hands meeting. This is actually a little later, but he's overheard and quoted leaked to the press as saying, "We did not enter the search business. They

entered the phone business. Make no mistake, Google wants to kill the iPhone. We won't let them.

Wow. Which is, I mean, to this day, fair. Apple has been happy to just take a spiff of all the traffic that they send to Google and not compete in Google's core business. Yep.

Now, I will say I believe Apple reputation launderers a little bit. They

get a lot of the value of being in the search business without having to do all the uh stuff that they demonize from a privacy and data sharing and all that ickiness perspective. But fine, whatever. It's doing business. That's fair. Apple did not enter the

ickiness perspective. But fine, whatever. It's doing business. That's fair. Apple did not enter the search business. So, in Walter Isacson's book, Steve Jobs says, "I'm going to destroy Android

search business. So, in Walter Isacson's book, Steve Jobs says, "I'm going to destroy Android because it's a stolen product. I'm willing to go thermonuclear war on this."

Yes. He also says, "I will spend my last dying breath if I need to, and I will spend every penny of Apple's $40 billion in the bank to write this wrong." He was pissed.

He was really pissed. Now, interestingly, he doesn't actually kick Eric Schmidt off the board until 2009. Yeah, it's interesting.

So, I think it took Steve a little while to realize what the dream was within Google. And there's also a reasonable argument back. Look, both companies took

Google. And there's also a reasonable argument back. Look, both companies took stuff from each other. A lot of the stuff that, you know, Apple touts that they were the first company to ever do multi-touch and they own there were predecessor companies that did multi-touch before them too. The iPhone

debuted a lot of technologies for the first time and a lot of them were also just at the right time in history and I think Android ar arrived at a lot of similar conclusions at the same time. True. It's interesting you said

multi-touch. the multi-touch actually becomes the battleground cuz that's the patent that they go to

multi-touch. the multi-touch actually becomes the battleground cuz that's the patent that they go to war over. That's the patents that Apple has. So Steve Jobs threatens to sue Google over

war over. That's the patents that Apple has. So Steve Jobs threatens to sue Google over implementation of multi-touch gestures. And so as a result, Android for several

years, doesn't have things like pinch to zoom or the sort of swipe operating system UI navigation gestures. And I'm pretty sure if you remember early Android phones for the first couple years, every single one of them had four

physical buttons at the bottom of the phone to navigate the operating system. I think this is why.

Huh. But let's take the Google side of this argument for a minute. When Android

does launch, they have the market, which today is the Play Store. Apple didn't

have an app store. Yep. Android had when you swipe down a notification center with all the notifications from each of your individual apps. You could took Apple years to get that drag to rearrange apps on the home screen. I mean these are things that

Apple then directly copied as well. So Right. Yeah. All right. So yeah, let's get into the great artists steal. Exactly. Let's get into the launch and the competition. So November 2007. So

what's that? 10 months after the iPhone reveal and five months after the launch, remember Android launches in 2008, Google announces the formation of the Open Handset Alliance.

That's right. And this is a partnership with HTC, Motorola Samsung LG T-Mobile Sprint Qualcomm, Intel, Broadcom, and Texas Instruments. And this was so confusing at the time. I and everybody else was like, "What does it mean?

What is this? Is Google making a phone? is Google not making a phone. So then a whole year goes by with basically nothing. Then in September of 2008, a

lot of things happened in September of 2008. Chrome, Android, Lehman Brothers, Google announces the T-Mobile G1 phone, the Gphone. And the T-Mobile G1 is manufactured by

HTC, remember Andy and Android's original partner in the prototype. And

the product name, the HTC product name for it is the HTC Dream. Heyo.

This is the Dream. This was what they were working on. And in the US, it's called the G1. It actually is a super interesting little device. I wrote an app in it. I had a class in college. It was like a capstone class or something

where I could like pick my own project to do. and we had a fourperson team and one of the guys had a T-Mobile G1 and we wrote I think it was like a Java um

thing for it but he then founded the company Daily Booth after that. Oh wow. Yeah.

In fact, it may have even been like a Daily Booth for Android app.

You had a lot of founders come out of your crew at Ohio State. Awesome. So it

has a touchcreen on the front with the physical navigation buttons like I was talking about. It has a slide out horizontal query keyboard, sort of

talking about. It has a slide out horizontal query keyboard, sort of reminiscent of the Sidekick back in the days, unlike the iPhone. It has multitasking,

so you can run multiple apps at once, and it has third party applications.

Now, that's a little bit unfair to the iPhone because by the time the G1 actually launched, Apple had indeed just shipped the App Store. The event where they launch it is like T-Mobile event in New York City in a commercial kitchen.

It's a haphazard random launch. You can't even find video of it today.

There's like little clips you can find and still images what is widely reported and you can actually see in photos. Larry and Sergey do show up. They

rollerblade into the building. They rollerblade on stage. There all these T-Mobile and HTC executives there in suits. Here come Larry and Sergey on rollerblades on stage.

Listeners, join the acquired email list. We'll throw this in the next email that goes out.

Yeah, it was halfhazard to say the least. But the G1/Dream becomes a pretty decent success. It

sells over a million units in the US and just this one device, this one phone gets 6% smartphone market share, which puts it roughly on par with Palm. Like all of Palm,

the G1 kind of matches in market share, but the smartphone market is still very small.

Yeah. It's important to remember mobile really wasn't a thing until 2011 of very obviously the next wave and the next computing paradigm.

Yep. But to be fair to Apple and the iPhone, it is starting to run away with the market. And this is to the point of man, if Google had not bought Android

the market. And this is to the point of man, if Google had not bought Android when it had, it would have been too late. So the whole lifetime of the G1, they sell about a million units. The iPhone sold 11 million units in 2008

alone, 20 million in 2009. So basically overnight, Apple and the iPhone goes from not in the smartphone market at all to over 50% market share of smartphones.

But as great as the iPhone was, it did have a few weaknesses. No copy paste. No copy paste. Yep.

No multitasking. As mentioned before, it didn't multitask. Not very customizable. I

think we're still in the era of you can't even change your wallpaper on the iPhone. Pretty sure we are. I think it's still just the black background.

iPhone. Pretty sure we are. I think it's still just the black background.

Yep. You can't put your own apps on it from anywhere but the App Store even after it launches.

Yep. A big knock at the time. People love that it's a touchscreen. People

really wanted the physical keyboards. Yep. And the biggest problem with the iPhone, at least in the US, you can only get it on AT&T. And you could only get it with the Edge network. It was unusable. That's right. It didn't have 3G. It was so terri I mean, eventually the

network. It was unusable. That's right. It didn't have 3G. It was so terri I mean, eventually the iPhone 3G came out within a year, but even that was really slow. It was the network had not caught up to what you wish the device could do for a few years. Yep.

So, that brings us to holiday 2009 and the Motorola Droid changed everything.

It's sort of funny to say now like, oh, the Motorola like the Motorola droid.

This changed everything. Yes, the Motor I mean, when we interviewed Steve Balmer a couple months ago, he brought it up. When the Droid launched, it was holiday 2009. And I think you and I were like, "Was it really that late? Wasn't it

2009. And I think you and I were like, "Was it really that late? Wasn't it

early?" And he was like, "Nope, Christmas 2009. I will never forget it."

That is when Android won the market. This was the moment and Google was really willing to put their brand second. Now, were they really putting their brand second? It's

Android versus Droid. So, very convenient. But like if you were to go survey the American public in 2009, 10, 11, 12, maybe even 13 and say, "Do you know about Android, the mobile operating system?" "No." "Do you know about

Droid?" "Oh, yeah. I have a Droid phone." Well, and then there were a

Droid?" "Oh, yeah. I have a Droid phone." Well, and then there were a couple years after that where it was like, "Do you know about Google and Android?" Yeah, maybe. Do you know about Samsung and Galaxy? Oh, yeah. I know about that.

Android?" Yeah, maybe. Do you know about Samsung and Galaxy? Oh, yeah. I know about that.

Yep. Exactly. So, we'll get into that in a sec. The Droid Droid does, baby.

Verizon at this point is getting pummeled by AT&T. It's been two years since the iPhone launch. AT&T isn't just stealing a lot of subscribers from

Verizon because of the iPhone. They're stealing the best subscribers, the people that are willing to pay the most money for the biggest data plans for

smartphones. Verizon finally decides like, we got to change the game here. We

smartphones. Verizon finally decides like, we got to change the game here. We

got to be able to compete with the iPhone. We're going to go all in on Android. We are going to buy a device and make this our flagship smartphone,

Android. We are going to buy a device and make this our flagship smartphone, position it against the iPhone, and we are going to invest hugely behind this thing. So, the device itself, the actual Droid made by Motorola, it was a great

thing. So, the device itself, the actual Droid made by Motorola, it was a great device. It had a big screen, big screen for the time, a slide out keyboard, it

device. It had a big screen, big screen for the time, a slide out keyboard, it had a 5 megapixel camera, removable battery, all of these things the iPhone

didn't have. Probably the most important feature it had though, the killer killer

didn't have. Probably the most important feature it had though, the killer killer app was on the software side. It was the first Android device launched with Google Maps turnbyturn

navigation. I didn't realize that. So before the Droid, there was this

navigation. I didn't realize that. So before the Droid, there was this whole consumer electronics product category of dedicated GPS devices.

People old enough to remember my remember this. TomToms, Navex, people would buyarm these devices. Garmin. Yep. They would put them in their cars and

these devices. Garmin. Yep. They would put them in their cars and you also paid a monthly subscription fee for the service of the turnbyturn

navigation. Overnight, this entire product category gets obsoleted,

navigation. Overnight, this entire product category gets obsoleted, sherlocked, gone, because Google Maps is a better product with better navigation

and it's free. No more monthly fees, just baked in in your phone, in the device you already have with you. Why on earth would anybody buy, let alone pay

monthly, for a standalone GPS product again? Yep. And you know what doesn't have it? the

iPhone, the Apple version of Google Maps, you had to manually advance the steps. So, it would pull up the route and then you could tap the button to be

steps. So, it would pull up the route and then you could tap the button to be like, I've made this turn. Now, show me the next step. That's right. Part of it.

That's such a funny You're exactly right. I remember that, too. Not really what you want to do while you're driving, man. Yeah. It's crazy how not that long ago this was. Totally.

That was the killer feature. But even more important than all the features was the marketing and the muscle that Verizon put behind this. So they

licensed the droid name from Lucasfilm. That's right. And I think Lucasfilm was mentioned at the bottom in the credits of every commercial. Yes, every commercial. And they did these series of commercials that we've been referencing. Man, if you lived in

the US and you are older than like 12 at this time, this is burned in your memory. It was so great. The first 80% of the ad, 90% of the ad was a Apple

memory. It was so great. The first 80% of the ad, 90% of the ad was a Apple style ad knockoff with the like bright, happy, upbeat music and the white

background and it had the fading Apple style text and it said, "I don't multitask.

I don't have a removable battery, you know, etc., etc." And then the very last, you know, 5 seconds of the ad, there was like a hard cut and like static noise and it was black and it was edgy and then it said Droid does

It was so good. So, the CMO of Verizon, so Verizon did all of this, said that the campaign was designed to quote, "Wake up the market." And boy did it ever. So, that original

Droid, I think it sold a quarter million units the first weekend it was on sale, and then it sold a million units faster than the original iPhone had. Like there

was just so much pent-up demand for a real smartphone on the Verizon network plus all the you know yeah this has turnbyturn navigation but even like put aside whether it was better or not it just was a real smartphone on Verizon.

Time magazine named the Droid its product of the year for 2009. Wow.

The bigger thing though is that like Verizon going all in behind it even though they would add the iPhone later. It creates sort of this seed of what the Android user base would become today, at least in America, because Verizon went

all in on Android, all in on Droid. Over the next couple years, they followed the original Droid up with, let's see, there was the HTC Droid Incredible, the Droid X, the Droid 2, the Droid Bionic, the Droid Max. All of these had major

marketing campaigns behind it. game over for the the segment of the market that is not Apple, this different OEM from operating system. Google just runs away with it. And before this, Microsoft had a shot. They really did. They were a systemic disadvantage

with it. And before this, Microsoft had a shot. They really did. They were a systemic disadvantage because they were going to carriers and saying, "Why don't you pay us five bucks, 10 bucks?" And Google was going to them and saying, "Here you go. This

is free. You can have the source code and you can modify it as you see fit."

Even today, the I think um Samsung has their own OS, Samsung one or something like that that looks different. I mean, it's Android, but it's the open-source version of Android that they've customized. That's the thing that's on, I don't know, a billion phones. And three, we aren't Microsoft.

Yeah, you guys don't want to be compact, right? Microsoft managed to suck up all the profit in that entire value chain. And handset makers, you currently make money. So, why would you go work with Microsoft who did that to the PC makers?

money. So, why would you go work with Microsoft who did that to the PC makers?

And then as a little sweetener on top of all this, you know how I mentioned it was free in open source? It's actually less than free. We're actually gonna pay you. Yeah.

For searches that originate on your phone, we will give a little revshare to both the carrier and the OEM, the handset maker. Yep. So this was not widely publicized

at the time as you can imagine but uh Bill Gurley wrote a blog post where he had heard from friends that Google was paying carriers and OEMs to use Android even though Android was free. And he wrote this incredible blog post about it

called the less than free business model. And he basically predicted that like Android's going to run away with this year. If you're a carrier or an OEM, sure, there's a segment of the market that's going to demand Apple.

That's fine. But Microsoft is dead. Palm is dead. Blackberry is dead. There's no

way you can compete with free, let alone less than free, where they are paying you to take something of value for free. Yep. And from Google side, it's the exact same thing as that thing we talked about with open sourcing Chromium. They're

happy to give a few percentage points in traffic acquisition costs of their search revenue to people who are ensuring that the platform underneath them doesn't belong to someone else. I mean, there were some risks that it was

all Apple and then that creates two problems for Google. One, they pay Apple a lot more money than they pay the combination of the carrier and the OEM maker. Those get a much smaller spiff. Two, this means that Google controls

maker. Those get a much smaller spiff. Two, this means that Google controls more of the underlying environment that they operate in. Imagine how terrible it would be for them if mobile Safari was the new Internet Explorer and their

entire franchise was at risk of Apple saying, "And we're going to point traffic over here." Now, Google is happy to toss a couple of points over to these

guys. I can't think of another example of a dominant technology business and

guys. I can't think of another example of a dominant technology business and

business model that has successfully survived and transitioned a major platform shift. Yes.

And thrived in that next platform as well. Mobile was a platform shift. A huge one.

I mean going from PC to the web was a platform shift. Going from PCM web to mobile was an even bigger platform shift. Play it out even back further in history than this. IBM was dominant in mainframes and then lost their dominance

than this. IBM was dominant in mainframes and then lost their dominance in the PC era. Microsoft was dominant in PCs and then lost their dominance in the web era. Google was dominant on the web and stayed dominant in the mobile era. I

web era. Google was dominant on the web and stayed dominant in the mobile era. I

mean, they didn't derive giant profits from the mobile like directly off of selling phones or selling the OS or, you know, they make some money on the Play Store, but not giant amounts relative to the rest of their money and what other

players like Apple make, but they kept search going, but they managed to stay relevant to consumers with these, you know, hundreds of millions, billions of devices that they shipped and their business was doing better than ever. I mean, all of

these Android phones that are shipping, especially in the earlier years, what is the most prominent part of the UI on the touch screen? Giant freaking Google search bar right there at the top, right? The state of play of being a big

tech company, and this dates back 80 years, is technology moves fast and the new paradigms disrupt everyone that came before you. So you get one era and you got to make the absolute most of the one era that you grew up in and after that

you're probably going to lose relevance. You might keep your money machine going for a long time. Famously IBM made more revenue than Microsoft for a lot longer than people think.

Or even take Microsoft and Windows. Like Windows is still big today.

Yep. But the importance of that platform is going to fade and fade and fade.

But yeah, you won't be able to transition your business model into the next era. Google did it and occasionally someone you know misses the second era but comes back for the third like Apple figured out mobile. They never won a previous era. They were

a player in PCs but they didn't win. Almost no one gets two and almost no one gets two successive ones. And that is the really impressive thing that Google

figured out how to do here. Yeah. I mean guys like we said this episode is the hit parade. Android

basically from end of 2009 onward just washes over the world like a title wave.

In holiday 2009 when the Droid comes out, total Android market share of the smartphone market is still in the, you know, the G1 range, like five 6% global

market share. One year later, 30%. Wow. They go from 5% to 30% in one year. They

market share. One year later, 30%. Wow. They go from 5% to 30% in one year. They

announced that over 200,000 Android devices are shipping every day around the world. The next year in 2011, Android's market share is 50%. And two

the world. The next year in 2011, Android's market share is 50%. And two

years after that, by the end of 2013, it is 80% market share. In many ways, it's sort of the Visa network of networks thing where they don't have to make every phone.

They don't have just one horse in the race. They're getting leverage by having two, three, four, five major manufacturers of these devices that are all independently doing their own marketing. And there's a very clever

arrangement where you can just have the Android open source project and you can build your own mobile phone and you know you can launch it and you don't have our app store and you don't have to default to Google search and you don't get

Google map. Like you just have the operating system and it's great. Anyone

Google map. Like you just have the operating system and it's great. Anyone

can do that. But why wouldn't you want to have our app store? It's where the all all the apps are. And if you do that, then you get all the great Google services, all the apps. You you get the native Gmail and the native maps and all

this great stuff we've written. And if you do that, then Google's the default search and we'll pay you for that and then you make money. Yeah.

But by the way, if you want all this stuff that your consumers are going to demand, you are going to default to Google search. Like it's a very uh that's the payment. Yeah, that's the that's the offer you can't refuse. Yes.

Now, here's the actual sort of crazy thing. As I said, by 2013, Android global market share is 80%. That's actually higher than it is today. Today,

it's down to like, I think, 72%. And Apple is, you know, 27.99%. Apple's share has really grown. No

question, Android pushed iPhone to be better on many dimensions. Things like

cheaper iPhones, bigger screens, better cameras. I mean, on and on and on and on of things that I don't think Apple would have done if Android hadn't been pushing them.

Probably not big cheap screens, but some of the cameras, I think. So,

maybe. I don't know. I mean, for years, the iPhones did not have good cameras.

Uh big part of that Droid marketing push was the five megapixel camera. That's right.

The original few iPhones had a 2 megapixel camera, I think. Like it was crappy.

Yeah, they've definitely pushed each other. Yep. So then the other quick thing to mention on Android, there was one interesting moment and tension with

Samsung in the early to mid2010s. Samsung basically said, "Oh, okay. The

iPhone is the premium device. Android is this incredibly flexible platform. What

if we just take Android and copy the iPhone with Android? And they got really good at it. The

Galaxy devices were just shipping in huge, huge numbers. And then Samsung started stripping out Google services and putting their own Samsung services in on some of their devices. That was a bridge too far for Google. So

this is when Google started the Pixel program. Google had done the Nexus program making their own hardware before. The Pixel though was and is a

sort of reference device that yeah, consumers could buy, but more so to show the rest of the OEM market, the non Samsung market, hey, here are reference

designs essentially for great premium devices, great cameras, all the features you want. Here, copy these. It's the same thing as the Microsoft Surface

you want. Here, copy these. It's the same thing as the Microsoft Surface strategy. why Bomber was so adamant. We got to make a service. We got to show

strategy. why Bomber was so adamant. We got to make a service. We got to show the OEMs how to do this, right? It's funny. So, I have been trying to think about what is the business of Android. Google having Android versus Google not having

Android. And I tried to pull up the most credible numbers I possibly could. There's basically two

Android. And I tried to pull up the most credible numbers I possibly could. There's basically two things that you just have to add together to create the value. One is how much money they make from the Play Store, which has become significant.

didn't used to be but is now. And then the second is how much money are they saving by not having the searches originate from a platform that they don't own. I used to think, oh, because it's Android, they don't have to pay

don't own. I used to think, oh, because it's Android, they don't have to pay money. They have to pay $20 billion to Apple. It's not zero. They do actually

money. They have to pay $20 billion to Apple. It's not zero. They do actually have to pay, like we talked about, Dave and I sort of figured out as we were going through the financial disclosures and stuff, they do pay the OEMs and they do pay the carriers. And the question is how much? Cuz once you can kind of

figure out how much, then you can do a little bit of napkin math to figure out, okay, well, how much are they still saving by it not being Apple? So Google

paid out last year, and I'm just using the current numbers to try to figure out what the splits have always been. They paid out last year 55 billion in total traffic acquisition costs. Now, traffic acquisition costs are actually the sum

of two different numbers from two different businesses because they love to offiscate things. one, it's what we're actually looking for, the acquisition of traffic to Google search. And the other component is money that we

paid to publishers where our ads show up in the sort of doubleclick AdSense world. Yeah.

Now, we know that that averages about a 7030 split and we know that they made $30 billion last year gross in the Google network. So you could say, okay,

they probably paid out about $21 billion of that 55 billion in the AdSense doubleclick Google network world. So that backs our 55 billion down to 34

billion. Okay, that's 34 billion in actual traffic acquisition for Google search.

billion. Okay, that's 34 billion in actual traffic acquisition for Google search.

And we know 20 was iPhone, right, for Safari searches. So that means there's 14 billion that gets distributed to non-Apple traffic acquisition distribution partners which in their annual report

they define as browser providers, mobile carriers, original equipment manufacturers and software developers. It's basically 14 billion to the the

Android mobile carriers and OEMs plus Firefox. Yep. What am I missing? I'm going to guess Firefox is less than a billion. Call it somewhere around half a billionish. Yeah, there's probably

some version of the old portal deals that still exist. Properties on the web that have Google search baked into it. Okay. So, let's cut 4 billion off for Firefox and the other web properties and other Yep. Okay. So, 10 billion going to the carriers and OEMs. It's actually pretty

other Yep. Okay. So, 10 billion going to the carriers and OEMs. It's actually pretty significant that 10 billion going to carriers and OEMs. It's half of what they're paying Apple.

Half of what they're paying Apple, but for many, many, many more devices, right? And so clearly the rev share to the carriers and OEMs is a much smaller

right? And so clearly the rev share to the carriers and OEMs is a much smaller percent than what they have to pay Apple. I'd guess a quarter. Either way,

I actually think after walking all the way through it, the bigger component of this is just derisking their future. It's not how many billions. They don't

care about giving 10 billion up for this. Yeah. As we've been saying all episode, Google is more than happy to pay traffic acquisition costs to any and everyone.

Yes. And so then direct value that they make from the Play Store, it actually came out in a lawsuit. In 2019, Play Store revenue was 11.2 billion. Then

gross profit was 8.5 billion and 7 billion in operating income. Now, 7

billion, not nothing, but still a far cry from Google's core business of ads from search, Gmail, and maps. And that same year, the core business did almost a hundred billion in revenue. So, something like 85 billion in gross

profit is my best estimate, and around 30ish billion in operating income. So,

even though the Play Store made 7 billion in 2019, the important thing is that Android is still primarily protecting the core search ads business and making sure that traffic doesn't go elsewhere. This levered Google's web

business into the mobile era. How amazing is that? Yeah, that's true. It probably generated several hundred billion dollars profit dollars that they may not have had those years otherwise.

Yeah. So I guess what I'm saying is obviously Android was a giant success and the biggest reason even though they save I don't know 10 15 billion a year from not having to pay it to Apple and even though they generate 8 billion I'm

sure at this point it's bigger I don't know 10 15 billion a year really it's about just protecting the core not about saving costs. Yeah. And this one they almost missed it. They hadn't bought Android when they had like that window was closing fast

it. They hadn't bought Android when they had like that window was closing fast and Microsoft did miss it fast fast fast. Yep. And so at some point Andy Rubin leaves

and Sundar actually takes over the combined teams. So our hero here who is starting to gather more responsibilities. It was just the application clients and then it was

responsibilities. It was just the application clients and then it was Chrome and in 2013 it becomes Chrome and Android. And whenever you see Sundar on stage, he is very proud of Google's two open platforms. Yep. So today there are more than 3 billion

active Android devices. I think it's even higher than that now.

This just silly. There's like 7 billion people in the world. They're

over three billion active Android phones. Yes. So you're probably thinking coming into this 2010 2011 era, they're really feeling themselves over there at Google.

You know, we've jumped over some failures, but it's been hit after hit after hit in a lot of these areas that really matter. Just like we talked about on the Microsoft episodes, it really doesn't matter when you fail and how

many times you fail, even the size of your failures, if your hits are these giant worldchanging platform type tech businesses that endure for decades. And that's what they had on their hands.

Yep. And it sure looked at this time like there was another big technology category out there of social that Google should be playing in of a similar size called social. Yes.

And this is the plus story. I'd say rest in peace, but I don't think anybody misses it.

Yeah. All right. Well, I want to start this story the way that people expect us to start the story. And I have a little bit of a different take on it as we get partway in. Great.

So, Google had been interested in social for a long time. They weren't blind blind to it. In 2007, they tried to do open social and they basically failed at that because Facebook didn't participate and Facebook was social. So, everything

else combined didn't really matter. Oh, you didn't start where I thought you were going to start. The craziest thing is that Google had Facebook before Facebook. Orchid.

Yeah, that's true. which I think was like a 20% time project that then blew up in Brazil.

Totally. No. No. Yeah. Okay. So, there was a Turkish engineer who worked for Google named Orchet Botton and his passion was social networking and Fster

was a thing at the time. And so January 2004 before Gmail, before the Google IPO, before Facebook launches on the Harvard campus, in his 20% time, he uh launches

a social network within Google called Orchet. And it didn't become that big in America, but it got at its peak, I think, 300 million users. It was the biggest social network in Brazil, the biggest social network in India. Wow.

And Google was like, I don't know, it doesn't seem that important.

All right. So, Open Social in 2007, Google Wave in 2009. By the way, can we just pause and say 2009, this is like right after Chrome, right after Android.

Google is a big place and Google is a siloed place at this point. I mean, it it's kind of crazy that Android is happening over in this other building and there's this like fight with Apple and that's the same time that they're

doing Google Wave. Like, it's weird that this is all sort of concurrent. The

company was focused in a lot of different directions, but it was so decentralized that it actually worked well. It worked early. Yeah, it worked really well to get all this stuff off the ground. It was so interesting doing the research for this episode because so many of the people we talked to, even people who

were leaders of a lot of these products because Google was so decentralized and so siloed, they were focused on their thing on Android or Chrome or whatever.

And so we'd ask, you know, what was the overall strategy? what was the through line to all of this? And we kept getting answers of like, well, it was just googly. People worked on what they thought was cool and it was good for the

googly. People worked on what they thought was cool and it was good for the web. And like that is absolutely true, but there was this all overlay of this

web. And like that is absolutely true, but there was this all overlay of this very, very thin layer of strategy that held the whole web together.

I think that the strategy was pretty tight at the top level and they just didn't actually need to communicate it down very far. Like most people that I talked to said, I don't know, I was just trying to build great products that people love. I think it was a feature, not a bug is what I'm saying that it

people love. I think it was a feature, not a bug is what I'm saying that it didn't communicate down because it let the teams below build really, really great products.

Yep. And never really think about how is this going to help the ads business and that was okay. Yep.

So, Wave failed because really nobody knew what to use it for despite a dazzling and wonderful first introductory video. Buzz then in 2010 that created this big privacy debacle

introductory video. Buzz then in 2010 that created this big privacy debacle right at launch. It was super shortlived that shut down. So then in 2010 Ers Hoa very senior Google at this point probably distinguished engineer senior vice president

yeah the guy who created the distributed infrastructure right after the buzz failure he is inspired to write this memo kind of like the Bill Gates 1995 internet memo there's a sea change going on the internet is becoming more people

oriented social media could be a problem for us the social media challenge requires a decisive been substantial response involving a significant deployment of personnel right away. Essentially, the internet was now

starting to organize around people in this web 2.0 era, not just pages and applications, the things that were sort of the domain of Google. And so, here's where I want to pause, David, and I'm going to take it in a little bit different direction than I think you're probably expecting, which is so

therefore they went after Facebook. I think it's a little bit more related to the palace intrigue at Google and a little bit less on the nail strategic. So

if you zoom out and look at the company right now, it's pretty fragmented. It's

got different fftoms with big personalities at the top of each of these FFTs. Android, Chrome, search, YouTube, developer relations, trying to

these FFTs. Android, Chrome, search, YouTube, developer relations, trying to sort of will a Google platform into existence. Different products with kind

of competing goals. Ultimately, they all help Google's overarching mission, but there's a lot of elbows starting to come out. Android was its own FFTM, totally off on its own island, fighting an existential battle. Chrome is starting to do the same stuff as Android. They're building their own operating system.

It's not clear what belongs in an Android camp versus a Chrome camp and Sundar hasn't unified them yet. Search very protected, separate team, especially the core people doing search ranking and monetization. No one touches

them. YouTube is totally separate. Gmail is massive and it really is the only one

them. YouTube is totally separate. Gmail is massive and it really is the only one in 200910 at the company that owns identity since it's the only Google property that you actually have to log into. YouTube has its own entirely

different username and password system. It's a mess, right? It's a complete mess. So Larry's sensing this. He's not CEO at the time, but he's realizing the

mess. So Larry's sensing this. He's not CEO at the time, but he's realizing the company's all over the place. He decides he's just going to come back and get the

company on track. And so I think Plus is kind of just the thing he picked as the single thing to try to galvanize and unify the company around. And no

matter what they picked and how they executed it, it was going to create a lot of carnage.

I can buy that. There was a big shift that needed to happen in one way, shape, or form. And

Google+ ended up kind of being the ugly thing they did. Yeah. A recentralizing of authority, so to speak, within the company. Right. So in May 2010, they get the top 50 people at Google's leadership assembled to discuss what to do.

The argument for this is this is more of a convenient crisis. Yeah. model

and it might be a real crisis also, but it's also exactly what you're saying, David. So, officially then in January 2011, Google announces Larry Pageige

David. So, officially then in January 2011, Google announces Larry Pageige will return as CEO in a few months that April. Right away, Larry moves his office into what would become the plus building. Wow. Yep. So, they had just

come out of this chapter. They've got this amazing business. The whole Chrome and Bing thing was defense against Microsoft. Android was defense against Apple and Microsoft. and Google+ is now defense against Facebook. Yep.

And legitimately, you could imagine a world where social ends up becoming way more important and the only places to put ads and the places where people are asking for information and there was rumors for a long time Facebook was going to build a search engine. You have the attention, you can hijack it and do

other stuff with it. These were walled gardens. Facebook was a walled garden. Google search couldn't index what happened inside of Facebook, right? And so, yeah, you could see how this is an existential threat. Like, the traffic is growing. Like, oh my gosh,

what if this becomes AOL all over again, right? And that's the main thing. One

tier down from that is Facebook doesn't even allow other ad servers.

At least with AOL, we could do a deal with them and power their monetization.

Facebook just hired Cheryl Samberg. They're doing this themselves.

They're doing it all inhouse closed loop system. Yep. So, Google+, what was Plus and how did it get built? So, it was a one-year sprint following this point, the 50

getting together, and it was built in a very, very ungooy way. It was not organic, David, like these passion projects you're talking about.

It was instilled from on high down upon all of the products. It was not based on a core technical insight. It was not consensus driven. It was top- down command and control style

insight. It was not consensus driven. It was top- down command and control style led by the person that you mentioned earlier, Vic Gondotra. Now, who was Vicond Doorra?

Vic was this interesting character. Like we said earlier, he had been leading Google's developer efforts in the pre-Android days and he was sort of the frontman. He was

the MC at Google IO, right? If you were looking for somebody to communicate and push down this new top down vision across the company, he would be a logical choice.

Yes. I don't know if he raised his hand. I don't know if Larry said, "Hey, I really think you should do this on our behalf." But what is definitely true is

it became Vic's thing and Eric and Larry and Sergey stepped back and let Vic run with it. And he was given an enormous amount of institutional authority.

with it. And he was given an enormous amount of institutional authority.

And we should say too, you alluded to this earlier, what was Plus? It wasn't

just a social product in and of itself. It was baked into all Google. It was

inserted into every other product that Google had. There's a quote from Vic to the press at the time about this about what Google+ is. He says, "This is the

next generation of Google. It is Google plus one." Oh boy. Oh boy.

There's a lot of these even saying that. Oh, gives me the heebiejibbies. So yeah,

it was a Facebook style thing, but its goal in addition to being a Facebook style thing was to leverage all of Google's assets and make all Google things Google+ things. So they moved big headcounts out of each team and onto the

Google+ team. They reached deep to integrate with these other products and

Google+ team. They reached deep to integrate with these other products and it's very clear who the boss was in all these negotiations. You had a clear mandate like your job this half year, this year is do these plus integrations.

Yeah. your OKR. Google famously ran on OKRs was now all about plus pluses.

And Danny Kitton, who would go on to become the managing editor at Techrunch, at this point in time was a Google intern. And he wrote about it later. And

he said, "Due to this integration, much of it was forced. The culture around the company at Google had become deeply poisonous by the time I started. I still

remember talking to one member of the Picassa team, who is Google's photo repository that they bought, who told me to f off when I asked about integrating plus into the product. He was hardly the only one. Companywide bonuses were based

on the success of Google+. They even went so far as to put little plus one buttons on mobile advertisements like those little banner ads at the bottom.

Yes. This is the best. Google had bought ADM mob. Yes. And the mobile display ad units.

You could plus one it. Who the hell wants to plus one an ad? I mean, this is like Facebook's like button but plus's version. And they're like any Google

thing should be plus oneable. So they even reached into YouTube comments and YouTube comments became Google+ posts. I mean they almost killed the golden goose,

right? They almost killed all of these golden goosees that they had. Yes. And so plus from a product

right? They almost killed all of these golden goosees that they had. Yes. And so plus from a product perspective, it wasn't just Facebook. They brought a lot of really interesting ideas. Google Hangouts came out of this. Google Photos came out of this. There

ideas. Google Hangouts came out of this. Google Photos came out of this. There

were these things called sparks. I mean, they really rethought a lot of social networking. The issue is nobody really wanted to rethink social networking.

networking. The issue is nobody really wanted to rethink social networking.

That was a Google priority to get people to use this, not a user-driven one. And

they tried to essentially put rocket fuel on to scale something that really didn't have product market fit. Well, I really think the key huge mistake with Google Plus, one of the huge mistakes with Google+ was you don't need a Facebook when there's

already Facebook. Not even that, Facebook was already dying. Mark Zuckerberg had already

already Facebook. Not even that, Facebook was already dying. Mark Zuckerberg had already realized that the future of social was not what it looked like at this point in time. M

as Google is launching Google+ in 2011 June 2011 2011 2012 2013 these were the big years for Google+ what is Mark Zuckerberg doing he's buying Instagram

he's buying WhatsApp and he's remaking essentially you know Facebook into what meta would become of like hey what we used to think of as social networking

has bifrocated into two things public media i.e you know, YouTube, Instagram, UGC, and private messaging. And here's Google launching, I kid you not, this is the

craziest thing, desktop first with a desktop only UI to arrange your friends into circles.

Circles. That's right. Circles. Which is on its own, it's such a computer science way of thinking about it. Oh, my friends are in sometimes overlapping, sometimes not overlapping groups that I want to carefully label so

that I can identify deterministically who I want to share what with, right? Nobody wants to do that.

Yeah. Here's the thing that just leapt out to me about plus. This was Google's Windows Longhorn/ Windows Vista. In our Microsoft saga, we talked about how

Vista/Longhorn was the most damaging thing to the company because of the distraction and the siphoning of resources and the best talent away from working on what really mattered. Now the question I was asking myself and others

in research of okay what were the negative consequences of that? So like

with Microsoft it was clear Google who was the negative consequence like the whole reason Microsoft let Google fester from their perspective for all these years and didn't kneecap them was they were tied up with all the distraction from Vista

and losing relevance with developers because they keep selling them a platform that kept not shipping and then when it eventually did ship it wasn't good right so then I was sort of trying to figure out like okay what what are the

similar consequences for Google of the Plus era. And at first, I couldn't really think of any. I was like, "Oh, well, Android's pretty good. YouTube's

pretty good. Chrome's pretty good. Search is still pretty good. Gemini AI

comes out later. It's all pretty good." But there were two things.

Messaging probably. I bet in a a non plus world, WhatsApp, something like that could be owned by Google. Yeah. Two things. One is messaging.

Totally missed messaging. So when I was a business school student at Stanford, Eric was now executive chairman and he started co-eing a class at GSB and I took his class. I was one of his students during these years. It was

awesome. It was one of the best classes I ever took. And the quarter when I was taking the class was when Facebook bought WhatsApp. And I remember Eric coming into class right after it happened and just being like, "God damn it, we missed it. We totally missed it."

It's because Google was distracted. So that was one thing. And then I realized the other as bigger or bigger thing is cloud. Google should have been massively investing in cloud. And there were all sorts of reasons that they did. We're

going to save this for the next episode, but I was like, yeah, especially think about where the impetus for this came from from this memo, the zquake memo as it's known. Should have been focused on cloud. he should not have been focused on

it's known. Should have been focused on cloud. he should not have been focused on social and Google had the wrong strategy in cloud for many years and as a result that's why their cloud business is way behind Amazon and Microsoft

and maybe they turned some talent maybe there was some good people that got burned by the culture sort of souring you could argue this destroyed product velocity so like people complain today that Google's always working on really

interesting technology and they just never get cool products out the door That is by far the biggest complaint you hear about Google from slow and big and bureaucratic and yep folks on the inside and outside these days is just like too slow and

Yeah. Yeah. That's probably the biggest negative consequences. Maybe you could trace that here.

Yeah. Yeah. That's probably the biggest negative consequences. Maybe you could trace that here.

I bet you can cuz think about it before this we just spent this whole episode talking about all these amazing things they were building and shipping and acquiring and transforming until Gemini and arguably that's a I

actually don't know where Gemini stacks. Is it a third place product? Still a question mark.

Until Gemini, what great breakthrough consumer service did they launch after Google+? I got nothing.

O. Yeah, that's pretty wild. After having this incredible 10-year run, and there was a lot of stuff they tried. I think some things for Android users.

Think about Google Now that predated Google Assistant, maybe Google Home.

These are not worldchanging products, right? It's funny. The thing that I keep thinking about from the Google+ failure is this big existential Facebook threat they were worried about. I mean there was a strategy memo in 2013 where Neil

Mohan said there is a risk that Facebook becomes the starting point of the internet. Google knew social was the future and tried to win it. But

internet. Google knew social was the future and tried to win it. But

interestingly they didn't and they've been fine. Right. Right. Right. It was all totally fine.

And Facebook was really freaked out too that Google was going to come in and win it. I mean, Google was like this giant and Facebook was recently public going

it. I mean, Google was like this giant and Facebook was recently public going through their own problems. So, even though it was kind of like a nothing burger and plus was a footnote in history, both companies were completely

allin on this is the big battle and ultimately Google wasn't a credible threat to Facebook and Facebook went in a different direction anyway. Facebook went in a different direction.

Yeah. So, it's almost like the end of Burn After Reading. Have you Have you ever seen that movie?

No. I won't spoil anything, but the feeling you have at the end is you just watched all this crazy stuff happen and you're like, whoa, wait, did any of that matter? That's how Google+ feels to me. Yeah. Funny. Plus did have two great surviving

matter? That's how Google+ feels to me. Yeah. Funny. Plus did have two great surviving products. Hangouts, which became Meet, and Photos. Yep. Photos is a billion user product today.

products. Hangouts, which became Meet, and Photos. Yep. Photos is a billion user product today.

Wow. Huge. The biggest thing and I think this is like kind of getting back to my original postulate of never waste a crisis. You know what we have today? Google accounts. Yep.

You know what Google is today? It's one company. It's not these little thiefs here and there of different people amassing power and building things in different ways. I mean, I'm sure there's still plenty of that. Everything about

different ways. I mean, I'm sure there's still plenty of that. Everything about

Google got more unified from this era. they have a failed product and a smoking crater to show for it, but a unified look across all their products, a unified login that would, I think, be pretty important for them going forward.

Anyway, my snarky finish on all this is it's tempting to say Google lost in social because this giant smoking creator, but actually all of social ended up pivoting to either look like messaging or like YouTube. Anyway,

YouTube is kind of the winning paradigm in quote unquote social media in UGC media. Yep.

So, they should have just done nothing and just watched the money printer go burr. Yep.

To put a bow on it, uh, Vic ends up leaving the company in 2014. In 2019,

they finally shut Plus down. There's a blog post about it. They cite like a big security breach as the reason like, "Oh, no. We've discovered there's this huge security vulnerability. Thus, we need to shut down all of Google+.

security vulnerability. Thus, we need to shut down all of Google+.

Dude, it's so bad. There's been 50 Google products that all sound kind of the same. They launched this one called Currents at one point and when they shut

the same. They launched this one called Currents at one point and when they shut Plus down, this is horrible. Many people wrote like articles as posts on Google+

and they're just gone. Yeah, that's right. Actually, it was sort of an impediment to doing some of the research for this episode because these posts are gone. So, if you go to plus.google.com/

google.com/ anything. It just redirects you to Google Currents. However, Google

Currents has now been shut down. So, it is a Google Workspace blog post announcing the Currents shutdown. Every time you click any Google+ link anywhere on the web, you go to a blog post that tells you about the shutdown of

currents. That's the most googly thing. Ah, they got to do a better job with those. Well, by 2015,

currents. That's the most googly thing. Ah, they got to do a better job with those. Well, by 2015, it's our last section, the bridge to Alphabet. Yeah, it's clear it's time for a new era

at Google. The company announces that it is reinventing itself, is becoming an

at Google. The company announces that it is reinventing itself, is becoming an entirely different company. Google is becoming Alphabet in August of 2015. And

Larry Pageige will be the CEO of this new Alphabet holding company. Sundar

Pachai will be the CEO of Google, which will be by far the largest and really primary operating company within Alphabet. Interestingly, they didn't at

all decide to split up YouTube or any of the products and yeah, that's they just spent all these years unifying it all. That's all Google. They broke out Google X.

Yes, Google X. They broke out. Whimo is still part of X at this point in time that would later spin out is now part of Alphabet on its own. But the other bets including an Alphabet really quite clever the nomenclature here. Yes.

Uh were Nest that they had just acquired, Google Fiber, Calico and Verily their two health companies Google X Lab and then Google Ventures and Capital G the two investing entities that they had. So you know then really

the question is like okay well why did they do this? But why did Larry become CEO of Alphabet? Why did Sundar become CEO of Google? I think this kind of had to happen as like a healing after plus. Sununar was a leader who had real cred going back to the early days and

with Chrome and with Android, like the core great products, two of these core great products, platforms that we've talked about the whole episode that have really driven the Google flywheel all along. Interestingly, he had never worked in search or ads,

right? But these were the platforms that had shoehorned Google into the mobile

right? But these were the platforms that had shoehorned Google into the mobile era and protected it from its greatest existential threat and just also Sundar's personality. I think was a way to reunify the company and bring everybody back together.

Sundar's personality. I think was a way to reunify the company and bring everybody back together.

Definitely strikes me as a peacemaker among big egos. Yes. And that is where we're going to leave Alphabet/Google for the moment. Ben, give us a sense of how big this company had gotten.

So, at the end of 15, it's gotten huge. It's 75 billion in revenue. 52 billion

of that is first party sites, Google websites, Adwords, Gmail, Maps. 15

billion, the the smaller part is over in doubleclick AdSense land. And actually,

that's pretty low margin revenue. So again, the lion share in Google websites. YouTube is profitable at this point and their bottom line operating

websites. YouTube is profitable at this point and their bottom line operating income. Google did about $23 billion in operating income and their other bets at

income. Google did about $23 billion in operating income and their other bets at this point lost about 3.5 billion. Their other bets are extremely interesting and will be the focus of our next episode. But the big takeaway here, the business

was still in 2015 and essentially is still today search ads.

Yep. And what so strikes me listening to you say those numbers in 2015, a they're huge, but also Google is so much bigger today on these same businesses with this

same business model, right? There was another 5x scaling to go over the next 10 years.

Yes, it's crazy. Google back then was like 20% the size of Google now. And nothing has basically changed when it comes to the business model and products. I mean, nothing's changed since 2002, right? Well, I think this era, what we talked about all the episode, all the

right? Well, I think this era, what we talked about all the episode, all the hits were stewarding that business through these sea changes, but nothing has changed about what the core business is. It just turned out that that seed of an that search ads

actually scaled to the biggest market in the world. Yep. All right. Just like the last episode with Gmail at the end, I've got one little koda, one little teaser for next time. Great,

Ben. What if I told you that between 2015 and 2016, so this next year, this

next 12 months after the Alphabet transition, all of the following people were Google employees.

Alex Kresevki of AlexNet, the dawn of machine learning, AI. uh his

PhD adviser Jeff Hinton the godfather of AI his collaborator on the AlexNet paper Ilia Skekkever

founding scientist of open AI Dario Amade co-founder with his sister of anthropic Andre Karpathy until recently chief AI scientist at Tesla Chris Ola Nome Shazir Ian

Goodfellow Hello. And of course, the co-founders of DeepMind, which Google

Goodfellow Hello. And of course, the co-founders of DeepMind, which Google acquired in 2014, Dennis Hassabis, Shane Le, and Mustafa Sullean. Mustafa runs AI

at Microsoft today. Andrew from Stanford, Quac Lee, Oral Vignales, and oh yeah, in addition to all of those people, the authors of the transformer paper because

Google invented the transformer and published the paper in June of 2017, right? Which is the novel mechanism that all LLMs today from every big

right? Which is the novel mechanism that all LLMs today from every big foundational model research lab is based on. When I was talking to folks in the research for this episode and AI came up, one of them said, you know, I have

to remind people when I'm talking to partners out in the ecosystem that the T in chat GPT stands for transformer and that we invented that because it is also during this time

while Ilia is working at Google that he poses the question to his research colleagues and the Google brain team that is working on all of Gosh, what do you guys think if we just built one really, really, really big

neural network and we set it loose with training data on the entire internet, which by the way, of course, we can do here at Google because uh you know, thanks to the combination of the search index, we index the entire internet and

all the products that we just talked about on this whole episode, we have all this data and all this content out there. If we did that, do you think it would learn everything?

Well, David, that feels like quite the groundwork for the next episode.

That feels like a story for next time. Yeah. But through that lens, there is another way to view everything that happens at Google during this 10-year period we

just discussed, which is that they're just collecting all the access, all the information, and all the talent for AI. It's nuts. There's this whole other world of research. Who would be the people that would drive the next decade

or five decades of change? And they basically had them all in one place at one time. They were all employees of Google. So I want to end with one more

one time. They were all employees of Google. So I want to end with one more quote. This time from Larry Page all the way back in the year 2000. This is Larry

quote. This time from Larry Page all the way back in the year 2000. This is Larry talking in the year 2000. Artificial intelligence would be the

ultimate version of Google. So if we had the ultimate search engine, it would understand everything on the web. It would understand exactly what you wanted and it would give you the right thing. That's obviously artificial intelligence

to be able to answer any question basically because almost everything is on the web, right? We're nowhere near doing that now. However, we can get incrementally closer to that and that is basically what we work on and that's

tremendously interesting from an intellectual standpoint. We have all this data. If you printed out our index, it would be 70 miles high now. We have

this data. If you printed out our index, it would be 70 miles high now. We have

all this computation. We have about 6,000 computers. This is 25 years ago.

We have enough disk space to store like a 100 copies of the whole web. So, you

have a really interesting confluence of a lot of different things. A lot of computation, a lot of data that didn't used to be available. And from an engineering and scientific standpoint, building things that make use of this is

a really interesting intellectual exercise. So I expect we'll be working on that for a while.

Incredible. This is 25 years ago that he said this. Amazing. All right. Should we do some analysis?

Let's do some analysis. All right. Let's do power. And for those who are new listeners, power is the section where we analyze which of the seven powers does Google have from Hamilton Helmer's framework that enables a business to achieve persistent

differential returns or be more profitable than their nearest competitor and do so sustainably. Google is very very weird to analyze for this because most of the way you think about Google is actually not where the economic

transaction is. If you want to analyze the business, it is why are advertisers

transaction is. If you want to analyze the business, it is why are advertisers spending a marginal dollar with Google versus spending it elsewhere. And Google

has the seven powers that show up in numerous instances all over their business. But I think the interesting way for us to do this analysis, David,

business. But I think the interesting way for us to do this analysis, David, is let's look at each one. Just assume Google has them all and say where is the biggest or a very large example in our mind of where each of them show up. Great. I like that. So

counterpositioning typically doesn't show up for incumbents for large companies.

This is the exception though with Google, right? Where you just look at their sort of new businesses for example in this episode talking about Android. They

massively counterpositioned against Microsoft, the less than free business, less than free business model. I mean this is the clearest example of counterpositioning I think that has ever existed. Oh hey, my competitors require

you to pay them. How about I pay you instead? Right? And my competitors can't do that because they don't have the business model of advertising based on search such that they can justify doing this right scale economies especially as

they're adding all these apps all these users across all this surface area. Now,

if you're an advertiser and you want to reach users, you know, across search or display or video, you like Google is a one-stop shop, right? You don't have to sort of independently spend operational time and headcount on all these different

platforms. You sort of get the one and that's not even to mention the scale economies on the infrastructure side we talked about last time or like I mean they show up in every business here, but like that's just one example. And the

fact that the more advertisers there are and the more users there are, the more profit Google makes because each little individual auction on every individual

search finds a maximal price. Yes. Network economies. YouTube. Hello. More creators, more viewers.

Creators make money from having views of their videos. Application developers on Android and users on Android. the two-sided network economies there. Yes, everywhere. Not to

mention, in the core business too, in search, more users searching is more valuable to me as an advertiser because I have a deeper pool of people I can advertise to. So, I can just deploy more dollars on your channel if it's working.

advertise to. So, I can just deploy more dollars on your channel if it's working.

Yep. Switching cost. How about Gmail? Oh, I've got my last uh 20 years of email history in Gmail all stored for free. Uh yeah, I'm not switching. In the

core business, there's not as much switching costs. I suppose there's a little bit of, oh, because I've spent a lot of money, the targeting is very good at allocating my spend, but the switching costs in the core business for

an advertiser are not as prominent as other powers. I don't think I continue to spend on Google because it's hard to switch. I continue to spend on Google because they have all the high intent users for products other than, you know,

Amazon. That's one of the two big search boxes in the world where people type in

Amazon. That's one of the two big search boxes in the world where people type in when they want to buy a product. So, I'm going to advertise there. Has little to do with switching costs, I think. Yeah. But for users of Gmail, oh, and several of the other products like enormous for users all across the board. Yeah. I

won't leave YouTube at this point. The algorithm's dialed to my interests.

Oh, yeah. That's a great point of switching costs of the algorithm on YouTube. Yeah.

Branding. I think in the heyday of Google that we're talking about in this episode when they're launching all these incredible products, yes, these products, one because they're incredible and because they were free, but also

like there was such a halo around the company, like if there was a new Google product, I would be chomping at the bit to go try it. Yeah, that's super true. I remember I was desperate for Google Wave invites. The product completely failed, but I was

completely dazzled by it and I was desperate to get invite and access. The

Google name meant something. Yep. And still does, by the way, which I think held them back in AI for a while. They know the Google name means something, so they are reticent to to throw their name on it until they got

kind of shoved off the cliff. Yep. Cornered resource. Yes. Well, certainly heading into the AI era now. YouTube, the YouTube catalog you can train on. Yeah. All the data they have.

era now. YouTube, the YouTube catalog you can train on. Yeah. All the data they have.

Yeah. It's funny. Yeah. I was about to say their infrastructure, but I think that's actually a scale economy that they've built out the infrastructure they have so they can run all their products as cheaply as they can.

Yep. I think the infrastructure is also a process power. Yeah. In that in the era we've been talking about, they could launch all these products on their infrastructure just way cheaper than anyone else. You know what's a corner resource? They

have built internal software and systems that is better than what is available outside of Google.

Great point. A lot of the time they even create open- source projects that are similar to their internal stuff, but they don't actually give away the internal stuff. Inside Google, they still run Borg. They run far less

internal stuff. Inside Google, they still run Borg. They run far less Kubernetes than they run Borg. And Borg is part of the secret sauce.

Yeah. When you talk to engineers who've left Google, they miss the infrastructure.

So Google has it all. And we can name a lot more examples, but we got to go. All right. Playbook.

All right. I tried to get most of them in as we were going in the story. The

first is that Google really wanted to become a platform company and I was sort of noodling on did they ever do this successfully. And David, we sort of touched on this idea that they are advancing the platform of the web

without owning the platform of the web. So if they didn't have Android, how would you answer the question, is Google a platform company? Yeah. Yeah. Yeah.

I would say it's sort of like a shadow platform company. It's like an ecosystem company, right? And even with Android, okay, great. They own the target development

right? And even with Android, okay, great. They own the target development platform. Their money is still made elsewhere. It's not a platform business.

platform. Their money is still made elsewhere. It's not a platform business.

They may have a platform orientation as a company. They build a bunch of stuff that for developers to build their applications on top of, but where their bread is buttered is really as an advertising company. It's important when

push really comes to shove on big strategic decisions the company has to make. Yeah.

Like Apple pure play platform company. Microsoft pure play platform company.

They either sell software or hardware and then they need the platform around it to bolster their sales. Google's very indirect. Yep. All right. So that was one. The other

one is they make tons of small acquisitions famously. I mean that that run in the 2010s. Aside from the big ones from YouTube, from Android, from double click, from ADM Mob, there was also what became Google groups,

spreadsheets, Docs, Blogger. They bought Applied Semantics with the patents and some of the tech for AdSense. They bought the technology for Google Maps.

They bought Urchin for Google Analytics, Dodgeball, Feed Burner, Recapture, Slide Jambool Like.com Widevine Admeld, Punched, Zaget, Sparrow, Wavy. I

mean like I could just keep going. Oh yeah, there are hundreds of companies they bought. In talking to folks in the research, there was this amazing part of

they bought. In talking to folks in the research, there was this amazing part of Google culture that also fit the strategy perfectly of help the web and the rich web and web apps bloom. Come work at Google with these incredible

people, meet your co-founders, go start a startup, leave Google, right?

We will then reacquire you back into Google in a couple years.

It happened dozens or hundreds of times. I remember seeing this happen from the outside and thought Google is nuts to let this happen. But I realize now, no, this was all part of the strategy. Yeah, it's all good for the web. Yep. You can run very indirect,

generous, long-term strategies like that with a money printer like AdWords. Yes,

I know I keep coming back to that, but that is at the core of what drives everything. This one's a little bit less playbook, but just an observation. I

everything. This one's a little bit less playbook, but just an observation. I

watched the Google IO keynote with Glass and I watched a bunch of Glass content.

I even back in the day at a startup weekend launched a Google Glass app. Oh nice.

So, after watching all this Glass content, and it's the butt of every joke now, Meta Ray-B bands and Google Glass are the same thing feature-wise. Yep.

The gestures on the side, the fact that it could take a photo. I mean, Google Glass was a little more advanced. could run these like very basic text based apps, but I'm sure when Meta launches their little hologram version of the

glasses, that's going to be eerily similar. So, like, of course, you could say, "Oh, it's just timing." But here's the thing. Google's made you look like a cyborg. Metas is for normal people. And there is no better metaphor for the

cyborg. Metas is for normal people. And there is no better metaphor for the cultural difference between Facebook and Google than this. Google's a bunch of wacky academics who did not really understand why this would make the product fail. Facebook is

founded on the idea that you're trying to be cool. Yeah. And went and did a partnership with SLO Exotica to get the tech Yes. into glasses that normal people wear.

Yes. It was crazy watching these demos because I'm like these are the meta AR demos. It just happens to have a cool factor versus not. Yeah. And then my last one is this idea

demos. It just happens to have a cool factor versus not. Yeah. And then my last one is this idea that they did figure out a way culturally to get people amped about

just build great products. Figure out how to do something really hard from an engineering perspective that ends up being really useful and ship things that people love. It's not that you didn't have to think about a business model,

people love. It's not that you didn't have to think about a business model, but a lot of the time for many years after launching a product, you really didn't.

Yep. It's like we talked about earlier, there was this thin layer of really, really, really tight, really great strategy that was just like a few people at the top of the company, but below that was just make a great product.

Yes. All right. I've got two for playbook. One that I'm going to make my quintessence. Just want to underscore again, we said this in the Android

quintessence. Just want to underscore again, we said this in the Android chapter, but like Android was the mother of all wins. It was so big to win with Android.

Nobody stretches a business model across technology eras. Nobody. And Google did it in a dominant way where they are they are the dominant company in the next era as well.

Yeah. It is the Google version of Azure from our Microsoft series. It absolves

any and all sins. Not that there were many at Google. The only one was plus.

The only way it could have gone better is if instead of launching Android, they launched the iPhone and they also got the iPhone profits rather than just some small dollars that protected their core business. Yep. That was my playbook. And then my

quintessence is it is wild that this one company has eight products with over a billion users and started this era with just one search that didn't even have a billion users yet.

search Android Chrome YouTube Gmail Maps, Drive, Photos, and then if you count the Play Store as separate from Android, which Google does, I think that's a bit of a stretch, but if you do, then they have nine products with

over a billion users. And just for context, Meta is the next highest count of products in one company with over a billion users. They have four, the Blue

app, WhatsApp, Instagram, and Messenger. Metal likes to claim they have five.

They like to say that Meta AI in aggregate has over a billion users embedded across all their products. Yeah. But this whole super intelligence thing is an admission that the active users of Meta AI is a little uh stretchy.

If the Play Store doesn't really count on its own, the Meta AI for sure doesn't really count on its own. So Meta has four. Apple I think only has three, maybe

four. So, the three Apple has for sure are iPhone, iMessage, and Safari.

four. So, the three Apple has for sure are iPhone, iMessage, and Safari.

iPad, maybe? I don't think so. Mac, definitely not. I basically don't count any iPhone app because they all come for free when you get the phone. Okay. So, by your definition, Apple has one with iPhone. I think Apple has one. Okay. All right. Let's take that same definition. How

many of these came for free at Google? Google search, Android, those are two completely different distribution channels. Chrome. Yep. I don't think any of these came for free.

I mean, Google helped Chrome. No. Yeah. These are all independently have achieved billion plus users. Gmail and Google Drive sort of advantage each other. So, I think you can sort of subtract one of those out.

each other. So, I think you can sort of subtract one of those out.

Yeah. But it's not to the extent that iMessage is default with an iPhone, right? Maps is advantaged by Android. They ship a whole lot of maps. So, but

right? Maps is advantaged by Android. They ship a whole lot of maps. So, but

probably whatever the phone was would have a great Google Maps app.

Yep. Okay. All right. I buy it. Apple has one. Microsoft has two. Windows and

LinkedIn. Amazon doesn't have any billion user products. Google's got

eight. Like, that's incredible. Call it seven or six. I think it's reasonable to subtract.

Okay fine. But still, that's exactly right. Whatever. That's my point. This is my quintessence. This period at Google is a run like nobody's ever had. Yeah, absolutely right.

quintessence. This period at Google is a run like nobody's ever had. Yeah, absolutely right.

All right, what you got? So, quintessence for me is the thing that I sort of can't stop thinking about from the episode and I decided this time I knew what it was going in and I decided to hide it all the way until the

end. So, we haven't talked about this thing yet. Oh, okay. Almost all of Google's

end. So, we haven't talked about this thing yet. Oh, okay. Almost all of Google's successful products are based on a core technology insight that is underneath the whole thing.

The type of insight that could be in an academic journal. Yep.

Someone told me this and I've been using it as a little litmus test for will a product work or not. And as you look through I mean you look at the original search that is by definition the page rank algorithm. It's a core technology insight.

I mean, they published it as an academic paper. The way that the ad-based auction works is a core, it's almost mechanical in its elegance and its brilliance and its simplicity. It is a technology insight that and everything we talked about in

simplicity. It is a technology insight that and everything we talked about in Google part one, our first episode. Then you look at everything that succeeded this episode. Gmail, the way that they are able to do the gigabyte of storage,

this episode. Gmail, the way that they are able to do the gigabyte of storage, Ajax, fast responsive web application. You look at maps and docs with real-time

collaboration, breakthrough core technology insight. Yeah, YouTube. Uh, yeah totally. Y

serving video on demand to the entire world. Absolutely. Being able to scale that and make it a real going concern. Chrome, four core technology insights, maybe six, maybe

seven in the original comic. Yep. Android. I can't name one magical core insight. This one may kind of be the exception cuz like, yeah, it's

insight. This one may kind of be the exception cuz like, yeah, it's technically hard and all that, but there's not like an elegant thing that's the reason that Android succeeded. It was perfect execution in a lot of ways

strategically distribution marketing partnerships. Okay. Wait, no, no. I I got what it is.

It's the same thing as the iPhone. It was an incredible achievement to wrestle OS 10 into iOS and to get it to run on a battery powered mobile device

that fit in your pocket. And Android did the same thing with Linux. They wrestled

Linux into a batterypowered mobile device that fits in your pocket.

Yep. less of an elegant satisfying core insight I think and not the reason that it worked. I mean not the reason why Android unlike these other ones there's

it worked. I mean not the reason why Android unlike these other ones there's a clear line between the it's almost like the Google products that succeed wildly organically except for Android are ones where there's almost no product the technology

solution is just so incredible that it is directly the user experience and you get the technology breakthrough as the experience. Yeah. Yeah. I I sort of see where you're going.

But then look at the other ones. Google+, Google Wave, these are like products. These are like user experiences that people come up with that don't necessarily have a breakthrough technology underneath them. Google Photos is actually quite the

opposite. All of the AI stuff that's been happening on Google Photos for a

opposite. All of the AI stuff that's been happening on Google Photos for a very long time, that's why it worked. Like people wanted all these incredible magic features that come with Google Photos. It's funny as someone told me this in the research. It was been sort of batting around in my head and then

I'm reading Eric Schmidt's book and Eric Schmidt said he would ask PMs, "What is your core technical insight that makes it all work?" And if there wasn't a good answer, he wouldn't fund the project. They figured this out at Google, too.

It's a googly thing that this genius technology is the product itself. And if

you try to craft some cool idea that you have that is not just directly translating tech breakthrough, it's not going to be the type of product

that succeeds at Google. They don't know how. Some people can make an Instagram and those people are not Google. Yep. Ironic that Kevin was a earthw Google employee who left to start a startup. Yes. Anyway, I think that has made it

extremely clear to me when Google products succeed and when they fail. Love it. Spot on.

All right, carveouts. Carveouts. I've got one and then I've got my long awaited followup.

Oh my god. We've been awaiting with baited breath. Listeners, what game console did David buy?

I'm going to make everybody wait for uh one more minute. My actual carve out for the episode is when we were in New York for Radio City. My whole family came,

the girls came, and we stayed for the rest of the week after the show and we took the girls to the Bluey experience at the camp store in New York City. And

it was awesome. Lived up to expectations, lived up to the hype. They

basically have recreated the Bluey house in this physical space in New York City.

The house is almost a character in the show and they have recreated it and they just let you and your kids in to roam free in the house. Then you have a magical moment at the end of the experience. Ah, it was cool. Highly, highly recommend if

you are in the Bluey demographic and happen to be in New York. Okay. What game console did you pick?

I bought the Steam Deck. The Steam Deck? I bought the Steam Deck and it's great.

Although I haven't, truth be told, had much time to play it this past month with everything we've had going on at Radio City and then preparing this episode. But it's great.

How'd you pick? What was the ultimate? It ultimately came down to as much as I desperately wanted my older daughter to be ready to play Mario Kart with me, she's just not. And so if you're buying a console for just you to enjoy, you

went with the Steam Deck. Yeah. I was like, I would probably enjoy the Steam Deck more. And

do you endorse it? Do you recommend it? Yeah. What Valve has done with the Steam Deck, I didn't realize until buying it and using it is incredible. They have

abstracted a PC gaming machine into a console experience. So, I've always liked PC type games, but I haven't been a PC gamer in many, many years cuz like I'm not going to build a gaming machine or even you could just buy one, but like

I don't need another PC. Where am I going to put it? What am I going to do with it? I want the console simplicity of just buy the damn thing, turn it on,

with it? I want the console simplicity of just buy the damn thing, turn it on, buy the games, play them, right? Valve has created that in handheld form.

It's awesome. You don't have to worry about any of the drivers or specs. It's

really, really impressive. All right, good to know. So, I will buy a Switch to at some point, probably in the next year or so, but for now, Steam Deck. All right, what are your carabouts?

I've got three. Oh great. My first one, and I swear to God, this is unrelated to their sponsorship, is Claude. Amazing. It's so great.

It's so good. Using AI has completely changed the way that I prepare for these episodes now, and I cannot imagine going back. I hear AI is a thing. I hear AI is a

thing. So, that's the first one. I just find myself in it all day. Now, two is the Sony RX100

thing. So, that's the first one. I just find myself in it all day. Now, two is the Sony RX100 VIII or 7. So, I recently bought a different camera, the Fuji X100 VI or the six.

Yeah, that's what you had in New York. Yeah. And it's great. It's like the internet's favorite camera. It has these amazing film simulation color profiles.

It's like a camera, though. I carry it around my neck because it's like it's a camera that you hold and use and it's very fun shooting 35 millimeter equivalent. It feels like I'm taking pictures the way that pictures were meant to be taken.

equivalent. It feels like I'm taking pictures the way that pictures were meant to be taken.

It's not a full DSLR, but it is like a big thing. Exactly. It's a handheld, but I wouldn't call it a pocket camera. Now, the funny thing is the thing that I'm actually talking about as my carveout is the Sony camera. Shil Monot tweeted actually this morning. I should have been preparing for this episode and I was like replying

morning. I should have been preparing for this episode and I was like replying to him on Twitter instead that he's been considering getting this Sony or another point andoot camera and I just kind of remembered how much I love this camera.

The Sony RX1007 fits in my pocket. It's very small. It has a giant zoom lens for its size and I was just looking at some of the pictures that I've taken with it.

It's like the perfect thing to bring with a phone. Whenever I am space constrained, which is usually I mean I just don't really want a camera around my neck. The perfect combo is bring a phone and bring the Sony. I am aware

my neck. The perfect combo is bring a phone and bring the Sony. I am aware that it's not a full-frame camera. I'm aware that it's not as photographery as my Fuji, but it is the most practical one for most things that I want to do.

And for many, many shots, it is far superior to shooting on a camera phone.

So, I don't know. I just love it. It's a 2019 camera and they really need to come out with one that has USBC because it's annoying to charge, but other than that, it's just awesome. So, I highly recommend it. There you go. You're bringing it full circle on this episode. A point and shoot camera. Point and shoot camera, especially

paired with Lightroom has this great AI feature called D Noiseise that they launched and is now rolled out in production. It is incredible. Love it.

Then I have one more last one. A listener recently sent me. He started a clothing company called Keraseimi and it is an incredible garment. It is just this like really really nice cashmere shirt. I've been wearing it all

recording. It's great on a cool day. It's great on a warm day. It's my

recording. It's great on a cool day. It's great on a warm day. It's my

current favorite shirt. And so I wanted to uh thank the listener that sent it to me and say you have built a very uh the prices are high. So very nice clothing company but just excellent products. Well, I I've been staring at you for the

past seven and a half hours here and I've been thinking the whole time, God, Ben is looking good.

My normal thing, if I could just wear it every day, is a long sleeve dark crew neck. Just like I don't have to think about it. You can look nice in it. It

neck. Just like I don't have to think about it. You can look nice in it. It

just goes with everything. It's, you know, the sort of capsule wardrobe idea.

And this is the sort of finest version of that that I've worn. It's really great. Kerosimi. Nice.

All right. With that, listeners, our huge thanks to our partners this season.

JP Morgan Payments, trusted, reliable payments infrastructure for your business, no matter the scale. That's jpmorggan.com/acquired. Anthropic, the makers of Claude, claude.ai/acquired. Statsig, the best way to do experimentation and more as a product

claude.ai/acquired. Statsig, the best way to do experimentation and more as a product development team. That's statsig.com/acquired. And Verscell, your complete platform for

development team. That's statsig.com/acquired. And Verscell, your complete platform for web development. and Vzero that is versel.com/acquired. Click the links in the show notes to

web development. and Vzero that is versel.com/acquired. Click the links in the show notes to learn more. We have a bunch of people to thank for contributing to this episode.

learn more. We have a bunch of people to thank for contributing to this episode.

Yes. Yes, we do. Hiroshi Lockheimer, Tim Armstrong, Sam Schillis, Hunter Walk, Nick Fox, Shona Brown, Clay Bour, a bunch of folks who helped a little bit

here, but more are going to be for the next episode. Max Ross, Greg Curado, Demisabis, and then Ben, you had a bunch of folks who you spoke to as well.

Yeah, as always, I want to thank Arvin Navaratnam from Worldly Partners for his excellent writeup, which you can find linked in the show notes, and also Paul Bkite, creator of Gmail, Bill Corin, Jonathan Rashelle, Bradley Horowitz,

John Hanky, Ben Idolen, Esar Lipkovitz, and Ben Leebald. And that is in addition to as always the many folks who helped us whose names we can't say here but know you are appreciated. Yes. And thanks to all of you for listening.

Seriously, if you like this episode and uh you're like, "Oh, wait. There's a

Google episode before this. Most of you have probably listened, but if you have not, go check out our first episode on the origin of Google and the creation of the search engine and the search business. And of course, our Microsoft

series part one, part two, and an interview with Steve Balmer.

If you want the other side of the story to everything we talked about here, in addition, our giant episode on Meta is probably pretty relevant and we reference it several times. After this episode, check out ACQ2, our second show

where we talked to founders and CEOs building businesses and areas that we have covered on the show. Our last one was with Google legends, really industry legends, Brett Taylor and Clay Bavor about the current state of AI and where

we are headed. So, search ACQ2 in any podcast player. Come chat with us in the Slack. That's acquired.fm/slack. and join the email list for all the

Slack. That's acquired.fm/slack. and join the email list for all the excellent email goodies, including voting on episodes for this fall. Woohoo!

With that, listeners, we'll see you next time. We'll see you next time. Who got the truth?

Is it you? Is it you? Is it you? Who got the truth? Huh? [Music]

Is it you? Is it you? Is it you? Who got the truth? Huh? [Music]