Google and the Search Engine Industry: Strategy Analysis

The Search Engine Industry and Its Historical Foundations

The search engine industry encompasses firms operating search-based internet sites and search engines that display advertisements. Their services are normally offered free of charge, and their income derives from advertising — specifically, "paid clicks" generated when users click on ad links. Search engines rely on numerous free services such as news, email, entertainment, and social networking to attract internet users (Clyde, 2000).

Historical Pivot Points

The concept of memory extension and hypertext was introduced in July 1945 with the publication of As We May Think by Vannevar Bush in The Atlantic Monthly (Seymour, Frantsvog & Kumar, 2011). Bush argued that scientists should collaborate to develop a shared knowledge pool to benefit all of humanity. This was followed by Gerard Salton — considered the founder of modern search technology — and colleagues at Cornell and Harvard, who developed Salton's Magic Automatic Retriever of Text (SMART). SMART encompassed key concepts such as Term Frequency (TF), the vector space model, relevancy feedback mechanisms, Inverse Document Frequency, and term discrimination values (Seymour, Frantsvog & Kumar, 2011). Salton's work A Theory of Indexing describes numerous tests he conducted, which continue to form the basis of modern search engines.

Ted Nelson and Project Xanadu

In 1960, Ted Nelson launched Project Xanadu, aimed at creating a computer network with a simple user interface that resolved issues of attribution and related social concerns. Three years later, he coined the word "hypertext" (Aaron Wall, 2017). While Nelson was working on broken links, complex markup code, and other issues associated with conventional HTML on the World Wide Web, his work effectively inspired the World Wide Web itself. The precise reasons for Project Xanadu's ultimate failure remain a debated subject.

ARPANet and the First Search Engines

The year 1993 witnessed the launch of the earliest few hundred websites, most of which were located on college campuses. However, long before these came into existence, the world's first search engine — Archie (short for "archives") — was developed by a university student, Alan Emtage, in 1990 (Aaron Wall, 2017). Archie resolved the problem of scattered data by combining a regular-expression matcher with a script-based data gatherer to retrieve file names matching user queries. It can essentially be envisaged as a web filename database. ARPANet ultimately resulted in the creation of the internet.

File Transfer Protocol and the World Wide Web

Prior to the World Wide Web, people largely shared data through File Transfer Protocol (FTP). File-sharing required the establishment of an FTP server, and individuals wishing to retrieve data had to use FTP clients (Aaron Wall, 2017). Though effective for small groups, this system became increasingly fragmented as data quantities grew.

The first website — http://info.cern.ch/ — went online on August 6, 1991 (Barrel, 2007). Created by Tim Berners-Lee, the site described the World Wide Web concept, guided individuals in setting up web servers, and provided information about browser use. It was also the earliest web directory in the world, as Berners-Lee maintained a list of websites. He further developed a Virtual Library — the earliest web catalogue — and authored a book, Weaving the Web, on the creation of the World Wide Web. In 1994, the W3C (World Wide Web Consortium) was established at MIT (Levene, 2013).

Google Inc.: Founding and Early Growth

Google Inc. was founded by university students Sergey Brin and Larry Page in 1998, with the goal of marketing Google Search as the world's most popular internet-based search engine (Aaron Wall, 2017). The two had developed the "BackRub" search algorithm a couple of years before the company's establishment (Gilbert, 2009). Google enjoyed swift success, with the growing firm relocating several times before ultimately establishing its headquarters in Mountain View, California, in 2003 (Sutherland, 2012). The following year, it made its first public offering and soon became one of the largest media corporations worldwide. It launched Google News in 2002, Gmail in 2004, Google Maps in 2005, the Google Chrome web browser in 2008, and its social network Google+ in 2011 (Aaron Wall, 2017). It became Alphabet Inc.'s chief subsidiary in 2015.

Winning the Search Market

Shortly after commencing operations, the Google founders received seed funding of $100,000 from Andy Bechtolsheim, followed by $25 million from Kleiner, Perkins, Caufield & Byers and Sequoia Capital (Sutherland, 2012). AOL and Yahoo! chose Google as their search partners in 1999 and 2000, respectively. The new millennium also saw the launch of the Google Toolbar and the re-launch of AdWords, initially a cost-per-thousand-based ad-selling program (Aaron Wall, 2017). The service was retooled two years later, with ads sold through auction that took into account click-through rate and bid price (Sutherland, 2012). In May 2002, AOL announced it would deliver search-related advertisements via Google, greatly aiding the company in its battle against rival Overture. AdSense — a program facilitating the expansion of Google's ad network through targeted advertisements on third-party sites — was introduced the following year.

When going public, Google employed a two-class stock framework with shares offered through a Dutch auction, and refrained from giving earnings guidance (Aaron Wall, 2017). Despite criticism over the tone of its shareholder manual and a controversial Playboy interview that caused the company to lower its initial public offering range, Google went public on August 19, 2004, at $85 per share.