David Rosenthal: uncertainty

Transcript context

…Right. Because Overture was a public company at that point. I think we forgot to point that out. All right. So I want to smash cut now over to the third player in the story, which is Google because if you’re listening to this, you’re thinking, well, what we’re talking about is basically Google’s business model which is paid search. What people forget about the Google story is that Google did not have a revenue model for a very long time. Their original business model when they took their money from Sequoia and Kleiner Perkins was basically to syndicate search results. So again, we’re in an era where there are 7 or 8 major “search” players, and I'm saying search in quotes because a lot of them weren’t doing real search. They were more portals. But search was a component of what the portals were offering people. So, Google’s original business model was to basically offer the search results to these 7 or 8 players and get licensing deals for providing the service. What’s crazy, you know, to think about how different the world was back then. I could be wrong on this but I'm pretty sure that the way Google did that was through the Google search appliance which was actually a piece of hardware that their partners would install in their data centers. It’s so hard to imagine today. Yeah. For fans of Silicon Valley, they made a box. So now if you’re Google in 2001 and you’re sort of hunting around for a business model. Because really, that licensing, your search results to 7 or 8 players doesn’t really scale very well. It’s a decent business. It’s not a multibillion dollar business. If you’re Google in 2001, you’re looking over at Overture and you’re seeing that Overture is having incredible success in what is essentially your space, and they’re doing it via a business model that is pretty obvious. As an example, 2001 is the first year that Google actually is profitable. In 2001, its revenues were $85 million. In that same year, Overture had revenue of 288 million. At that point, Overture was growing faster, was growing its revenues faster. So, Google does what is the obvious thing in retrospect and probably even at the time, they say, “Hey, maybe let’s give this Overture model a try.” The original version of AdWords that Google launched was basically CPM. They were still text-based ads and they were put at the top of search results. But they were glorified banner ads even though they were text. Basically, advertisers paid per thousand viewers for the ads that showed up. One thing that we haven’t pointed out is that Overture has pioneered paying per click CPC, which advertisers love because it’s much easier to measure results versus measuring on a CPM basis. So, Google first experiments by doing AdWords at the top and Ford or Coke or whoever would pay by the thousand viewers. Then they start to introduce what overture is doing. So they’re putting search results on a cost per click basis at the top and then later on the side as we’re more familiar with. But they do two things that Overture hadn’t done. Two huge innovations. Number one, Overture always had editors. So if you submitted an ad to Overture and you say “I want to advertise for flowers,” they would have to make sure that you really were a flower business, they would have to make sure that the ad was copacetic. They even had to make sure. You know, they’d approve your text and all those things. Well, we know Google as the company of engineers where there’s no problem that can’t be solved by math and some decent engineering. So they don’t want to do this editorial stuff and so they create an automated system. Whereas with Overture, you would submit your ad and it would take a day or two for the ad to go live. Google created an automated system where you would bid on keywords, submit your ad and the algorithms would make sure that the ads were cool and your ad would be running within the hour. They also targeted small advertisers. Overture was still in this sort of display ad business or the traditional ad business where you’re chasing big brand advertisers. And Google said, “Hey, if you’ve got a credit card, I don’t care who you are.…

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