When you visit Google's headquarters, you have a vague feeling that there's something wrong here, but it's hard to say exactly what. In nearly every way, Google seems a corporate utopia, a vision of an idealized 21st-century corporation. The campus looks more like an idyllic resort than an office complex where anyone ever gets work done. The centerpiece of the main quadrangle is a beach volleyball court that sees a lot of action throughout the day. And look, there's cofounder Sergey Brin, 31, the $9 billion man, competing in a midday game. The rectangle of white sand is surrounded by green: grass that appears as though it's groomed daily and cacti that thrive in the sunny, humidity-free 80 degrees. The campus's pathways are strolled by employees so youthful and healthy looking that you wonder whether you made a wrong turn a few miles away in Palo Alto and wound up on the Stanford campus instead. Google has been sued for allegedly discriminating against workers over 40 years old. Only the shiny postmodern architecture makes you feel as if you're at a high-tech company. And the atmosphere seems strangely calm and quiet, almost lazy. It's hard to believe that this is a company that has been coping with breathless growth — a company where it's not unusual for a marketing staffer to cycle through four different bosses within a year and a half. The only corner of the campus where there's visible tumult is the grill line at the cafeteria, which lives up to its reputation as one of the best places to eat in all of food-crazed northern California. The organic all-you-can-eat buffet is free to employees for lunch and dinner.
Google is ever so young, self-satisfied, and happy. And rich! By late spring, its stock reached toward $300 a share, more than triple its $85 debut price when the company went public only the year before. Wall Street investors haven't hesitated to pay well over 100 times earnings for Google, betting that the company's growth is only just beginning. The seven-year-old startup boasts a market value of $80 billion, more than Yahoo, Amazon.com, eBay, or Oracle. For years it has been the company of the nanosecond. So why do you feel that gnawing sense of unease as you tour its eco-friendly buildings?
Suddenly, you realize why: This epicenter of the Silicon Valley present is haunted by a ghost of the Silicon Valley past. You've been right here before, in this very spot, during its original incarnation as the campus of Silicon Graphics Inc. Remember SGI? It was one of the hottest tech companies of the early 1990s. Its founder, Jim Clark, became a celebrity billionaire. Like Google, SGI was a geeky innovator glamorized by an adoring media — most famously, its expensive graphics computers powered the special effects for Hollywood blockbusters such as Terminator 2. SGI's stock split twice in the early 1990s before peaking at $42 a share in 1995. But once its rivals had time to catch up, SGI went into freefall. By 2001, the stock had plunged to 31 cents a share, and the company had to lay off thousands of workers and abandon the gleaming new campus it had constructed. In came Google, leasing 500,000 square feet of the SGI space to accommodate its mushrooming workforce, which has grown to 3,000 people worldwide.
SGI is nearly forgotten only a decade after it reached the heights of Silicon Valley glory. It makes you think the unthinkable: Might Google face the same fate? Ten years from now, could Google be a vanquished champ while a newer contender takes over its campus? Silicon Valley is a notoriously brutal place. It's incredibly hard to maintain a lead in technology. As Brin plays in the sand at the "Googleplex," could there be the next Brin waiting five miles away at the Stanford campus — another obscure but brilliant computer-science graduate student who'll swiftly reinvent the digital realm? Will slower-moving giants like Microsoft get the time to catch up? Google has terrific momentum — unlike many companies, it doesn't have to worry unduly about the next quarter. The real questions (and they're questions any fast-growing, innovation-based company must ask itself at some point) are: How can Google keep its edge for the long run? What can it do to make sure it's still a hot company in 2010? How can a maturing organization with 3,000 people hold on to what made it a great startup?
A series of interviews with Google executives and engineers revealed the ideas the company is counting on to sustain its streak.
Challenge the Mind
Brin enters the conference room and takes a seat on the same side of the table as you, and it's hard to focus on the interview while you're forced to look at his bare legs. He's wearing athletic short-shorts. Soon he senses your discomfort and apologizes for his attire, mentioning that he had just come from playing in a volleyball game. He also wears a black T-shirt, a wristwatch made from Lego blocks, and Adidas sandals without socks.
"Here's the way I think of it," he says. "Is this the place I would want to work if I were graduating from a PhD program now?" Brin and Larry Page were pursuing doctorates at Stanford when they founded Google, which they now run together with Eric Schmidt, a veteran executive who had worked at Sun and Novell.
"Yes," he answers. Why? The key reason is that Google lets brilliant computer scientists work on "great technical problems" that provide the intellectual stimulation and challenge they crave. "Artificial intelligence, complex systems, user interface — all the things I studied as a graduate student, we hit the limits of," he says.
In Google's early days, simply searching the Web was a daunting technical challenge. Today, Google conceives of "search" as something much broader and more grandly ambitious — no less than helping people access, analyze, organize, understand, and grapple with all the world's information. That kind of audacious long-term challenge is really exciting and inspiring to the most technically brilliant minds. Making money and achieving professional status are significant for them, of course, but so are the psychic rewards of the work itself and its potential impact and visibility out in the world.
"We're in a target-rich environment of interesting problems," says Alan Eustace, one of Google's handful of vice presidents of engineering and its head of research. Take the technology for "machine translation" of human language. Right now, Google can automatically translate Web pages from English into a bunch of major languages and vice versa — German, Spanish, French, Italian, Portuguese, Japanese, Chinese, and Korean. The list will get longer in the next year or two. But that's just the beginning, Eustace says: "The goal is to make the Internet language-independent." Ultimately, all search results will come back instantly in your own language, regardless of what tongue you speak — and what dialect the pages are written in. Every Google user will be like a delegate in the General Assembly of the United Nations putting on headphones to hear translations of the speaker up front. At the UN, it doesn't matter whether you speak only French and the orator is waxing eloquent in Chinese. The Web will be the same way.
Automated universal translation is the kind of long-range vision that inspires people like Eustace. It fascinates them because it's a technical Mount Everest that they can climb, but also because it's an idealistic goal that's potentially enriching to global society. "In the long term, if you can create technology that can unify information around the world and remove the language barrier, that would be very special," he says.
Google has visions of unifying the world's data as well as its languages. Eustace wants to give people the tools to combine data from multiple sources on the Web. For example, if you were looking to buy a home today, it would be easy enough to map the available properties. But what if you wanted to overlay that map with other information that could help you make your decision — figures about school rankings, economic conditions, day-care availability, community activities, or crime rates? "We're not anywhere near done with search technology," says Marissa Mayer, who left Stanford's PhD program to become Google's first female engineer in 1999 and currently manages its consumer Web products. "2010 or 2020 will make today look really sad."
Google has recruited technologists who share this vision, which is an important source of their dedication. Before coming to Google, Anurag Acharya taught computer science at the University of California at Santa Barbara. "I was looking for a problem that would last me a very long time — 10 years, 15 years," he says. He joined the company motivated by tackling the issue of "being able to deal with information coherently in all its manifestations." Like Eustace, Acharya seems equally influenced by Google's vast technical challenge as well as its potentially beneficial social impact. He expressed his idealism with his creation of Google Scholar, a feature that lets users search for information in academic publications. As principal engineer on Scholar, he spent four years recruiting scholarly journals to make their material publicly available over the Web for the first time. He thinks giving people around the world better access to information "has to fundamentally change how social processes evolve — how people interact, how they develop organizations. I believe this is a significant thing for humanity."
Of course, Google is far from the first Silicon Valley powerhouse to cultivate a reputation as a place for the most brilliant engineers. Like its predecessors — Microsoft, Oracle, Apple — Google can be elitist and a bit haughty. Nelson Minar, a midlevel Google engineer, starts off well by saying, "At Google, a lot of people are motivated by the beauty of what they do. A key thing in the engineering culture is a lot of pride in the technical challenge. Larry and Sergey have set the tone that we're in this for the long run." But then he realizes too late that he's sliding into arrogance when he says, "At Google, my assumption when I meet new engineers is they are as good as I am or better. When I worked at other places, the first question was, Is this person worth my time?"
Share the Wealth
Duke Ellington was once asked how he managed to take the many individualistic members of his band and get them to play together so harmoniously. "I have a gimmick," he said. "I pay them." That's one of Google's gimmicks, too. Even when people are motivated by challenge and idealism, pay and recognition remain important.
Brin has been thinking a lot lately about how to revamp Silicon Valley's basic approach to compensation, which long relied on stock options. When there are only a few hundred people in a company, stock is a strong motivation, he says, because everyone gets enough options to have the chance to really make a lot of money. But "at thousands, it doesn't work that well as an incentive," because there are so many people that the options have to be spread too thin. "And people want the chance to be really well rewarded." Even though Google now has some 3,000 employees worldwide, he says, "I feel the compensation should be more like a startup's. Not entirely, because there's significantly less risk. But more like one. We provide the upside — maybe not the identical upside, maybe a little less — and higher odds of being successful."
Google's most visible innovation in compensation is the Founders' Award — a huge spot bonus for great work on a project. The first two awards, given out earlier this year, added up to $12 million and were announced at an all-staff gathering. The awards are paid in stock to give the winners incentive to keep striving.
"These founders are quite willing to share generously the wealth that's created here," says Dave Rolefson, a compensation specialist who worked around the Valley before joining Google. "A lot of companies say they pay for performance, but Google actually does." The higher you are in the company, the more heavily your pay package depends on rigorous evaluations of your personal contribution. The exception comes at the very top: No matter how well they perform, Page and Brin now take only a $1 annual salary with no bonuses or grants of options or stock. They save the stock as a reward for other employees.
In the past couple of years, other Silicon Valley companies have responded to the big changes in accounting rules by cutting back dramatically on the stock options they grant to employees as incentives. They have typically gone from giving 7% of equity each year to as little as 2%, and the cuts have had the biggest impact on lower-level employees. "At Google, we're seeing that none of the employees are cut," Rolefson says. "Full-time employees at all levels are still offered equity when they come in."
In addition to stock grants, Brin says that Google is trying to do more with "bonuses and refreshers" and especially looking to develop more financial incentives for people in the fast-growing middle levels of the company. Still, he admits that "there are some inherent flaws with compensation incentives in a large company." That thought sends him off on a more philosophical tangent: "As you grow larger, you should be more efficient," he says, "or split into smaller companies if there are diminishing returns. The key is to look at the advantages you get from being larger."
So does Brin think Google is a bit like Burning Man, the annual festival in the Nevada desert that's a magnet for artists and techies from northern California? Burning Man has grown from an intimate gathering into a mass pilgrimage for tens of thousands of people, many of whom talk nostalgically about how it was better when it was smaller and before it was changed by its renown. Brin has actually been to Burning Man — how many CEOs can say that? — but he contends that both the festival and Google have improved in many ways with size: "There's so much more to see and do now" at Burning Man, he says. As for Google, "It's a mistake to be nostalgic for two or four years ago, because you can be blind to all the benefits you get." The recently introduced features for searching and displaying maps with satellite photos, for example, were a "really collaborative effort from people at Google offices around the world — we couldn't do that at a smaller company."
Still, it's likely that individuals at Google will have a harder time feeling they can have an impact on the company now that it has thousands of people, not hundreds. And many talented individuals will surely leave for startups once Silicon Valley discovers its next big thing. Some of the people who stay will find motivation harder to come by once their stock grants vest and they no longer need to work to make a living or even to buy real estate in the nation's least affordable housing market. At Microsoft in the '90s, engineers and marketers took to wearing buttons around the office that said "fuifv." You can guess what the first two letters stand for. The last three meant "I'm fully vested."
Brin doesn't have firsthand memory of much Silicon Valley history — for the benefit of business experience, he says he turns to his board members, including new recruits CEO Paul Otellini from Intel and CEO Art Levinson from Genentech. Before Google, he says, "I never had a real job." But he does mention Microsoft as a case study for compensation policy. "The options were great as long as the stock was rising," he says. "Compensation is important, but it's not the only or the most important reward."
Right now, Brin and Page can afford to share the wealth — not only are they both multibillionaires, but Google's $1 million in revenues per employee is high for any company, and it beats even key competitors. At some point, though, the stock isn't going to be a trump card for running the company. That means the challenge and meaningfulness of the work is going to be Google's best hope for thriving in the long run. To keep up its extraordinary success, Google must do more than simply follow its slogan "Don't be evil." It has to be inspiring and good.
Learning From the Past
What can Google's founders learn from the ghosts of SGI that wander the campus they've taken over? SGI's decline came when Intel's hardware and Microsoft's software ultimately began to catch up to its own. In Silicon Valley, it's hard to keep a lead for long. SGI tried for a second act with what was known in the early and mid-1990s as the "information superhighway," but it bet wrongly that interactive TV was the form it would take. SGI's founder, Jim Clark, left — and bet correctly that the "infobahn" would be the Internet. He cofounded Netscape and began the Web stock boom.
Google's head-to-head rivals — Yahoo and MSN — are already starting to catch up to its technology, at least in the crucial basics of search. Google's indirect rivals, such as Amazon.com, are imitating it, too: Amazon's shrewd founder, Jeff Bezos, realizing that search is vital for how people find what they want to buy, has created his own search engine, A9.com. Google, for its part, has been busily imitating Yahoo and MSN by offering more of the features — such as email, news, groups, shopping, and personalized starter pages — that it needs to become a full-fledged Web portal. For the next few years, the Web's manic growth should provide plenty of opportunity for all of these sites, which have already established good brands and created a kind of Web power oligarchy together with eBay and America Online (which pays Google to power the searches on its site).
Among the several portals, Google's most obvious competitive advantage is that people prefer it for search, probably because it has built its reputation specifically around the technology. It led in the United States with 47.3% of Web searches in the month of May compared with Yahoo at 20.9% and MSN at 13.6%. But where Google's business really stands out is as a huge advertising network: On other Web sites, when you see text advertisements that are triggered by keywords from the content of their pages, the odds are that those ads are powered by Google, which profits from every click. This "Google Network" accounted for around half of the company's $3.2 billion in revenue last year.
Despite Google's incredible share and momentum as an advertising network, there's nothing stopping another big player, like Yahoo or Microsoft, from making big inroads, too. For the longer run, what Google needs is to come up with the next awesome leap in technology — something that's as addictive and inspiring as Google itself was when it hit big. What's more likely, though, is that someone new — maybe some other grad students at Stanford — will do to Google what Google did to Microsoft and the other powers. Like Microsoft, Google is rich now, and it can pay for highly credentialed talent and use some of its spare billions of stock value to acquire any number of smaller companies that have promising technology or pose a potential competitive threat. But there's never a substitute for that great new idea. So far, at least, the Google guys are doing the right things in terms of creating a culture for hatching and nurturing it. But to be a hot company in 2015, they're going to need to find — and keep — the next Sergey Brin and Larry Page.
Sidebar: Do You Realize That Google Has Ads?
Google's motto is "Don't be evil." Its revenues come mostly from selling advertising in the form of the paid search results running down the right side of the Web page. In response to pressure from consumer advocates, these are labeled as "sponsored links." Still, according to a recent Pew Trust survey, only 38% of people realize the difference between paid and unpaid search results. That might seem surprising, but it fits the pattern of other innovative forms of advertising that have emerged in the past generation: Studies show that it has taken many years for most people to grasp that "infomercials" are different from regular TV programs and that brands shown in movies are paid product placements. Once consumers wise up, the gimmicks lose much of their impact. Google's ads are unusually effective because most people don't realize they are ads. Is that evil?
Alan Deutschman is a Fast Company senior writer based in San Francisco.