2004 Founders' Letter

From the December 31, 2004 Annual Report [HTML | PDF 1.80M]

GOOGLE WAS BORN IN 1998. If it were a person, it would have started elementary school late last summer (around August 19), and today it would have just about finished the first grade.

Of course companies are not people. Among other obvious differences, they must be responsible and selfsufficient at a very early age. But a long perspective, like that of a human lifespan, is useful in assessing yearby-year developments. While it may seem that we have come far already, this is just the beginning of a lifetime.

And while Google is not a single person, it does embody the effort, ability, and commitment of thousands of individuals. Together we strive toward a common mission: to organize the world's information and make it universally accessible and useful. This is an infinitely large task for a long-term company.

Last year, Larry discussed the principles of our work toward this goal in his letter that we included in the prospectus for our initial public offering. In this letter, I will update you on our progress over the past year, our team, and where we are headed in the future.

345 DAYS

It is hard to believe less than a year has passed since our last letter, given how much has happened. We made some big strides toward making more web information nearly instantly available. But just as important, webranched out to make a growing array of media forms and information types more accessible and, hopefully, more useful to people all around the world.

Here are some of the highlights:

8 billion pages. In web search alone, we doubled the size of our index over the past year. Now, users can search over 8 billion web pages and experience greater relevance. We have simultaneously worked to ensure that users encounter less spam or other interference.

More local information:

Google Maps. Released early this year, Google Maps is an original interface to maps on the web, letting people plot routes, get directions, and find businesses on a map intuitively and in a flash.

Keyhole. Our acquisition of this geographic information search pioneer brings to Google users a stunning digital mapping tool. Keyhole lets people view 3D images of any place on Earth, including a rich database of roads, businesses and many other points of interest.

Google SMS. Often when people need information they're not at a desktop computer. But they can use their cell phone to send a text message to GOOGL (46645) with a query and zip code to get local results in that area.

But not all information that matters to people is on the web. Much of it resides in different media - in books, on television, or on their hard drives. So we launched projects addressing each:

Google Print. Announced late last year, Google Print seeks to digitize and make searchable the wealth of the world's knowledge that is in the form of books. We have programs to work with both publishers and libraries to digitize their collections, including those at Stanford, Harvard, Oxford, the University of Michigan, and the New York Public Library.

Google Scholar. This service applies the power of link and citation analysis to scholarly research. With Google Scholar, researchers, students, professors, and others can find relevant information drawn from literature such as peer-reviewed papers, theses, books, preprints, abstracts, and technical reports.

Google Video. The preview release of Google Video demonstrated how searching television can work: People can search the content of TV programs, find programs containing the content they're looking for, and discover where and when the program next airs.

Google Desktop Search. Why should it be easier to search the web than it is to search for the information on your own hard drive? Google Desktop Search lets people search their own computer for files, MP3s, web history, and more, just as easily as they can search on Google.

Online communications have become pervasive in people's lives - so pervasive, in fact, that people often don't even think of it as information. As a result, we've begun developing products that improve the ways people can talk to each other - and share ideas and experiences - online.

Gmail. I am writing this document using Gmail, our innovative web mail service. It provides people with a huge amount of storage (1 gigabyte per account, free) and fast, Google-style search through their mail.

Picasa. With the acquisition of Picasa, we can help people manage their visual information in digital photographs. We released a much improved version of Picasa, and with Gmail integration, have started the work of making it easy for people to share photographs with family and friends.

Blogger. Blogging is about personal expression and the freedom to share ideas. This year we completely redesigned Blogger and introduced powerful features like comments and rich-text editing. In doing so, we've made it quicker and easier than ever for people to share their thoughts online.

We also launched a number of improvements to our AdWords and AdSense programs to make it easier and more rewarding for both advertisers and publishers to participate in the increasing use of commercial information online. Notably, we have focused on improving our ads quality, which increases ads relevance for users, and clickthrough rates for our advertisers and publishers.

Highlights for advertisers included:

  • Smart pricing, which automatically adjusts the price paid for clicks from the Google content network based on our estimates of the value of the clicks.
  • Image ads, which enable advertisers to use graphical ad formats, instead of simply plain text, on Google's content network.
  • AdWords API and a collection of campaign management tools, which make it simpler and more efficient for advertisers and third parties to track and modify their ad campaigns.

Highlights for publishers include:

  • The expansion of AdSense for content (in which we serve AdWords ads targeted to content on a publisher's site) to 10 new languages.
  • The launch of AdSense for search (in which publishers can sign up online and offer Google search and related advertising on their site) in 21 new languages.
  • New ad formats and improved reporting tools which give publishers greater monetization opportunities and more precise tracking.

We also made it affordable for organizations of any size to provide search as good as Google across their public websites and intranets. In 2005, we launched the Google Mini search appliance, which embeds Google search technology on a hardware platform.

70-20-10

Noting the number and range of these new offerings, some observers have wondered whether Google should focus more on its core - web search - because distractions from non-core services have previously led search engine companies astray. Others have asserted that we are a "one-trick pony," too reliant on web search, and that we need to diversify.

Let me clarify our strategy in this regard: We have decided that we need balance among core and expanded services. Larry and I use a rule called 70-20-10. Seventy percent of our effort goes to our core: our web search engine and our advertising network. These products still are the largest contributors to the financial health of the company. {Comscore Media Metrix (October 2004) reports that our advertising network, which includes thousands of content sites, sites that use Google search, and Google properties, reaches 80% of Internet users.} But incremental resources have diminishing returns in almost any undertaking, so it is not desirable to put all your resources on the core product. That's why we allocate 20 percent for adjacent areas such as Gmail and Google Desktop Search. The remaining 10 percent is saved for anything else, giving us the freedom to innovate. This is the logic behind our weighted balance.

Larry, Eric, and I are proud to be at a company which delivers new products so quickly - and at such a high quality. But we're even more proud that so many people tell us that these products improve their lives.

THE TEAM THAT BUILT IT

Since we started Google, Larry and I have cared deeply about the people we hire and how we can find and attract the most qualified applicants. We then strive to empower and reward our employees from their first day at Google.

And those first days can be in many places. We have offices in 12 countries, and we've also begun building out research and development centers in Zurich, Bangalore, and Tokyo. To date, we have built a great team, growing from 2,000 to more than 3,000 in the past year alone.

In this process, we have been careful to avoid hiring people who would not be good contributors at Google the 'false positives.' But we have paid less attention to avoiding 'false negatives.' Perhaps we have focused too sharply on certain technical skills. I am sure there have been many people who would have excelled at Google, but whom we failed to hire.

As we continue to grow and start to saturate certain specialties within geographic areas where we are based, we will redouble our efforts to identify and hire the most qualified candidates. Choosing the best people is a fundamental challenge for every company, but it is not a proven science. Nonetheless, we are committed to making Google a natural home for a diverse group of the most talented people in our industry, and we'll continue to work towards that goal.

We believe we have created a work environment that attracts exceptional people. We know that people value meaning in their work; they want to be involved with things that are important and that are going to make a difference. That is what we let them do at Google. We give them autonomy by structuring projects around small teams.

Our huge computational resources and business resources allow those teams to build great products and also empower individuals to create and test their own ideas.

Google employees have "20 percent time" - effectively one day per week - in which they are free to pursue projects they are passionate about and think will benefit Google. The results of this creative effort already include products such as Google News, Google Suggest, and Orkut - products which might otherwise have taken an entire start-up company to create and launch.

We have never forgotten since our start-up days that great things happen more frequently within the right culture and environment. So we offer Googlers a generous host of benefits - such as an on-site doctor and two fresh meals a day - as part of our efforts to keep Google a motivating, healthy, and productive place.

Compensation that rewards contribution

It's also why we are committed to rewarding employees fairly, commensurate with their contribution. We have instituted a number of incentives throughout the years, such as encouraging peers to recommend each other for company bonuses. But as we have grown into a larger, public company, we have recognized that our compensation system must evolve. Beyond simply addressing the accounting treatment of options and other equity incentives, it must ensure that compensation is fair, offers good performance incentive, and facilitates hiring and retention.

We believe strongly in being generous with our greatest contributors. In too many companies, people who do great things are not justly rewarded.1 Sometimes, this is because profit-sharing is so broad that any one person's reward gets averaged out with the rewards of everyone else. Other times, it's because contributions are simply not recognized. But we intend to be different. That is why we developed the Founders' Award program over the past quarter.

The Founders' Award is designed to give extraordinary rewards for extraordinary team accomplishments. While there's no single yardstick for measuring achievement, a general rule of thumb is that the team accomplished something that created tremendous value for Google. The awards pay out in the form of Google Stock Units (GSUs) that vest over time.2 Team members receive awards based on their level of involvement and contribution, and the largest awards to individuals can reach several million dollars.

To date, Larry and I have given out two such awards for a total of about $12 million. We are currently planning to make two to three additional awards of similar size for recent work. Like a small start-up, Google will provide substantial upside to our employees based on their accomplishments. But unlike a start-up, we provide a platform and an opportunity to make those accomplishments much more likely to occur.

Extraordinary contributions are not the only area where our compensation practices have evolved. We have also put in place a new long-term incentive program to complement our traditional stock option plan. We believe that our previous compensation practices could expose new hires to market volatility that is not related to their individual performance or contribution. Under our revised program, newly hired employees will still receive some traditional-style stock options. But a significant component of their hiring grant will come in the form of GSUs.2 The actual number of GSUs any employee receives in any year is adjusted, based on the individual performance of the employee and on their option strike price relative to other employees who started at about the same time. We believe this approach accomplishes two important goals: it significantly reduces distortions based on the volatility of the initial strike price, and it provides a better incentive by more directly tying reward to performance.

Look for us to continue exploring novel ideas in benefits, compensation, and culture. Our goal is to build a company characterized not only by success and innovation, but also by the highest levels of integrity and fairness in our dealings with one another.

OUR HOMEWORK

Next year, Larry and I hope to report as much progress as we have had over the past year. Here are some of the areas in which we hope to advance:

More information: Currently, our index covers only a fraction of the world's information, and new information is being created at an extraordinary pace every day.3 We aim to greatly expand the scope of what's searchable, making more and different types of information readily accessible.

More mature products: Many of our latest products are in various test stages. In the coming year, we expect to see them develop further, graduate from Google Labs, and move from beta into more general availability.

The W-W in WWW

Google has always been a globally-available service, by virtue of the nature of the internet. And today, we strive to be a globally-useful service and a truly global company. Google search is available in over 100 interface languages on 112 international domains. We offer 41 different language interfaces for our AdWords product, and 21 for AdSense. We have offices in 12 countries.

But we have far to go. We need to make more of our products and services, not just Google's core search and ad products, available in more countries and languages. We need to figure out how to overcome certain technological challenges: for example, it's hard to offer a useful map product in countries where many places remain essentially unmapped. This is even harder in countries that do not have computers.

Google.org

We are aware of the challenges that are even more fundamental, such as: how to help people access water, clothing, and shelter, let alone information. In a direct sense such challenges are beyond the reach of even the most ambitious information-technology company. But our actions in areas of our competence and expertise are guided by an awareness of how much needs to be done to create opportunities for people in all countries of the world.

In last year's Founder's Letter, we made a commitment to set up a non-profit arm, called the Google Foundation, which we hope to be a lasting symbol of Google's values. As we said then, we hope that someday this institution will eclipse Google itself in overall world impact by ambitiously applying innovation and significant resources to the largest of the world's problems. We are grateful to have had the opportunity in the past year to brainstorm with some of the world's most dedicated and talented philanthropists and social entrepreneurs. We realize that the resources we have in mind, while large for a corporate foundation, are nonetheless small compared with offerings from governments and many non-governmental organizations (NGOs). This only increases our determination to find original ways to extend our assets, so that we can drive scalable, sustainable efforts. We have always been good at using our resources creatively; Larry and I started Google using Lego™ blocks. Thankfully, we now have more to offer, but the underlying principle is the same: Never stop looking for ways to do the best with what you have.

As a result, we believe we need to go beyond the traditional definition of a foundation and combine a variety of approaches - investing in socially progressive companies, making targeted philanthropic donations, influencing public policy, and more. We have therefore chosen to change the Google Foundation name and adopt the broader name Google.org. We are currently working on staffing as well as defining the goals, priorities, and principles of Google.org. We hope to have a lot more to share with you on this front by next year.

In the past year, we've learned a lot about how to run a company like Google, how to attract the best people, and how to arrange our efforts for the best result.

But all credit, of course, goes to our fellow Googlers. Throughout a year full of potential distractions, you demonstrated unwavering focus on the work at hand, dedication to our mission, and often soaring vision. We are honored to work with you.

****************************************

If Google were a person, it would graduate from high school in 2016. Given a typical life span, it would expect to be around for almost a century - or more, thanks to continual innovations in healthcare technology. Today, it would only have seen a glimmer of its full potential.

We're just getting started.

Larry Page

Larry Page

Sergey Brin

Sergey Brin

1 Often noted is the case of Shuji Nakamura. The inventor of the blue LED received a bonus of around $200, while his company retained rights to the patent. Last year, he reached a legal settlement with his employer for $8M.

2 A Google Stock Unit (GSU) is a contractual promise made by the company to an employee to issue a specific number of shares to that employee at some future date, after they are vested. Unlike an option, which gives an employee the right to purchase a share at a given time for a set price, GSUs are already shares.

3 "How Much Information is There?" by Peter Lyman and Hal Varian, 2003.
http://www.sims.berkeley.edu/research/projects/how-much-info-2003/

Download Adobe® Reader if you have any issues viewing PDF files. Or consider downloading Chrome, a browser with a built-in PDF viewer.