Google is a search engine we use everyday of our lives. But did you know that Google founders Larry Page and Sergey Brin were finding it difficult initially to come up with a business model for the website as it gained in popularity?
John Mullins, an associate professor at London Business School and most recently the co-author of Getting to Plan B: Breaking Through To a Better Business Model, tells DNA how Google tweaked its business model during its initial days to become the highly profitable company that it is today. Excerpts:
Why does the original plan of an entrepreneur, or Plan A as you call it, normally not work?
There is a very funny British humourist called Ali G. He once did a very funny video segment about the idea of a glove that you would wear when you eat ice-cream in a cone. You and I might think that is a silly idea. But he said that it will keep your hands warm while you are eating ice-cream. The ice-cream cannot drip on your hands. And he was arguing that dripping ice-cream is a really serious customer problem.
Many entrepreneurs find that their idea seems just as silly to somebody else as Ali G’s problem of dripping ice-cream. So if we don’t find a way to stand back from the idea and get some real market data about that idea and understand why it really will or won’t work, we just go off happily assuming that it will.
Where does this belief come from?
This belief in Plan A comes from the inherent optimism of entrepreneurs, which comes from the natural human excitement we have when we have an idea that is ours. And we don’t sometimes step back from the idea and look at it objectively or more rigorously to ask a different question, why won’t this work? And if we fail to ask that question, we are going to believe that it works, even though there might be some obvious reasons why it won’t.
Can you give us an example?
The Google story is a fascinating story and it’s actually a good example of what we are talking about. Google began with Larry Page and Sergey Brin, two PhD students at Stanford. They were working on search technology and they thought you could build a better search engine than the ones that existed. So they got a sort of semi-finished version of that built and they put it up on some servers and said, well let’s see if people use it and see how it works and then we will learn from that. Well, people liked it a lot and started flocking from the other search engines that were already there to Google because it gave you more relevant results.
And why was that?
Because the algorithm Sergey and Larry had developed was better. So, as people began to flock to the Google search engine, the PhD students had to buy more servers to carry this additional capacity. Of course they had some PhD grants that could fund some of the cost of doing this. Then they had to buy even more servers. It was getting expensive. So they raised a little bit of capital. And thought, maybe we got to figure out how somebody is going to pay us for something. They did not want customers to pay for search because the minute the search was paid for they thought it would be biased and fraught with not the best results. So they said, who would pay for better search? Maybe the other portals would pay because they have lots of web traffic and that needs to search. So maybe they would license our better search engine and let their users use it, and they would pay. So that was Plan B. Plan A had no revenue model at all. Plan B said, well let’s license this to portals.
What happened once they approached other portals?
They went to several portals and tried to get licence fees for it, but they could not get any meaningful money out of the portals. So Plan B did not really work either. Meanwhile, traffic on Google kept growing but there was really no money coming in. So they said maybe we need a Plan C? How could we find somebody else to pay?
In Plan C they actually stole from a company called Overture in South California. Sergey and Larry were sitting in Northern California. Overture was another search engine that had a different kind of business model. They also had a different search engine that wasn’t nearly as good as Google’s. But they had an interesting idea.
What was the idea that Overture had?
They said we will have objective research, we will also allow advertisers. So when somebody is looking for a tennis racket, we will allow sports goods companies to place an ad so that person can see it. Overture’s genius was they separated the two. So they kept the objectivity of the search, but on the other half of the page they said, here are the paid results. And you the user click on our objective links, and if you want to click on our paid link, you can do that too. And of course that’s where they got some revenue.
And Google copied it?
Google saw that model and said, oh let’s steal that model. So that’s what they did. Now, that is not exactly a rocket science idea. It’s just to put objective search on one side of the page and paid search on the other side. And yet that simple idea was stolen from Overture — and they had to pay Overture, they got sued, but they settled. That simple idea became a business model that would actually work. So that was Plan C.
Comments