Authors: Douglas Edwards
For once, though, Larry and Sergey were unwilling to take the risk. "So we just kept agreeing until we screamed," recalls Alan. "Until they came back with something really egregious." AOL asked for
all
of Google's intellectual property—our code and secret search algorithms—if it ever looked as if we were headed for financial ruin. They had finally gone too far. Larry, Sergey, and Eric were furious at their demand for the very heart and soul of Google. No fucking way, they agreed. Their heels dangling over the cliff, they finally refused to take another step back. Alan recognized AOL's request for what it was: the closing gambit.
"That was the signal Colburn was waiting for," Alan told me. "Did he maximize his prize? Did he get everything he could get? As long as we were willing to give, we were the gift that kept on giving." It was a classic negotiation move. The only way to find the limit was to push past it. Once AOL knew they would get nothing more, the deal could be closed. Miriam was relieved. She had spent thirty consecutive days getting by on two to four hours of sleep each night, and her hair had become noticeably thinner. At one point David Drummond, our new VP of corporate development, had grabbed her wrist to keep her from throwing a pen at one of AOL's attorneys. Even by Google standards, the stress had been nontrivial.
We still needed a final number for the guarantee—the amount that we would pay AOL even if no one clicked a single ad. It was a deep pit into which Google would jump, with the faith that AdWords Select would pull us out before it collapsed. That faith relied entirely on revenue projections for the performance of AdWords on AOL. As CEO, Eric asked for three independent models, one from Susan, one from Salar, and one from Alan. They began pulling numbers from the limited data being delivered by
Google.com
and Earthlink. Neither, however, was AOL, so a lot of their assumptions primarily relied on SWAGs—scientific wild-ass guesses.
Alan was the sales guy. He was born optimistic. He looked at the numbers and saw a baseline. Google and Earthlink didn't have AOL's traffic or reach and their websites were not oriented toward consumer purchasing. People on AOL bought stuff. "I argued that as long as the advertisers were making money, they would create more ads," he told me.
As Susan and Salar saw it, that might be true theoretically, but in reality there were constraints that would prohibit meteoric growth. They plugged smaller numbers into their forecast assumptions. Salar was the most pessimistic; Susan was in the middle.
"I'm sure these are the three best models we could have," Eric said after they presented their scenarios. "And there's no way for me to know who's right. I'm not going to dig into the individual numbers, because I can't add any value there. So we're just going to take the middle one." It was a quick decision and strategically sound, but a gamble nonetheless.
AOL, meanwhile, nibbled around the edges, dragging out talks so that the cost of losing the deal would increase. "Oh, we just caught this and we need to change the language," Alan's counterpart would tell him, referring to wording that had been settled a dozen drafts earlier. Alan knew how to deal with middle managers trying to score points at the last minute to impress their bosses.
"Fine," he replied. "If you care that much about it, you call Dave Colburn tonight and have him call Eric Schmidt." Alan knew no one wanted to disturb Colburn for something insignificant and be lambasted as an idiot. Suddenly the language was no longer an issue.
As negotiations dragged on, Overture continued to jab at Google. The patent lawsuit was followed by a deal with Hewlett-Packard that made Overture the default "search the Internet" link on new HP Pavilion computers. If HP thought Overture was good enough for Internet search, who needed Google? And Overture pushed Yahoo to renew their short-term advertising contract for a longer period. Omid had lost out to Overture with Yahoo once before. Now he burned to bring that business to Google. He would excuse himself from the negotiating table at AOL to entreat Yahoo on his cell phone to switch to Google's AdWords Select product. The Yahoo contract with Overture would expire in June, so he knew time was short.
On April 24, 2002, Overture issued a press update on AOL. The existing agreement, which had been set to expire, was being extended through May 1, 2002.
The next day, Overture announced they had renewed their deal with Yahoo. Two months early. The term was not the five months of the original agreement, but three years. It was a stunning surprise, and it rocked our world. Rumor had it that Overture had taken Yahoo's execs golfing and, over the course of eighteen holes, scored a major victory. Larry and Sergey had been blindsided by Yahoo again. They took it well, considering. No one died that day.
Overture's Yahoo deal sent Wall Street's analysts into paroxysms of euphoria. Safa Rashtchy nailed the Google coffin shut. Investors had been waiting for the AOL deal and instead got the much more important Yahoo deal! Google clearly had no game. AOL was certain to sign with Overture now.
As May 1 approached, there was some nervous speculation about why AOL had not yet issued an announcement of a deal with Overture. "AOL must be raking Overture over the coals," read one online post.
On April 30, Omid's phone rang. It was Safa Rashtchy. Overture, he said, had announced they were not renewing their AOL contract. Did that mean Google had won it?
"Let me call you back," Omid replied. The deal still wasn't final.
Finally, Omid's fax started humming. Seventy pages chunked out, one text-heavy sheet after another. Miriam checked the document to make sure there had been no last-minute changes and then approved it. Joan signed it. It was done. But not over.
Overture's contract expired on Wednesday, May 1, 2002. AOL and Google were prepared to handle the transition throughout the day so that at midnight AdWords ads would begin filling the holes left by Overture's departure from AOL's pages.
But Overture threw one last wild punch. The contract would end on May 1, they agreed, but at exactly 12:01 a.m. Wednesday morning, not Wednesday night—twenty-three hours and fifty-nine minutes earlier than AOL had expected. "Overture were sore losers," Alan told me. "They said, 'No, no, no. Not at the end of Wednesday—at the beginning of Wednesday. We hate you guys. You're dead.'"
The Google team couldn't believe the depths of spiteful stupidity being displayed. Overture not only gave up a day's worth of revenue but pissed off AOL.
"You guys picked the right horse," Alan assured AOL. "We would never have done that to you." Overture's pettiness had AOL jumping through hoops to advance the schedule by a full day, just in the hope that Google would panic, drop the ball, and send AOL rushing back to their jilted partner. It didn't happen. Google's search results and syndicated ads launched at 12:01 a.m., May 1, 2002, and the world took note.
"The America Online pact now establishes Google as a major competitor in the paid-listings market, which Overture had dominated," wrote the
Wall Street Journal.
Overture's stock dropped thirty-six percent. Inktomi, whose search results Google had replaced as part of the same deal with AOL, dropped twenty-five percent.
"It represents an attempt to capitalize on Google's search brand," rationalized Overture CEO Ted Meisel. "paid listings just came with the package." AOL switched because of the weakness of Inktomi's search results, according to Meisel's spin. Overture was just collateral damage.
Eric Schmidt's choice of Susan's mid-range revenue estimate proved unduly conservative. By the end of the contract's first year, we were far above the highest projections. Part of that success may have been attributable to a small shift made by an enterprising engineer. The day after the deal went live, John Bauer added code that boldfaced the keyword a user had searched for when it appeared in an ad, making it obvious that the ad was relevant. That single improvement increased clickthrough rates by four hundred percent. One engineer. One change. Four hundred percent.
I had plenty to do in the run-up to AOL's switch to Google. All of our advertiser communications had to be revamped; our new, more stringent editorial policies had to be communicated; and numerous slides showing the power of Google and AOL combined had to be prepared. It was clear that marketing had a role to play, and I plugged in to do my part as well as I could. It wasn't very exciting. Sheryl's support team was closer to the advertisers, and Jonathan's new product-management team did the deep thinking about integrating Google with AOL. I and my group were, as Jonathan described us to his team, "the ad agency"—a service bureau for implementing others' strategic visions. There was pressure, though. Everything had to be ready for the launch, which coincided with deadlines for the GSA team and Google answers, a service that used live researchers to answer complex questions for a fee.
I had no complaints, but after two and a half years, my job was taking the shape of a more traditional communications manager in a mid-sized firm. You wouldn't know it watching from the outside, but things were settling into a groove in my part of the Googleplex. Come in, work out, eat breakfast, answer email, put out fires, eat lunch, clean up messes, eat dinner, answer email, go home, write copy, answer email, go to bed.
Sheryl Sandberg, on the other hand, was sitting on a volcano. Her AdWords support team of four people could not possibly handle the incoming barrage of work AOL required. Google ads now had to meet AOL's editorial policies, and AOL was not as willing to embrace risk as Larry Page. They wanted every ad checked by hand before it ran. We had a hundred thousand ads in our system, and every day they didn't run, we lost money we needed to pay off our AOL guarantee.
Sheryl had been planning to double her department to eight full-time staffers. Now when she did the math, she realized she needed forty-seven people—immediately. She would need fifty more soon after that. The day the deal was announced, Sheryl put out a plea for staff volunteers to work on approving ads twenty hours per week for at least two weeks. The engineers offered some resistance.
"Doesn't everyone working here already have a job to do?" asked one, before pointing out that expanding the human component of the system was a flaw. Scaling by adding staff instead of algorithms and hardware would be a mistake. Salar came to Sheryl's defense and pointed out that there was a long list of tools that needed to be created, but not every task could be automated. Besides, Larry and Sergey had endorsed the idea of staff volunteers. Few were persuaded.
With almost no volunteers, Sheryl moved on to plan B. She called an agency and requested they send over fifty temps. Two days after the contract went into effect, dozens of temporary workers sat at desks in the open area we had used for TGIF meetings. Alana Karen from AdWords support stood at the front of the room and started walking them step by step through the process of approving an ad. Mass confusion ensued. The temps had no clue about online advertising, no familiarity with our approval process, and very little computer literacy. And the approval-tool software barely functioned. Sheryl watched with increasing frustration until she couldn't take it anymore. She marched upstairs to confront the half-dozen ads engineers.
"Come on," Sheryl said politely but firmly. "Come with me."
"Wait a minute," the group's manager protested. "You can't just take the entire engineering group with you somewhere."
"You come, too," Sheryl told him, using a tone she had developed as chief of staff to the U.S. secretary of the treasury. The engineers followed her downstairs and stood at the back of the training room as Alana tried to teach the temps to use the approval software they had written.
After a torturous hour, they stepped outside to talk to Sheryl. "The software doesn't work," they admitted. "We're going to rebuild it for you this weekend." Sheryl told the temps they would be paid for that morning and the next day, but not to come back until Monday.
On Monday all the temps came back, but they still weren't up to the task. Within two weeks, Sheryl had weeded out all but one of them.
On to plan C.
Sheryl cast her net at Stanford, which was stocked with recent graduates about to enter a dot-bombed local economy with few jobs. She promised them temporary positions that could convert to full-time if they worked hard and came up to speed quickly. The temp-to-hire program immediately took off, and dozens of history and sociology and philosophy majors unexpectedly had something to do the day after graduation. They would be AdWords reps.
Meanwhile, Eric Schmidt, the enormous AOL guarantee gnawing at his serenity like an ulcer, hovered about Sheryl's cube asking for updates. "So, how many advertisers do we have?" he'd ask. We needed to add tens of thousands to catch up to Overture.
"We're here," Sheryl would reply, pointing at a number on a spreadsheet.
"How many advertisers do we have now?" he'd ask a few hours later.
"Not many more than the last time you checked," Sheryl would say with the patience of a mom answering her child's query "Are we there yet?" We didn't pass Overture that first day, or even the first week, but it wasn't long before Google's ad network was as large as that of our biggest competitor.
More advertisers generated more ads, which required more AdWords reps to approve them. Sheryl's universe expanded from the AOL big bang until it filled half a building, and still it showed no signs of slowing. By October 2002, we had rented additional space in a facility as large as the one we already occupied. We officially called it the "Saladoplex" because it was on Salado Road, but everyone knew it as the "Honeyplex," because so many of the recent college grads Sheryl hired happened to be women. The outdoor patio lent itself to sunning on the warm California afternoons, and some AdWords staff members exhibited a predilection for clothing that facilitated tanning. Many a male engineer made the ten-minute walk from the Googleplex to enjoy lunch in the Saladoplex café.