Google Part II: Alphabet

Introduction

0:00Are you intentionally wearing a black turtleneck for this one? No. It is actually going to be one of my carve-outs, though. Yeah, amazing. What, you think I dress up like Steve Jobs for a Google episode? Well, I thought because of the war between Android and... I walk in and there's this smirk on your face.

0:19All right, let's do it.

0:30Welcome to the summer 2025 season of Acquired, the podcast about great companies and the stories and playbooks behind them. I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts.

Google History

0:47In the late 1990s, Google built the best search engine for the rapidly growing internet. With a breakthrough search algorithm, low-cost servers based on commodity hardware, and the best business model of all time, search ads, they turned that search engine into a cash-gushing business and took it public in 2004. But then, curiously, they started doing some things that weren't related to search. They launched a breakthrough email service in your browser with Gmail. Maps that were far superior to the current state of the art.

1:17Docs and spreadsheets with real-time collaboration for the first time. Of course, YouTube, then Android, and their own web browser with Chrome. Astonishingly, today, Google has 15 products with over half a billion users. Seven of those have over 2 billion users. David, that is over 25% of humans use seven of Google's products. Just unreal. Can't wait to tell all of these stories today. Yes. And they've also launched some colossal failures.

1:49Google Plus to try to compete with Facebook. Google Wave, Buzz, and about half a dozen messaging apps. I don't know, maybe a dozen messaging apps over the years. Hot air balloons to provide wireless internet. And of course... Oh, man, I forgot about the hot air balloons. Google Glass.

2:06Can't forget about that one, unfortunately.

Google's Strategy

2:08So why did they do all this? And as a business, Google was and still is the company that makes the vast majority of their money from ads on search results on the web. So today, we tell the story of Google as the innovation factory of the 2000s. Their reorganization into the parent company, Alphabet, and how all these different products cleverly serve different business purposes. And also, how it feeds into Google's original core mission, to organize the world's information. And we'll end this episode's story right at the dawn of the AI era.

2:41Ooh, you're giving away the end. Oh, spoilers. Sorry. So is Google a search engine? Is it the platform company of the web era? Or is it an incubator that just happens to have struck gold with search and perhaps AI? Today, we dive in. Whoop. Well, listeners, if you want to know every time an episode drops or get early hints at what the next episode will be, check out our email list. That's also where we share corrections and updates about previous episodes. And we are adding a new bonus. You get to help us vote on future episode topics.

3:14So the first poll is going out soon. Sign up now at acquired.fm slash email. Join the Slack if you want to come talk about this with us and the whole Acquired community. Acquired.fm slash Slack. So with that, this show is not investment advice. David and I may have investments in the companies we discuss. And this show is for informational and entertainment purposes only.

Alphabet Story

3:35David, where are we starting this alphabet story? Oh, I have a very, very fun beginning for you, Ben. I want to start with a quote from Russ Hanneman. The fictional character? From the Silicon Valley HBO show. Oh, yeah. From the TV show. Awesome. And the quote is, If you show revenue, people will ask how much. And it will never be enough. The company that was the 100Xer, the 1,000Xer, is suddenly the 2X dog.

4:07But if you have no revenue, you can say you're pre-revenue. You're a potential pure play. It's not about how much you earn. It's about what you're worth and who's worth. Most companies that lose money.

Russ Hanneman Quote

4:18Immortal words of wisdom for the technology world. God, that show is so good. Why do I bring this up? Why do I start here? Why are you talking about this? Google is a cash-gushing machine. Revenue is obviously not the problem for Google. But what was the problem in 2004, 2005, 2006 was being viewed as, in Russ's terms, pure play. When Google went public in fall of 2004, the stock shot up, basically doubled in two months.

4:49Wall Street loved Google. AdWords, the search business model. Everybody had to own shares. Google had cracked the code on monetizing the internet. The more people use the internet, the more they search, the more they search, the more money Google makes. Simple, easy, pure play, you might say. That is until Google announced fourth quarter 2005 earnings. Full year 2005 revenue, $6.1 billion. That's almost double the 3.1 that it was in 2004, the first year it went public.

5:24But earnings are flat. Profitability is down. Google is now investing in all these new products and services. Gmail, Maps, the forthcoming Google Docs. Later this year, in 2006, it would buy YouTube for $1.6 billion. Wall Street hates this. Hates it. This is a huge amount of their cash they're putting back on the table and betting for the future. So, this is January 2006. The stock falls 27%. Wall Street's like, God, these guys, what are they doing?

5:56They're messing it up. Stephen Levy writes in the Plex that the perception of Google's Ventures Beyond Search at the time was that the company was tossing balls into the air like a drunken juggler. They were a pure play in investors' eyes, and now they're messing it up. They're adding all this other stuff.

Google's Motivation

6:13They don't want the other stuff. So, then, Ben, as you teed up in the intro, the question is, why did they do all this? And I think the way to answer it is to start and just tell the stories of all the individual products. Let's do it. Strap in. I will say, David, doing the research took me way back to early acquired grading acquisitions. This is the cornucopia of hits of iconic product launches in tech history. So, the first, and probably the most important here because it sets the stage for everything else, the first major non-search product was on April 1st, April Fool's Day, 2004, Gmail.

6:47The most famous, infamous, non-joke, April Fool's Day announcement of all time. Yes. But it sure sounded like a joke. Here's the announcement in 2004. Entirely web-based email in your browser. You can log in and access it anywhere on any device. Google search is built in. You don't need to spend all this time sorting your mail into folders anymore. And one gigabyte of storage free.

7:18No need to delete your mail. No need to clean up your inbox. No need to do anything ever. And the whole thing is free.

7:28Of course, this sounds like a joke. This is too good to be true. The universe at the time is Microsoft sells sort of enterprise-grade mail for a lot of money. Or there's all these free web-based services popping up, like Hotmail, that Microsoft would end up buying. And Yahoo Mail and AOL. You get like five megabytes of storage. Yeah, not even. At the time, Hotmail, which, as you said, Microsoft owns, had two megabytes of free storage. And Yahoo Mail had four megabytes. There's another great story in the Plex that Stephen Levy has.

8:00He's interviewing Bill Gates at the Newsweek headquarters office in New York shortly after Gmail comes out. And then they started talking about Gmail, and Bill can't believe it. He's, like, offended by Gmail because he thinks that giving people all this storage is just wasteful. You're doing email wrong. It's morally repugnant to leave all of this email sitting on the servers. I was thinking about it. Until Gmail, the paradigm for email, people treated it like regular physical mail.

8:32You sort it, you file away the important stuff, you throw out the pieces you don't need anymore. I mean, even freaking Bill Gates operates this way. So Gmail, this is radical. This is a radical notion of how email should work. And it was also correct. I mean, if you sat and you thought about it in, say, 2001 or so, when Gmail starts getting worked on within Google, and you thought about the combination of the growth of the internet, which obviously Google has a front row seat, too, and Moore's Law, you would logically come to this conclusion that the cost of sending and storing and searching email

9:08would asymptotically go to zero. And thus, as that happened, a whole lot more email was going to be sent in the world. Yep. So can I tell you my understanding of where this story starts in 1996? Oh, I was going to go back to 99, but yeah, go for it. All right. So I know you're about to bring up the name Paul Bukite. Is that right? Of course.

Paul Bukite Story

9:31Yeah.

Paul Bukite Story

9:31So Paul was kind enough to speak with me before recording this episode. Paul famously the inventor of Gmail. In 1996, Paul was a student at Case Western Reserve University in Cleveland, which you may also know this, David, famously was one of the first- Ohio Strong. Yes. The first campuses in the nation to have broadband internet in the dorms and all over campus. Oh, okay. I do about the Paul fascination with web mail starting in college, but I didn't realize that Case Western had broadband. So this is why.

10:02When you're living in the universe of broadband everywhere, he was living like 15 years in the future temporarily for four years in college. Yeah, 1996. Yes. So he realizes email is kind of a bummer if it's a thing that you download and lives on your computer. The information should just exist at my fingertips all the time. Bits are becoming free to move around. So he kind of gets obsessed with this idea in college that email should exist on the web

10:35in a browser without ever having to download it. And he builds a prototype for web mail when he's in college. Wow. In 2001, famously pre-IPO at Google, Larry Page feels like Google is moving a little bit too slow and gets rid of all engineering managers. So Larry and Wayne Rosing, who is leading engineering, go and meet with each engineer individually to talk about ideas that they could work on. This tells you so much about Googliness, but it also tells you a lot about the caliber of

11:06the engineers they were hiring at the time, where they would just approach them and say, what ideas are you thinking about? Here's some ideas we have. Can you just full stack own this product entirely yourself? And so in Paul's meeting, they knew about his previous interest in email and web-based mail, and they sort of float this amorphous idea to him. And that's where it comes from. Ah, so Larry and Wayne suggested it to him. Interesting. Okay. So here's some other stuff that Paul said. So part of the motivation was that they were looking to make something that would make Google

11:37stickier. So you'd have sort of this ongoing relationship for if there was a next Google after Google, there was some reason why you would still have a relationship. Which obviously, you know, Yahoo would have for many, many years, even though there was a next Yahoo after Yahoo in Google. We still get emails from people with Yahoo mails. Do you know how Paul found out about Google in 1999? Oh, no. Slash dot. Really? Yeah. That's awesome. And then he sends an email to jobs at Google dot com. Unbelievable. Fitting that, you know, he gets hired with an email.

Gmail Development

12:09Hey-o.

Gmail Development

12:09Okay. So, 2001, Paul gets to work with encouragement from Larry and Wayne. Do you know what the original seed of the code is? Oh, no. Go for it. Google had just bought a company called Deja News, their first acquisition. It was the corpus of all the old Usenet posts. Oh, yeah. And then this becomes Google Groups, right? That's exactly right. Yeah, and Paul's working on that. And part of that was a feature to do real-time indexing of all the posts that would allow you to search the whole corpus. So, Paul just applies that to his own personal inbox.

12:43The first instantiation of this is just a search box to search his personal Unix mail directory as if it is the old Usenet posts that they had just bought. That's the first version of Gmail. Amazing. As he's building on that, though, obviously, like the first thing he needs is a web front, an interface. Okay. Hotmail's out there. Yahoo mail's out there. Webmail's out there. It sucks. It sucks for a lot of reasons. There's got to be a way to make it better, make it more performant and better to use as

13:15a web page. And so he's playing around with JavaScript and what he can do with JavaScript to make this application, this web application of email, better. The history of JavaScript is fascinating. Brendan Eich created it at Netscape back in 1995. We did a whole episode with Brendan years ago about this. The idea behind JavaScript was to include a programming language as part of web browsers so that people could make dynamic web pages instead of just static HTML documents. The problem was it was kind of this casualty of the browser wars with Microsoft and Internet

13:48Explorer and everything that killed Netscape. And so up until this time, kind of 2001, JavaScript existed, but like it wasn't super popular. It wasn't very powerful. You could do weird stuff like animate something on the page, but I would describe it as toy like and not a real programming language for sure. Yep. And for what the web was up until that point in time, you didn't really need it. Static web pages are kind of fine for most of what's happened. I mean, even Google.com was static. You type a search into the search box, Google servers process the query, and they send you

14:18a whole new static web page with the results. But you'd imagine for doing something like email on the web or any application on the web, you don't want the site to reload every time you open a new email or you create a draft or you move something around in folders. You might want to move from a website to a world of web applications. Yeah. But this is how Hotmail and Yahoo Mail worked. Every time you took an action, it reloaded the page. And so they were super slow. And so Paul's like, maybe I can use JavaScript to make this better. He's working on it and he discovers a little known feature of JavaScript called the XML

14:52HTTP request, which lets a web page fetch automatically new XML data from a server without reloading the page. And Paul's like, oh my God, this is gold. And this is the birth of Ajax, asynchronous JavaScript and XML. So David, I assumed you were going to go here. I thought that you'd get it all laid up. You've been letting me go.

15:23You've just been feeding me a rope the whole time. You trying to tell me that Gmail is the first Ajax application? Well, the first widely adopted around the world. That's fair to say. That sort of set the bar for what dynamic web 2.0, you might say, websites could be. Yes. The origin of the XML HTTP request is a part of Internet Explorer, first implemented by Microsoft, and used in this part of Outlook called Outlook Web Access. I think I did know this.

15:53When I worked for my high school, I could log in on any computer into my Outlook through their web access, and that thing used Ajax. And I think it only worked in Internet Explorer. So that is the origin of why this API exists in the first place, ironically for another mail client. Oh, not just for another mail client. It's so deeply ironic that this originated for a Microsoft mail client. Yes. We're going to get deep into that in just a minute here. So, I mean, when Paul discovers this, this is almost like Google search all over again

16:27when people realize what you can do to create something that looks and feels and has all the functionality of an application that heretofore would have been a program that you installed on your personal computer. A .exe or a .app on your Mac. That maybe you downloaded from the Internet, but more likely you went to a retail shop like CompUSA or something installed on your computer. You can now just do this in a web browser. This is incredible. The web is the platform of the future.

16:58Yep. So Paul builds the prototype, shows it to Larry and Sergey. They're super jazzed. So supposedly Larry and Sergey become the first beta users of Gmail. They are the seed Gmail users and they start using it exclusively as their mail service within Google. And then by the time it launches publicly, all of Google is on Gmail and using it addicted

Gmail Launch

17:21to it. And it wasn't called this at the time, but it's in the cloud. You don't have to have your mail stored on your machine or a specific server. You can log in, access it anywhere on any network, any device. All of this stuff sounds so boring, but it was completely breakthrough. So obviously Larry and Sergey are jazzed. First, because of just the incredible nature of this product. And Larry, especially, he is a product person. And his view is if we can build a better product and it's on the web, then it's good for Google and we should do it.

17:51And that is a huge part of the motivation underlying Gmail and everything we're going to talk about. But there's also another reason, and that's Microsoft. Because Google was doing great printing money, AdWords search, greatest product, greatest business of all time. But they've got a big risk, which is that everything about Google, everything about the web right now flows through Microsoft, flows through Internet Explorer. Yeah, Google's entire money printing machine was built on top of Microsoft's and at two

18:26layers. So to this point, over 90% of Google search queries were done on Windows PCs and 90% were done in Internet Explorer running on those PCs. So Google's got the killer app for the web in search. And the thing under them is a browser owned by Microsoft. And the thing under that is an operating system owned by Microsoft. Yes. They exist at the pleasure of Microsoft at this point in history. And Microsoft has a different business model. So Google's business model, the greatest of all time, is people use Google search, they

19:00discover more of the web, they spend more time online on these new sites and services that they're discovering. As they're spending more time online, they search more. Searching more leads them to discover even more new sites and services. The cycle repeats itself and Google just monetizes the whole thing. Yes. And web usage isn't bad for Microsoft. But if the platform of the next generation becomes the web and people are writing web applications instead of Windows applications, that makes Microsoft's platform a lot less

19:31valuable versus other operating systems like, say, Mac or, say, a future where we change away from desktop computers altogether. Yes. At a minimum, Microsoft doesn't business model-wise care about the web because they don't monetize the web. Microsoft makes money by OEM selling PCs that have Windows on them. And then Microsoft sells software that goes on those PCs. So at a minimum, they don't care. And at a maximum, like you're saying, web apps are at existential risk to Microsoft.

20:03Oh my God. There's a future application platform that just doesn't really require our participation other than the fact that we control IE. And at least for now, that's really important. And most of Microsoft hasn't realized this yet. Thank God for Google. Microsoft's distracted with the albatross that was Longhorn that would become Windows Vista. A few people in Microsoft realize this, but Google for sure realizes this, though. Eric Schmidt for double shore realizes it because he was the CEO of Novell before coming to Google.

20:34And who is Novell's competitor? Microsoft. And Microsoft crushed them. So why Google's so jazzed about Gmail, they need to build up leverage with consumers, with users, that they're going to demand rich web applications. So that if Microsoft ever tries to disadvantage Google or disadvantage web apps and things moving to the web, really the only defense against that is if consumers have already adopted this stuff and love it and would revolt. And so this is what Gmail is.

21:04So Gmail developments trucking along through 2001, 2002, 2003. This is hard to remember now. It took three years to develop Gmail. Long development cycle. Yeah. To be ready to release publicly. And then it was in beta for like 10 years. Yeah. But I think the reason it took so long was this was all new. There wasn't a lot of depth of knowledge out there about JavaScript, certainly not about AJAX and XML dynamic refreshing. It was really hard to program. Today, you've got all these nice abstraction layers, these frameworks that people have built

21:37to do web development. That really didn't exist to make AJAX applications. Yes. Okay. So Google's finally getting ready to launch it. We're in 2004. There's a couple questions. One, the service. For all the reasons we just described, Google, Larry, Sergey, Eric, they want it to be so compelling that consumers demand it. It takes off like wildfire. It builds this strategic mode against Microsoft. But it will cost money. There's a reason other people don't do this. Yeah, there's a reason that a gigabyte of free storage seems a little crazy.

22:11Even if you assume, and I think this is probably directionally correct, that because of Google's commodity infrastructure advantage, they could launch Gmail at like one-tenth of the cost that anybody else could. Also, remember, there's no public cloud at this point in time. So you'd have to go build your own data center to do this. You can't just launch on AWS. There is no AWS. But even assume that Google has a 90% cost advantage on the infrastructure side. The state of the art is other competitors are offering four megabytes of free storage.

22:43Google's going to offer a gig. Sure, knock that down by 90%, but the effective cost is still 100 megabytes. So how do you get around being flooded with costs and infrastructure demand when you launch it? They come up with the invite system. And this is so brilliant. I actually don't know if it was designed as this sort of prestigious growth strategy thing that it became. Anyone got any Gmail invites? Please, I'll do anything. Yeah, yeah, please, please, please. Or if it was truly because of the infrastructure cost.

23:14Either way, it's just brilliant. When they launch it on April 1st, 2004, they send out 1,000 seed invites to Gmail. It's a private, invite-only internet service. They send them out to influencers. You know, the term didn't exist back in the day, but influential people and journalists. And then each user has a set number of invites that they can give to other users to invite their friends. And it was low. It was like five or something. And then it wasn't clear when they would top back up, but you'd give out your five.

23:48And then at some point, you'd come in and you'd have five more. You'd have three more. It was like super dynamic and very clearly whatever Google felt like they could give away from their servers at the moment. Yeah. But it was so brilliant. It made it feel like you're in this special world of people in the know that super incentivized viral word-of-mouth growth because I'm telling you, it's a gigabyte of free storage. It's this incredible service. They're selling on eBay for $150. There was a monetary value to these things. Yes, yes. They were trading on eBay for average price of $150 in the early days.

24:23And so I'm giving you this gift. Incredible. And look, everybody wants this, but you need to have the product quality that caches the check. Yes, it needs to be a real gift. Right. And it was. It was just better. It wasn't just something I'd sign out for and then churn and be like, cool, I locked in my username or whatever. It was something that you actually used every day or in the words of Larry Page, pass the toothbrush test. It was a part of your daily habit, something you do once or twice a day. I wish I could only refresh Gmail once or twice a day.

24:58So, David, was this the first software that used a waitlist like this? Because obviously it's become very popular since. I think so. So that's how they take care of the cost side of the equation is not running out of control is the invite strategy. Well, still not making any money, though. That's question number two. How are we going to make money from this thing? Because, yeah, OK, there's all these strategic reasons to do it. It'll increase more traffic on the web, time spent. People will search more. We'll make more money indirectly. But they still don't really know that. So they think, OK, we need a monetization strategy baked into the product itself.

25:31Well, how do you make money from anything at Google? This actually came up during development. So even in the prototyping phase, Paul logs into the database of ads, which is just funny that at that point in time, Google's got this big database of ads. Right. Yeah. I'm just going to access the ads database. You know, all of them. Yes. And these are the ads that would run when you searched and landed on a search results page. And so he decided to do content matching against your inbox and just show those ads on the page next to your email.

26:02And even though they weren't meant for that, it actually turned out that these search ads were pretty relevant. It actually was a decent ad to be showing you while you're looking at your inbox about similar topics. So he just rolls this out. Even though all these people in Google are actually using it as their mail client at the time, people were pissed. I mean, people were like, are you looking at my emails? You know, all the things that would then sort of come later in the public actually happened inside Google first. But Larry and Sergei loved it. They were like, oh, this is so obviously the answer.

26:32Interestingly, this experiment predates AdSense. So Google has the display ad offering for website publishers that's called AdSense that's different than AdWords, which is the keyword advertisements on a search results page. AdSense hasn't launched yet. And there's sort of multiple versions of history here. How much credit for AdSense does Gmail get in discovering this? But it is safe to say that the idea of display ads that are content matched against your Gmail did contribute to the idea for the first version of AdSense, which are essentially the same thing.

27:06Content matched ads just on a publisher website instead of the content of your inbox. So the product launches publicly April 2004, as you would expect. People go nuts. It is truly a revolutionary product. And Gmail grows over the next 20 years from that 1,000 initial public beta user seed base to over 2 billion today. And it's still by far the best email service.

27:37Even if you use another front end for your email for your Gmail like Superhuman or whatnot today, you still want Gmail on the back end, at least as a consumer. Yes. So once Gmail starts to take off, Larry and Sergey and Eric see this and they're like, wow, we should do this a lot.

27:59Let's go. Like, let's build as many web applications as we possibly can imagine. What else can go into the browser that we didn't think was possible before? This fires on every single cylinder for us. Most importantly, grow the web. Grow usage. You grow the web. You grow time that people spend in web browsers. They will search more. We will make more money. And beyond that, with some of these products, like Gmail, we can monetize the products themselves.

28:32Great. Two, we are building our strategic moat against Microsoft. The faster that we get the internet using public to fall in love with and use web applications, the less and less leverage Microsoft has over us. To use sort of Ben Thompson speak, Google realizes the web can become the point of integration. Maybe the OS isn't what the whole universe has to target. The hardware makers, the OEMs, the application makers, the users.

29:05If applications start living in the browser, then the web can become the point of integration. Users just need a browser. And OEMs just need an operating system that can access the browser. And what's so great for Google, because of their business model, sure, it's great when they build and own and operate and run and monetize web applications themselves, like they do with Gmail, like they'll do with Maps, like they'll do with Docs, like they'll do with YouTube that we're about to talk about. But if they don't, it doesn't matter, as long as anybody does it.

29:37They just need to be wind at the back of web adoption. Yes. So that leads to a whole flood of Google web products and services to come.

Sentry Sponsorship

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30:26Yep. Crashes can be a massive problem in AI. If you're running a huge compute job like training a model and one node fails, it can affect hundreds or thousands of servers. Sentry helped them detect bad hardware so they could quickly reject it before causing a cascading problem. Sentry also enabled them to debug massive issues in hours instead of days so they could get back to their training runs. And today, Anthropic relies on Sentry to track exceptions, assign errors, and analyze failures in real time across all of the primary languages used by Anthropic's research teams, including Python, Rust, and C++.

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31:42That's S-E-N-T-R-Y dot I-O slash acquired. And just tell them that Ben and David sent you. Yes, and they're offering two months free to all acquired listeners. Yes. Thank you, Sentry. All right, David. So, Gmail. We've got our existence proof of a Ajax-based web app. It's going viral. People love it. We can really build web applications now. Let's go nuts.

Google Maps

32:08Yes. So, the next big web apps following Gmail were Maps, Docs, and Spreadsheets. All absolutely incredible. And it was not clear that these things were possible with web technologies. These required incredible technical and product vision. So, first, Maps. We actually did a whole acquired episode back in the day just about Google Maps. The three companies they acquired. Yeah. It starts in 2003. So, even before the Gmail launch, when a young associate product manager, APM, at Google named Brett Taylor. That Brett Taylor.

32:48Of course, of ACQ2 fame, Brett Taylor. Yes, recent ACQ2 guest, Brett Taylor. Oh, yeah. Also, friend feed founder, Facebook CTO, co-CEO of Salesforce, chairman of OpenAI. Former chairman of Twitter. Yeah, yeah. That Brett Taylor. Starts his career out of Stanford in 2003 as an associate product manager at Google. He ends up going to Larry and is like, we're missing out here. Sure. AOL has MapQuest, which they've just bought for a billion dollars. And I'm hearing through the grapevine that Yahoo is about to make a big push and launch Yahoo Maps.

33:29And so, as you would expect, Larry's like, oh, yeah, well, is this a web product? Yes, of course. Go do this. For all these things we're studying here, there's a business rationale, which might be extremely indirect, but it's there. This idea of increasing web use increases Google search, which increases the money printer. But then there's also an abstract rationale, which is our mission is to organize the world's information and make it universally accessible and useful. And Maps is squarely in the middle of that.

33:59Yeah. Now, the thing was, as big as MapQuest and Yahoo Maps were about to become at the time, and they were big. I remember using them. My parents used them. Everybody on the Internet used these services. They weren't what you think of as Google Maps today. They were static web pages. Yep. They didn't use AJAX. And the whole point was to get driving directions. That you could print out. Exactly. And the business model for these services was on the printed piece of paper that people would print out. You would put ads on there.

34:35Yep. It's like a Trojan horse newspaper business. Right. So Brett and Larry and Marissa are looking at this like, I think we can do better than this. So they go out and they buy a little company in Australia called Where To Technologies, which was started by these two brothers, Lars and Jens Rasmussen. Yep. Who were incredible engineers. And they had built a real-time interactive Maps application, except it was a installed desktop app.

35:12And so they're meeting with them and Larry's like, okay, this is what we want, but we need it on the web. I think actually the quote was, we like the web at Google. And this is how good of engineers the Rasmussens were. They go off and in, I think, three weeks, they rewrite and re-architect the entire application to run as a web app. And they basically independently discover and implement a lot of the JavaScript and AJAX features that Google was working on internally for Gmail.

35:44Gmail still hadn't launched yet. Amazing. So Google ends up buying Where To, that becomes the core of Google Maps. Around the same time, they also acquired two other companies, Zipdash, that did traffic data, and Keyhole, which would become Google Earth. Now, Google Earth was an installed desktop application. Ultimately, everything that Google Earth was building would get folded back into Maps later. It's actually not true. I thought that, and just last night, I realized you can still go to earth.google.com and get a completely different 3D experience than Google Maps.

36:19Oh, no way. It's all in the web now. It's unbelievably powerful. Oh, so it is a web app, but it's separate than Maps. Yes. Oh, I didn't know that. Oh, I got to check that out. It's amazing. That's awesome. Yes. Keyhole and Google Earth, I think, is my favorite part of our first Google episode earlier this year, that the whole thing ended up just being a Trojan horse downloader to get Google Toolbar installed on Internet Explorer on people's systems. They're organizing the world's information and making it universally accessible and useful, but also it comes with Google Toolbar.

36:53Yeah. The greatest distribution hack for Google Search of all time. Yes. Anyway, back to Google Maps and where to. February 2005, Google Maps launches. People go nuts. A live mapping, dynamic web application. Do you want to know my favorite Easter egg for the first day launch of Google Maps? I don't know if you know this. When you loaded up maps.google.com, do you know what visually you saw? I have no recollection. You saw a great big ocean and North America and then floating in the middle of the Atlantic Ocean, you see the UK and then there is nothing past it.

37:33They hadn't built it yet? They hadn't built it yet. Europe, Asia, Africa, not included. It's not even like it's off limits. It looks like there's an ocean where Europe should be. How do you decide what the MVP is, the minimum viable product to ship on the map? It's amazing. All right, there's one more really important piece of maps, which is the next year in 2006, they released the API. And this is what really kicks off the Web 2.0 era.

38:09Gmail and JavaScript and Ajax had inspired developers out there for sure to make richer web apps and people were doing that. But when Google releases the maps API, this thing called mashups starts happening. You remember this? Absolutely. It's now super easy to grab Google Maps and build stuff on top of it. And it's really hot. And this enables startups. So like Zillow, Uber, eventually DoorDash, Airbnb, think about all the companies that just couldn't exist without the Google Maps API.

38:46There was that whole web of geo-related companies, too. Remember that era of mobile, social, local, most solo? Oh, yeah. Foursquare and Gowalla. Yeah, all those. All this existed because Google Maps existed. So back to Google's overall strategy here and adoption of web apps and sort of building this moat and defense against Microsoft, this is just incredible. I mean, here's Maps itself as a first-class, rich web application that tens, eventually hundreds, today billions, two billion-plus users use and love every day.

39:25And now here's this API that's making it really easy to help other startups and other companies go build great web apps, too. The lock-in just keeps getting deeper and deeper and deeper for the web. Yep. And at first, the API was notoriously free or very inexpensive at very high limits for a long time. That's different now. But for the longest time, it was just, this is a part of the mission, so we're doing it, and we'll figure out the business later. It was a very sort of founder-driven thing. Now it's popular to create maps.

39:57I mean, Apple at some point flipped into doing it, and there's these sort of other third-party companies, and there's the OpenStreet maps and all this stuff. For the first five to maybe eight years, Google was kind of the only one that had a passion for this and a willing to spend into the giant hole that you need to create maps of the whole world. I mean, is it an incredibly hard data and engineering problem? And, you know, they had to go draw all their own maps from scratch, acquire the data, figure out how to get fresh data all the time, create a crowdsourced crazy thing among Google Maps explorers or something like that, all the people that would update these things.

40:34This is an extremely googly problem and a founder bet to be like, nope, we're going to go spend hundreds of billions of dollars on this. Drive cars around, taking pictures of everything, figure out how to not overshare personal information on this, do it dynamically because you're capturing a huge amount. I mean, it's just, it's a wacky, wacky engineering problem that is daunting, and they took it on. Yep. And we're not going to talk about this today, but put a pin in for the next episode, is one of the most incredibly strategically valuable data assets for the AI era and specifically for self-driving cars.

41:15Yes. But today, Maps has over 2 billion active users this year. They don't break out revenue, but estimates are that Maps does well over 5 billion in revenue, maybe even 10 billion in revenue. The larger part of that is ads. You see recommended places to go around you all the time whenever you open Google Maps now that are sponsored ads, just like on Google Search. And then the smaller part of that is from the API licensing, David, that you were talking about. But this is a real business for Google today. Yep. All right. Next ones that we got to talk about. Docs and spreadsheets. So these aren't the biggest Google apps out there today. I think if you'd lump them all together into Workspace and AdDrive, it is over a billion users.

42:00That whole suite is among their most used products. That whole, what do you call it? Office suite? Is that what you would call it? Yeah. Sounds like an office type suite. It's a good idea. Someone should do that. So docs and spreadsheets hit Microsoft right where it hurts. Office. So people have tried both before Google and after Google to compete with Microsoft in productivity forever.

42:31WordPerfect, Lotus Notes, Lotus 1-2-3. We talked all about that on our Microsoft episode. By the way, WordPerfect, acquired by and run by Novell, who is the CEO of Novell, Eric Schmidt. Eric knows all about this. But here's what I will say, David. If you were starting on the foot of competing with Microsoft or trying to build a word processor or trying to build a spreadsheet, you would be doomed for failure. What Google was doing was saying there is something that is uniquely possible with web applications and AJAX in this Web 2.0 era for the first time, and that thing is real-time collaboration.

43:13Real-time multi-user collaboration. These were the first I've tried to rack my brain. I talked to Sam Chilis, the founder of Rightly, which Google acquired, which became Google Docs. He believes these were the first real-time multi-user collaborative pieces of software in history. It just wasn't possible before the web. Yeah. Jonathan Rochelle, the founder of the company that would be acquired that would become Google Spreadsheets, basically said the same thing. His comment was, we actually didn't know if it was possible to do this in the web. Google said, based on the success we're seeing with Gmail, I bet we could do actual spreadsheets in the browser with real-time collaboration. And when the Sheets team came in, it was truly an open question of, can we make it so you and another person can party on the same very basic spreadsheet at the same time?

44:08Interesting. The Docs team, so Docs was an acquisition. It was a company called Rightly that was founded by Sam and his two co-founders who were great programmers. They've worked together for many years. I used Rightly before it became a Google product. No way! You were like one of very few people who did that. Yeah. Because it was not an independent company for long. Product launched August 2005. Google bought the company in March 2006. So you had about a six-month window. Wow. But yeah, they built real-time collaborative word processing as a web app inspired by Gmail and everything that was going on at Google.

44:46The whole company started as, oh, for our next project, let's explore what we can do with JavaScript and Ajax. And, oh, what would it be like if we put a word processor on the web? They weren't actually even thinking about collaboration at first. But then as they were working on it together, they naturally started collaborating and thought, oh, this is the killer feature. That's funny. That's different than the spreadsheets team. And their whole thing at first was, we're not going to make a better spreadsheet than Excel. So if we put it in the web, it has to be about sharing and collaboration.

45:19Yep. And so to your earlier point, nobody can compete with Microsoft in productivity software. One, because they'd been doing it so long. They had this feature wall of so many features that people needed. Two, proprietary file formats. They had a network effect of the file format. You built your big model in Excel. Good luck. Other people need to be able to run it on their installed desktop applications. Good luck getting somebody to try downloading or buying a new piece of software and installing it on their machine.

45:53But three, I mean, the biggest by far, the enterprise agreement. This is Microsoft's whole entire business model. Right. You don't have to be best in breed in any specific thing. You just have to be a platform with everything. Yep. And IT departments will buy it. And especially for productivity software, really all the money is in B2B and work applications. And so if IT departments are buying the Microsoft enterprise agreement, they're getting everything. Good luck unseating Microsoft Office.

46:23And I'm not sure you could do this as an independent business, because think about how long Google went with these things before they were adopted by bigger companies. For the longest time, it was, oh, a Google Doc. That's like a thing for either you use that for your personal life or maybe like a startup would use it. But even a medium sized company, you can't be serious. Get out of here with that. And Google was basically able to subsidize it because they had a giant existing business. You are so right. Nobody except Google could do this for a whole bunch of reasons.

46:55One, you talk about subsidizing. Imagine trying to build this software as an independent company or really even as any other company. It would require a lot of infrastructure, real time, multi-user collaboration in a web app. Gosh, that seems like really complicated server and backend infrastructure for Google. It's what they do. Running docs and sheets, the incremental load to Google's infrastructure was trivial compared to search. They already had it built out. It was super cheap.

47:26Yep. Two, they don't need to make money from it. This is the big reason why nobody else could compete. Right. Microsoft has all the dollars completely on lockdown because of the enterprise agreement. Big dollars. These small and medium businesses would, of course, pay for something, but those dollars don't add up to be nearly as big. Right. Exactly. Google, though, that's fine. Microsoft can keep all the dollars. All we care about is people use the web. And in this instance, particularly with Office and productivity, really, this is about putting the screws to Microsoft a little bit and distracting them.

48:06And from Google's point of view, this is a cheap distraction. If this gets Microsoft all spun up, Microsoft is now all of a sudden getting asked all the time, what's your web strategy for Office? When are you going to add collaboration to Word and Excel, et cetera, et cetera? They don't have any answers. I literally worked on this. My internship was at Microsoft, and I worked on adding headers and footers to the Microsoft Word web app. We were porting the Windows code to have perfect document fidelity to the web.

48:36So when you looked on the web and then printed from the web, the document would be laid out pixel for pixel, character for character, exactly how it would look on the printed page. When you have that requirement, that is a hard, hard engineering task, and it's still not as good as Google Docs. Right. I love it that this launched your technology career. Yes. Amazing. But yeah, from Google's perspective, this is amazing. Microsoft is now forced to bring their crown jewels to the web, which they don't want to do.

49:10So, and Ben, to your point, because they have to make it look and feel and function exactly like the installed desktop apps, this is going to take them a long time and be a big investment. Fantastic. And no matter what, it's going to be more complicated because with Google, since it's all free, there's no licensing. Someone just shares a Google Doc with you. If you have permission to view it, you view it. With Microsoft, I remember at first it was sort of antithetical. It was like, but what if I haven't bought Word? Can I just use Word for free in the web then? Right. Is Microsoft okay with that? Am I going to hit some weird usage tier?

49:40So it's confusing for users. It forces the company to think about pricing and packaging. It was a masterstroke by Google. Yep. So fast forward to today, it's hard to get real actual apples to apples data on Google Workspace versus Microsoft Office users. But basically, the way to think about the market is that Google has the vast majority of users and usage of productivity software, and Microsoft still has the vast majority of dollars. And that's fine. Google's super happy about that.

50:13Is that true that there's more active users of Google Workspace than there is of Office? Yeah. I mean, I think if you look at users of Docs or Sheets or Slides, it's in the billion-ish, 500 million, billion range for each of those. Office, I think, has a couple hundred million users worldwide. Whoa. Yeah, that's crazy. I didn't realize that. Pretty wild, right? But, to my point about the dollars, so Microsoft's productivity and business process segment, which is mostly Office,

50:50I think LinkedIn is now part of this too, last year generated over $120 billion in revenue. Google reports Workspace as part of the cloud segment. So, all of cloud, inclusive of their infrastructure as a service, all the AI infrastructure, all that. The whole cloud segment for Google last year did about $50 billion in revenue, less than 50. So, Microsoft's productivity segment, 120. Office is the big piece.

51:21And that's high-margin revenue. High-margin revenue. Google's Office products are some small portion of a $50 billion revenue segment. So, yeah, Microsoft's still got all the money. Google's got all the users. And everybody's happy. But you're so right. Everyone is happy. This is exactly what Google wants. Yeah. And ultimately, today, Microsoft is fine with this arrangement, too. The ultimate fun coda, though, is Sam Schillis, founder of Rightly. He would go on to manage all of Docs and Sheets.

51:51And I think he actually managed Maps at some point, too. He is now the deputy CTO of Microsoft. Microsoft. Careers are long. Amazing. The interesting thing, reflecting on Google's actual business here and comparing it against all the things that we're talking about, Google essentially won Search by the mid-late 2000s. I mean, I know Bing hasn't even launched yet, and we'll get to that. But Search was going to continue becoming a more and more giant market. And so, all this stuff they're doing, it's like, oh, we've won, and this market is naturally going to become large.

52:24I guess let's just fuel it getting larger and try to do a bunch of stuff under the umbrella of our mission. But what do we really need to do? And the slightly more altruistic answer, I suspect if Larry Page was sitting next to us, he would say, what is the goal of a company? The goal of a company isn't build the largest business necessarily. It's to fulfill its mission. And yeah, we got a money printing machine from Search, and we're investing a lot of money still in Search and making that better. But all these things fulfill our mission, too. Yep. And I think these things are all true.

52:55Yes. So, on the back of the success of Maps, Docs, Spreadsheets, really starts to inform Google's strategy here. And specifically, they've seen, hey, we can acquire these web app, Web 2.0 companies, bring them into Google, turbocharge them, offer these magical experiences to consumers. We get all this strategic value out of them, both on the offensive and defensive front.

53:26We can operate these things at a fraction of the expense that it would cost anyone else to do so, standalone company or part of other big companies. And some of the things we could buy actually fit into our core ads business quite well. Yeah. What if we went big with this, like really big? Like something super expensive to run that requires storage of massive videos and bandwidth for streaming these massive videos and lawsuit protection.

53:58Yep. Probably also costs a lot to buy it because it's well-funded from Sequoia. That leads us to YouTube. Okay, listeners, now is a great time to tell you about a new friend of the show we are very excited about, WorkOS. Yes. WorkOS is the enterprise-ready platform used by OpenAI, Cursor, Perplexity, Vercel, Plaid, and literally hundreds of other winning companies. So, what are all these companies using WorkOS for? Imagine you're a fast-growing startup.

54:29You've got product market fit, and you're getting inbound interest from big enterprise customers. Very exciting. But then they send you their security questionnaire. Yep. And it's like 47 pages long with requirements that kind of sound like alphabet soup. Do you support SAML 2.0? Can you integrate with our Okta? Do you have SCIM provisioning, S-C-I-M? What about RBAC? And you're thinking, I have no idea what these acronyms even mean, let alone how to implement them.

55:01So, here's the thing. These are not nice-to-haves. Yes, these are deal blockers. Without SSO, without SCIM, without RBAC, without audit logs, you simply cannot close enterprise deals, period. But none of these features make your core product better. They don't make your beer taste better, to use our favorite analogy here on Acquired. So, if you're building, like, a design tool, spending six months building SAML authentication doesn't make your design tool more powerful. So, this is where WorkOS comes in. They've built Stripe 4 enterprise features.

55:33WorkOS turns enterprise authentication requirements into drop-in APIs, abstracting away as much unnecessary complexity as possible. So, instead of your team spending months reading SAML specs, you can implement enterprise SSO in minutes. WorkOS handles user provisioning, permissions, audit logs, all the checkbox items that enterprise IT requires. So, whether you are a seed stage company trying to land your first enterprise customer, or already big and expanding globally, WorkOS is the fastest path to becoming enterprise-ready.

56:04Just visit WorkOS.com or just message their Slack support. They have real engineers in there who answer questions fast. And when you get in touch, just tell them Ben and David sent you. All right, David, the YouTube story.

YouTube Story

56:16Ooh, the big kahuna. The big kahuna. Ah. The most embarrassing thing in Acquired history was our early episode on YouTube. All right, I have got a proposal for you. Okay, I'm ready for it. You want to take it out of the feed, delete it? Today, we're setting the record straight. When we finish this section, we are regrading YouTube. We are updating the Acquired canon. It's happening. Oh, let's do it. We're bringing grading back, baby. Great. I'm glad you're into it. I love it. I love it. Awesome.

56:48All right, YouTube. 2003. So, same time frame as everything we're talking about here. Gmail hasn't even launched yet. Google starts working on Google Video. And the idea is that there's a lot of information in video. And thus, it fits Google's mission, Ben, as you were saying earlier. And also, well, there's just so much more advertising dollars in TV than anywhere else in the global economy.

57:21To this point in time, TV was the bulk of ad spend. Yep. If you go look at some of the old Mary Meeker internet trends decks, remember, from this time period, and you look at the share of global ad dollars spent on TV versus any other category, it's just so much bigger than anything else. David, I am so glad you did this. We are brothers. I did the exact same thing to try to tee this up. Amazing. I have the stats in front of me. For listeners, digital advertising, you know, Google's universe, would not eclipse TV until 2017, 2018.

57:58Wow. So, almost 15 years in the future from when we're talking about here in 2003. Yes. That is the wildest thing, that TV was bigger than digital for that long. Mary Meeker famously had this point that she made every single year that the attention was all in the digital economy, but there was this gap. And the ad monetization hadn't caught up yet. And it took all the way until 2018 for the flip to finally happen where digital overtook television. Thanks to YouTube.

58:29Yes.

58:31And Facebook and Meta and TikTok and et cetera. And the rest of Google, too. I know, I know. So, this Google video project actually came out of the ads org. It didn't come out of engineering and the rest of the Google product org. Yeah, it was motivated by, hey, there's a lot of money in TV. And, of course, this fits the mission. There's a lot of information in video. We should totally do this. Here's how Larry describes it. Google Video was first launched in 2005 as a search service for television content.

59:05Yes. Because TV closed captioning made search possible and user-generated video had yet to take off. But it subsequently evolved into a site where individuals and corporations alike could post their own videos. They were digitizing TV because the transcription wasn't as good as it is today. So, they needed the closed captioning data to make it searchable. And they were almost like meta-searching. They were looking for other websites that allowed people to upload video and including that in the search results also. Yep.

59:36Sure, you can see how this conceivably could be a product vision you could have at the time. But Google Video was the wrong product. The problem was, one, you couldn't actually watch the video. It was just search that then directed you, just like Google's main search business model, off of Google Video to then go consume it somewhere else. Yeah. In the beginning, it didn't even have a player. Whoa. I didn't realize that. Yeah, crazy. And the bigger problem, though, well, that's a pretty big problem.

1:00:08Another big problem, shall we say, was that the focus was on traditionally produced head kind of content, not long tail, not user-generated content. It was really tied to TV. There was a press release that said that they could search the content of TV programs, find programs containing the content they're looking for, and discover when and where the program will next air. Yeah. So, meanwhile, obviously, here we are in 2004, 5, 6, consumer-generated digital video is becoming

1:00:44a thing. Either via standalone new devices like the FlipCam that's coming out. Oh, the FlipCam. Flip was a startup, right? And then Cisco bought it? Yeah, my other internship employer bought Flip while I was there. Yeah, this is like Ben Gilbert's personal history. Yes. But more commonly, so, I mean, there were dedicated devices like the FlipCam, but digital point-and-shoot cameras had gotten so good by this point in time. This is going to come back up later in the episode. People thought this was the big consumer electronic device vector before smartphones.

1:01:18People were really, really excited about how good and how universally adopted digital cameras were. All of a sudden, in the mid-2000s for the first time, anybody could make a video at any time. And iMovie was just becoming a thing. So, you could shoot it on your point-and-shoot, and you can edit on your computer. That's right. So, YouTube. In early 2005, three PayPal employees, part of the PayPal mafia, actually fairly junior employees

1:01:54at PayPal, Chad Hurley, Javid Kareem, and Steve Chen, leave PayPal and create YouTube. Okay, Ben, I have two deep-cut YouTube corporate history trivia items for you. Number one, do you know what YouTube's original tagline was? The name of the company was YouTube. What was the tagline and the value prop?

1:02:24I have no idea. TuneIn Hookup. Really? It was a video dating service. Oh, I think I did know that. And they actually posted Craigslist ads in the Bay Area for attractive women to make videos to post as profiles on the site. Unbelievable. And they got, like, no responses, as you would expect. Thank goodness for them and Google, though, because then they pivoted into a general-purpose

1:02:56video uploading site that anybody could upload anything that they made. YouTube. Okay, so that's trivia question number one. Okay. Trivia question number two. Do you know who Chad Hurley, Chad was the CEO, who Chad's father-in-law at the time was? Oh, no, I have no idea. Jim Clark. Of SGI and Netscape? Of Silicon Graphics and Netscape. Jim Clark. Wow. Jim Clark. Didn't know that.

1:03:26Yeah. So not only were they part of the PayPal team and PayPal Mafia, like, they had the best advisor of all time. Wow. To navigate the Silicon Valley ecosystem and the internet ecosystem in Jim Clark. So the brilliance of YouTube, and it really was absolutely brilliant, was threefold. One, it was super easy for anyone to upload a video. So they had a killer content acquisition model.

1:03:57Anybody, anytime, anything. And as soon as the servers process it, we'll put it live. No copyright checks. Unlike Google Video, which would take one to two days. It's all about copyright checks. For humans to pore over it, make sure that it was all good and bless it, and then put it live, which of course won't scale in the UGC era. YouTube's just like, whatever, upload it. Two, super easy for anyone to watch a video. You need a really good viewer in the web app to view the videos.

1:04:32Google Video didn't have it at the beginning. So killer content consumption model. Go to YouTube.com, find something, or find a link, or number three brilliant thing about YouTube, see a YouTube video embedded on another website, boom, you're watching the video. So killer growth and distribution model. And also, YouTube, pretty much from the beginning, had great search. You can search YouTube and find videos that you're looking for. Pretty quickly, YouTube became and still is, Google talks about this all the time, the second

1:05:08largest search engine on earth behind Google. It's amazing. Search is happening on YouTube. That happened quickly. I always thought that was a more recent last 10 years phenomenon. I think that happened very quickly. YouTube traffic scaled so fast and so big. So you can see how YouTube here, not only are they the correct video platform for the web and just doing it much better than Google's doing it with Google Video. There's actually some version of the world where they might become a real competitor to

1:05:42Google's core business. If all these searches are happening, they could add search for other things on YouTube, too. Right. I don't think they had any plans to do that, but it's the same rationale of Mark Zuckerberg saying, uh-oh, everyone's using WhatsApp for messaging. Whether or not they put in a social media feed stream, they always could.