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How Google Works
By Eric Schmidt
By Jonathan Rosenberg
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Seasoned Google executives Eric Schmidt and Jonathan Rosenberg provide an insider’s guide to Google, from its business history and disruptive corporate strategy to developing a new managment philosophy and creating a corporate culture where innovation and creativity thrive.
Google Executive Chairman and ex-CEO Eric Schmidt and former SVP of Products Jonathan Rosenberg came to Google over a decade ago as proven technology executives. At the time, the company was already well-known for doing things differently, reflecting the visionary-and frequently contrarian-principles of founders Larry Page and Sergey Brin. If Eric and Jonathan were going to succeed, they realized they would have to relearn everything they thought they knew about management and business.
Today, Google is a global icon that regularly pushes the boundaries of innovation in a variety of fields. How Google Works is an entertaining, page-turning primer containing lessons that Eric and Jonathan learned as they helped build the company. The authors explain how technology has shifted the balance of power from companies to consumers, and that the only way to succeed in this ever-changing landscape is to create superior products and attract a new breed of multifaceted employees whom Eric and Jonathan dub “smart creatives.”
Covering topics including corporate culture, strategy, talent, decision-making, communication, innovation, and dealing with disruption, the authors illustrate management maxims (“Consensus requires dissension,” “Exile knaves but fight for divas,” “Think 10X, not 10%”) with numerous insider anecdotes from Google’s history, many of which are shared here for the first time.
In an era when everything is speeding up, the best way for businesses to succeed is to attract smart-creative people and give them an environment where they can thrive at scale. How Google Works explains how to do just that.
Table of Contents
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by Larry Page
Google Cofounder and CEO
When I was younger and first started thinking about my future, I decided to either become a professor or start a company. I felt that either option would give me a lot of autonomy—the freedom to think from first principles and real-world physics rather than having to accept the prevailing "wisdom."
As Eric and Jonathan explain in How Google Works, we've tried to apply this autonomy of thought to almost everything we do at Google. It's been the driving force behind our greatest successes and some impressive failures. In fact, starting from first principles was what got Google going. One night I had a dream (literally) and woke up thinking… what if you could download the whole Web and just keep the links? So I grabbed a pen and scribbled down the details to figure out whether it was really possible. The idea of building a search engine wasn't even on my radar at the time. It was only later that Sergey and I realized ranking web pages by their links could generate much better search results. Gmail started out as a pipe dream too. And when Andy Rubin started Android a decade ago, most people thought aligning the mobile industry around an open-source operating system was nuts.
Over time I've learned, surprisingly, that it's tremendously hard to get teams to be super ambitious. It turns out most people haven't been educated in this kind of moonshot thinking. They tend to assume that things are impossible, rather than starting from real-world physics and figuring out what's actually possible. It's why we've put so much energy into hiring independent thinkers at Google, and setting big goals. Because if you hire the right people and have big enough dreams, you'll usually get there. And even if you fail, you'll probably learn something important.
It's also true that many companies get comfortable doing what they have always done, with a few incremental changes. This kind of incrementalism leads to irrelevance over time, especially in technology, because change tends to be revolutionary not evolutionary. So you need to force yourself to place big bets on the future. It's why we invest in areas that may seem wildly speculative, such as self-driving cars or a balloon-powered Internet. While it's hard to imagine now, when we started Google Maps, people thought that our goal of mapping the entire world, including photographing every street, would prove impossible. So if the past is any indicator of our future, today's big bets won't seem so wild in a few years' time.
These are some of the principles that I think are important, and there are more in the pages that follow. Hopefully you can take these ideas and do some impossible things of your own!
Introduction—Lessons Learned from the Front Row
In July 2003, Eric Schmidt had been the CEO of Google Inc. for two years when he received an email from one of the company's board members and investors, Mike Moritz, a partner at Sequoia Capital. It included a suggestion:
you may want to think about picking a three hour slot in mid-august when the management presents to the board our campaign to compete with finland. (i do not think we should wait until the september meeting. this is far too important a topic and we've all learned that the best way to discover how short a year happens to be is to compete with finland.)
To the uninformed, this note might have been confusing. Why would Google, a several-hundred-employee, five-year-old Internet start-up based in Mountain View, California, be competing with Finland, a country of five million people that was over five thousand miles away and generally considered to be a friendly, peaceful place?
The Finland email arrived just when Eric felt like he was finally settling into Google. He had come from Novell, where he had been the CEO, and had also worked at Sun Microsystems and Bell Labs. After growing up in northern Virginia, he graduated from Princeton with a degree in electrical engineering and received a master's degree and PhD in computer science from the University of California, Berkeley, so not only was he no stranger to working with engineers and computer scientists, he was one. Still, when he got to Google he stepped into a place very different from anywhere else he had been.
His "I have a feeling we're not in Kansas anymore" revelation started on his first day. When he arrived at the office that had been assigned to him, which was already quite modest by big-shot CEO standards, he found that it was occupied by several software engineers. Rather than kicking them out, he decamped to the next office over, which was more of a closet with a window than an actual office.
Then, a few weeks later, it got worse. One morning, as he walked down the hall to his closet office, he noticed that his assistant, Pam Shore, had a troubled look on her face.1 He soon found out why: He had a new officemate. It was one of the search engineers, Amit Patel, who explained to Eric that his office had five inhabitants, with another on the way, and that his solution of sawing one of the desks in half to make more space hadn't worked. In comparison to his current space, Eric's spot seemed quite roomy, so Amit moved in. (The facilities crew had refused to move Amit's stuff into Eric's office, so he had done it himself.) Amit and Eric ended up sharing the office for several months. Clearly, this was not a measure-your-importance-in-square-feet kind of place.
Beyond the unusual facilities arrangements, the rest of Eric's transition into the company was fairly smooth. His relationship with the two founders, Larry Page and Sergey Brin, was strengthening every day. The company's advertising platform, AdWords, was starting to generate significant amounts of revenue (when the company filed for its initial public offering in 2004, the financial statements astonished most observers… in a good way), and even though "Google" as a verb wouldn't be added to the Oxford English Dictionary for another three years,2 for millions of users Google search was already an important part of everyday life. The company was growing too, adding dozens of employees every month, including a new head of products, Jonathan Rosenberg, who came on board in February of 2002. Jonathan, like Eric, was the son of an economics professor. He joined Google after stints at Excite@Home and Apple, to build up the company's product management team and round out Eric's staff.
As Mike's email pointed out, though, there was a major competitor on the horizon, and it wasn't really our Nordic friends across the Atlantic. Finland was our internal code name for Microsoft,3 at the time the most important tech company on the planet.4 Eric knew that a huge chunk of Google's traffic came from people using Microsoft's Internet Explorer browser. Like everyone at Google, he believed that the Internet was the technology platform of the future and that search was one of its most useful applications. Therefore, it was only a matter of time before our friends from Redmond would take a real interest in what we were doing. And when Microsoft took a real interest in things start-ups were doing, things had a way of getting really interesting.5
The future of the company was at stake, and what to do was far from obvious. Moritz's note was a call to action. He asked Eric to rally the team and create a plan that would establish clear deliverables across the company: product, sales, marketing, finance, and corporate development. Every aspect of how Google operated was on the table, and there was even talk about transitioning the company from its quirky start-up structure to a more traditional one organized around business units, to make it easier to develop new revenue streams (another thing the new plan was supposed to address). Most important, the plan needed to establish milestones and a roadmap of which products would ship, and when. In short, Moritz wanted what any sensible, normal board member would want: a comprehensive business plan.
He closed the note with a flourish:
so why not pick an evening in mid august to mark the completion of the plans for the mightiest campaign any of us will ever be in.
Since products would be the crux of this plan, Eric gave the project to Jonathan. His instructions: "I would like to review this in two weeks."
There was a problem, though, besides the fact that a huge company was coming to compete with us. Moritz was right: To take on the biggest gorilla in the jungle, we needed a plan. But he was also wrong, and to understand why he was wrong, and why he was inadvertently putting the two of us in a rock-and-hard-place sort of situation, it helps to first understand just what kind of company Google was.
"Just go talk to the engineers"
When Sergey and Larry founded Google in 1998, they had no formal business training or experience. They considered this an advantage, not a liability. As the company grew out of its first home in a Stanford dorm room, to Susan Wojcicki's garage6 in Menlo Park, to offices in Palo Alto and then Mountain View, the founders ran it on a few simple principles, first and foremost of which was to focus on the user. They believed that if they created great services, they could figure out the money stuff later. If all they did was create the world's best search engine, they would be very successful.7
Their plan for creating that great search engine, and all the other great services, was equally simple: Hire as many talented software engineers as possible, and give them freedom. This approach suited a company born in a university lab, since in academia the most valuable asset is intellect (also, for some American universities, the ability to throw a football fifty yards). But while most companies say that their employees are everything, Larry and Sergey actually ran the company that way. This behavior wasn't corporate messaging, and it wasn't altruism. They felt that attracting and leading the very best engineers was the only way for Google to thrive and achieve its lofty ambitions. And they really meant engineers: The founders stopped Eric's first attempt to hire the estimable Sheryl Sandberg, now Facebook's COO, because she wasn't an engineer. (Sheryl went on to spend over six very successful years at Google.) As the company grew, the founders relented in this single-mindedness, but only a little bit. To this day the rule of thumb is that at least half of Google employees (aka Googlers) should be engineers.
The management tactics the founders used to run the company were equally simplistic. Like the professors in their Stanford computer science lab, who did not dictate what their thesis projects should be but rather provided direction and suggestions, Larry and Sergey offered their employees plenty of freedom and used communication as a tool to keep everyone moving in the same general direction. They had a very strong belief in the profound importance of the Internet and the power of search, and they communicated these points via informal meetings with the small engineering teams that populated the Google offices, and through company-wide "TGIF" meetings held every Friday afternoon, where any topic was fair game for discussion.
When it came to process, the founders ran things with a light touch. For years, Google's primary tool for managing the company's resources was a spreadsheet with a ranked list of the company's top 100 projects, which was available for anyone to see and debated in semi-quarterly meetings. These meetings were part status update, part resource allocation, and part brainstorming. The system was not very scientific: Most projects were prioritized on a scale of 1 to 5, but there was also room on the list for projects categorized as "new / far out" and "skunkworks." (Today we can't recall the distinction between the two, but at the time it all made perfect sense… sort of.) There was no concept of or recognized need for longer-range planning than this; if something more important came up, the engineers would figure it out and adjust the list.
This emphasis on engineering continued even as the company expanded the management team. The founders didn't hire Eric for his business acumen as much as for his track record as a technologist (Eric was a Unix expert and helped create Java—the software language, not the beverage or the island) and geek cred as an alum of Bell Labs. They hired Jonathan in spite of his economics and MBA degrees, because he was a proven product advocate and innovator from his days at Apple and Excite@Home. That we were business guys wasn't exactly a liability, but it wasn't a benefit either, at least not in Sergey's and Larry's minds.
Jonathan got a stark example of the founders' aversion to traditional business processes not long after he started at the company. As a seasoned executive in product management, he had plenty of experience in what's known as the "gate-based" approach to building products, which in most companies entails a series of well-defined phases and milestones, governed by various executive reviews, that escalate slowly up the corporate food chain. This approach is designed to conserve resources and funnel information up from far-flung silos to a small set of decision-makers. Jonathan assumed that he was meant to bring precisely this type of discipline to Google, and he was supremely confident that he was just the guy to do it.
A few months later, Jonathan presented Larry with a product plan that was a manifestation of the gate-based approach at its finest. There were milestones and approvals, priorities, and a two-year plan of what products Google would release and when. It was a masterpiece of textbook thinking. All that remained was for him to receive a rousing round of applause and a pat on the back. Sadly, this was not to be: Larry hated it. "Have you ever seen a scheduled plan that the team beat?" he asked. Um, no. "Have your teams ever delivered better products than what was in the plan?" No again. "Then what's the point of the plan? It's holding us back. There must be a better way. Just go talk to the engineers."
As Larry spoke, it dawned on Jonathan that the engineers he was talking about weren't engineers in the traditional definition of the role. Yes, they were brilliant coders and system designers, but along with their deep technical expertise many of them were also quite business savvy and possessed a healthy streak of creativity. Coming from an academic background, Larry and Sergey had given these employees unusual freedom and power. Managing them by traditional planning structures wouldn't work; it might guide them but it would also hem them in. "Why would you want to do that?" Larry asked Jonathan. "That would be stupid."
So when Mike Moritz and the board asked us to create a traditional, MBA-style business plan, we didn't want to be stupid. We knew that the Google patient would reject a formal, regimented plan as if it were an alien organ transplanted into its body, which in many respects it would be. As experienced business executives, we had joined Google with the idea of bringing "adult supervision" to a chaotic place. But by the summer of 2003 we had been at the company long enough to realize that it was run differently than most any other place, with employees who were uniquely empowered, and operating in a new, rapidly evolving industry. We understood the dynamics of our new industry enough to get that the way to fend off Microsoft was continuous product excellence, yet we also understood that the best way to achieve that excellence was not via a prescribed business plan, but rather by hiring the very best engineers we could and then getting out of the way. We understood that our founders intuitively grasped how to lead in this new era, but they—by their own admission—didn't know how to build a company to the scale where it could achieve their ambitious vision. They were great leaders of computer scientists, but we needed more than computer scientists to create a great company.
We also understood that the rules to guide us in this endeavor did not even exist yet, and they certainly couldn't be found in the type of traditional business plan that Mike Moritz wanted.
So we found ourselves, at this critical moment in the company's history, stuck in the middle. We could do what Moritz wanted and write a traditional business plan. That would keep our board happy, but it would not motivate or inspire our employees, it would not help attract the new talent the company so desperately needed, and it wouldn't address the strategic dynamics of this brand-new industry. Most important, the company's founders would kill it before it ever saw the light of day. And maybe fire the two of us while they were at it.
The Finland plan
The plan that we ultimately presented to the board bore a close enough resemblance to a traditional business plan that the members departed the meeting satisfied that, yes, we have a business plan! Looking back now on that document, we are surprised in how many ways it was spot on. It was all about how Google would focus on its users and build excellent platforms and products. It said that Google would always offer higher-quality services and make those services easily accessible. It proposed that our foundation be built on users, and that more users would draw more advertisers. There were a few tactical points covering how we would fend off competitive threats, but basically the way to challenge Microsoft, we said, was to create great products.
Which was, as it turned out, exactly the right thing to do.
Microsoft did aggressively challenge us, reportedly spending nearly $11 billion8 in an attempt to knock Google off its perch as a key player in the Internet search and advertising business. Microsoft programs like MSN Search, Windows Live, and Bing, and acquisitions like aQuantive, failed to achieve true prominence, not because they were poorly executed but because Google was so well prepared for them. We worked incessantly to make search better. We added images, books, YouTube, shopping data, and any other corpus of information we could find. We created our own set of applications, such as Gmail and Docs, and made them all web-based. We improved our infrastructure by leaps and bounds, so that we could more quickly crawl an index of online data and content that was growing exponentially.9 We made search faster and available in more languages, and improved our user interface to make it easier to use. We added maps and better local results. We worked with partners to ensure that it was always easy for users to access us. We even expanded into some areas where Microsoft excelled, such as browsers, launching Google Chrome and making it the fastest and most secure browser in the industry from day one. And we monetized all of this with highly efficient and effective ad systems.
Eric used to warn his team that "Microsoft will come at us, wave after wave." They did, and still do, nevertheless the business plan that Moritz pushed us to develop worked beyond our wildest dreams. Today Google is a $50-billion company with over forty-five thousand employees in over forty countries. We have diversified from Internet search and search advertising into video and other forms of digital marketing, successfully transitioned from a PC-centric world to a mobile-centric one, produced a successful suite of hardware devices, and pushed the technology edge with new projects that promise, for example, to bring Internet access to everyone and create cars that drive themselves.
One of the biggest reasons for our success, though, is that the plan we delivered to the board that day in 2003 wasn't much of a plan at all. There were no financial projections or discussions of revenue streams. There was no market research on what users, advertisers, or partners wanted or how they fit into nicely defined market segments. There was no concept of market research or discussion of which advertisers we would target first. There was no channel strategy or discussion of how we would sell our ad products. There was no concept of an org chart, with sales doing this, product doing that, and engineering doing some other that. There was no product roadmap detailing what we would build and when. There was no budget. There were no targets or milestones that the board and company leaders could use to monitor our progress.
There were also no tactics on how we would build the company or, more specifically, how we would stay loyal to Larry and Sergey's "just go talk to the engineers" ethos while building an enterprise that could take on the world's most powerful technology company and achieve our audacious global ambition of transforming lives by the billions. We left that out for the simple reason that we didn't know how we were going to do it. When it came to management tactics, the only thing we could say for sure back then was that much of what the two of us had learned in the twentieth century was wrong, and that it was time to start over.
When astonishing isn't
Today we all live and work in a new era, the Internet Century, where technology is roiling the business landscape and the pace of change is accelerating. This creates unique challenges for all business leaders. To understand those challenges, it helps to step back for a moment and consider just how amazing things are.
Three powerful technology trends have converged to fundamentally shift the playing field in most industries. First, the Internet has made information free, copious, and ubiquitous—practically everything is online. Second, mobile devices and networks have made global reach and continuous connectivity widely available. And third, cloud computing10 has put practically infinite computing power and storage and a host of sophisticated tools and applications at everyone's disposal, on an inexpensive, pay-as-you-go basis. Today, access to these technologies is still unavailable to much of the world's population, but it won't be long before that situation changes and the next five billion people come online.
From a consumer perspective, the convergence of these three technological waves has made the impossible possible. Taking a flight somewhere? On the day of your departure, your phone will remind you when to leave for the airport, tell you the terminal and gate from which the flight departs, and let you know if you will need an umbrella when you get to your destination, all without you having to ask. Want to track down any piece of information? Type or speak a word or two, and the answer pops up almost instantly, picked from a giant pile of information comprised of most of the world's knowledge. Hear a song you like? Hold up your phone, tap a button, identify the song, buy it, and then listen to it on any device, anywhere in the world. Need to know how to get somewhere? Your phone (or your glasses or watch) will literally tell you how, and show you the traffic along the way. Traveling to a foreign country? Talk into your phone (or your glasses or watch) and see or hear your words translated into practically any language on the planet, or point it at a sign and read it in your native tongue. Like art? You can virtually walk through many of the world's greatest museums and see their paintings in far greater detail than anyone ever has, except perhaps the artists who created them. Want to know if that restaurant you picked for tonight's date has the right ambience or easy parking? Virtually drive there, walk through the front door, and take a tour inside. Table 14 looks perfect!
When we went to college in the late 1970s and early '80s, we called home once a week, on Sundays, always before five p.m. because that's when the rates went back up. When Jonathan's son was studying in Australia a couple years ago, he occasionally joined the family back home in California for dinner, via video Hangout, on a laptop that sat at his place at the table. For free.
What's most astonishing is that these astonishing things aren't astonishing at all. It used to be that the most powerful computers and the best electronics were at the office, and once you left work you had to get by on phones attached to walls, maps on paper, music from radio stations that played what they felt like playing, and televisions brought in by two big guys and attached to cables or antennae. These aspects of life remained practically unchanged for years. Today, though, wow innovations are commonplace.
As much as technology has affected consumers, it has had an even bigger impact on businesses. In economic terms, when the cost curves shift downward on a primary factor of production in an industry, big-time change is in store for that industry.11 Today, three factors of production have become cheaper—information, connectivity, and computing power—affecting any cost curves in which those factors are involved. This can't help but have disruptive effects. Many incumbents—aka pre-Internet companies—built their businesses based on assumptions of scarcity: scarce information, scarce distribution resources and market reach, or scarce choice and shelf space. Now, though, these factors are abundant, lowering or eliminating barriers to entry and making entire industries ripe for change.12 We saw this first in the media business, whose entire product can now be rendered digitally and sent around the world for free. But practically every industry is, at some level, information-driven. Media, marketing, retail, health care, government, education, financial services, transportation, defense, energy… We can't think of an industry that will escape this era unchanged.
The result of all this turmoil is that product excellence is now paramount to business success—not control of information, not a stranglehold on distribution, not overwhelming marketing power (although these are still important). There are a couple of reasons for this. First, consumers have never been better informed or had more choice.13 It used to be that companies could turn poor products into winners by dint of overwhelming marketing or distribution strength. Create an adequate product, control the conversation with a big marketing budget, limit customer choice, and you could guarantee yourself a good return. Ever eat at a Bennigan's? A Steak and Ale? In their heyday in the 1980s, these chains had hundreds of locations in the United States, all of them offering perfectly decent food and service.
- "An informative and creatively multilayered Google guidebook from the businessman's perspective."—Kirkus
- "An energized and exciting primer on creating a company and workforce prepared to meet an inspiring future."—Publisher's Weekly
- "Chairman Eric Schmidt and exec advisor Jonathan Rosenberg pull back the curtain to reveal how the company created its unique culture of workplace innovation."—Fortune
- On Sale
- Mar 21, 2017
- Page Count
- 320 pages
- Grand Central Publishing