Digital Envoy Inc., v. Google Inc.,

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Case 5:04-cv-01497-RS

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Final Prospectus

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Table of Content s Google AdWords Google AdWords is our global advert ising program, which enables advert isers to present ads to people at the precise moment those people are looking for information related to what the adve rtiser has to offer. Advertisers use our automated tools, often w ith little or no assistance from us, to create text-based ads, bid on th e keywords th at will trigger the display of th eir ads and set daily spending budgets . AdWords features an automated, low-cost online signup process that enables adv e rt isers to implement ad campaigns that can become live in 15 minutes or less . The total sign -up cost for becoming an Ad Words adve rt iser is only $5 .00 . Ads are ranked for display in AdWords based on a combination of the maximum cost per click (CPC) set by the adve rt iser an d click-through rates and o ther factors used to determine th e rele vance of th e ads . This favors the ads that are most relevant to users, improving the experience for both th e person looking for information and the advertiser looking for interested customers . AdWords has m any features th at make it easy to set up and m anage ad campaigns for maximum efficiency and effectiveness : · ampaign management. Advertisers can target multiple ads to a given keyword an d easily track individual ad perform ance to see which ads are the most effective . The campaign management tools built into AdWords enable adve rtisers to quickly shift their budgets to ads that deliver the best results .
· eyword targeting. Businesses c an deliver targeted ads based on speci fic search terms (keywords) entered by users or found in the content on a web page . We also offer tools th at suggest synonyms an d useful phrases to use as keywords or ad text . These suggestions c an improve ad click-through rates and th e likelihood of a user becoming a customer of the advert iser .

· · · · ·

rafjic estimator . This tool estimates the number of searches an d potential costs related to advert ising on a pa rticular keyword or set of keywords . These estimates can help advert isers optimize their campaigns . udgeted delivery. Advertisers can set daily budgets for their campaigns and control th e timing for delivery of their ads . erformance reports. We provide continuous, timely reporting of the effectiveness of each ad campaign . ultiple payment options . We accept credit and debit cards and, for selected advertisers, we offer several options for credit terms and monthly invoicing . We accept payments in 48 currencies . dWords discounter. This feature gives advertisers the freedom to increase their maximum CPCs because it automatically adjusts pricing so that they never pay more than one cent over the next highest bid . The AdWords discounter is described in detail below under the heading "Technology-Advertising Technology-Google AdWords Action System . "

For larger advertisers, we offer additional services that help to maximize returns on their Internet marketing investments and improve their ability to run large, dynamic campaigns . These include : · reative maximization . Our AdWords specialists help advertisers select relevant keywords and create more effective ads . This can improve advertisers' ability to target customers and to increase the click-through rates and conversion rates for their ads . · ertical market experts. Specialists with experience in particular industries offer guidance on how to most effectively target potential customers . · ulk posting. We assist businesses in launching and managing large ad campaigns with hundreds or even thousands of targeted keywords . · edicated client service representatives . These staff members continuously look for ways to better structure their clients' campaigns and to address the challenges large advertisers face .
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Table of Contents
Google AdSense

Our Google AdSense program enables the web sites in our Google Network to serve targeted ads from our AdWords advertisers . Targeting can be based on search results or on web content. We share most of the revenue generated from ads shown by a member of the Google Network with that member . Most of the web sites that make up the Google Network sign up with us online, under agreements with no required term . We also engage in direct selling efforts to convince web sites with significant traffic to join the Google Network, under agreements that vary in duration . For our network members, we offer : Google AdSense for search. For Internet companies with potentially large search audiences, we offer Google AdSense for search . Web sites use AdSense for search to generate additional revenue by serving relevant AdWords ads targeted to search results . Because we also offer to license our web search technology along with Google AdSense for search, companies without their own search service can offer Google WebSearch to improve the usefulness of their web sites for their users while increasing their revenue . Google AdSense for content. Google AdSense for content enables web sites to generate revenue from advertising by serving relevant AdWords ads targeted to web content . Our automated technology analyzes the meaning of web content and serves relevant advertising, usually in a fraction of a second . We believe that some of the best content on the web comes from web sites aiming to reach small but highly targeted audiences . AdSense for content can help these web sites offset some of their publishing costs . We believe this may help them continue to publish by tapping into the value of their content . There is no charge for web sites to participate in our AdSense for content program . Using our automated sign-up process, web sites can quickly display AdWords ads on their sites . We share the majority of the revenues generated from click-throughs on these ads with the Google Network members that display the ads . For web sites with more than 20 million page views per month, we provide customization services . Google Search Appliance We provide our search technology for use within enterprises through the Google Search Appliance (GSA) . The GSA is a complete software and hardware solution that companies can easily implement to extend Google's search performance to their internal or external information. The GSA can often be installed and launched in as little as one day . It leverages our search technology to identify the most relevant pages on intranet and public web sites, making it easy for people to find the information they need. The GSA offers several useful features, including automated spell-checking, cached pages, dynamic snippets, indented results and automatic conversion of Microsoft Office and PDF files to HTML . The GSA is available in three models : the GB-1001, for departments and mid-sized companies ; the GB-5005, for dedicated, high-priority search services such as customer-facing web sites and company-wide intranet applications ; and the GB-8008, for centralized deployments supporting global business units. List prices for our GSA models start at $32,000 for the GB-1001, $230,000 for the GB-5005 and $525,000 for the GB-8008 . Technology We began as a technology company and have evolved into a software, technology, Internet, advertising and medi a company all rolled into one . We take technology innovation very seriously. We compete aggressively for talent, and our people drive our innovation, technology development and operations . We strive to hire the best computer scientists and engineers to help us solve very significant challenges across systems design, artificial intelligence, machine learning, data mining, networking, software engineering, testing, distributed systems, cluster design and other areas . We work hard to provide an environment where these talented people can have fulfilling jobs and produce technological innovations that have a positive effect on the world through daily use by millions of people . We employ technology whenever possible to increase the efficiency of our business and to improve the experience we offer our users .
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Table of Contents We provide our web search and targeted advertising technology using a large network of commodi ty computers running custom software developed in-house . Some elements of our technology include :
Web Search Technology Our web search technology uses a combination of techniques to determine the impo rt ance of a web page independent of a pa rt icular search query and to determine the relev an ce of that page to a pa rt icular search query . We do not explain how we do ranking in great detail because some people t ry to manipulate our search results for their own gain, rather than in an attempt to provide high-quality information to users .

PageRank and Ranking Technolo gy . One element of our technology for ranking web pages is called PageRank. While we developed much of our ranking technology after the comp any was formed, PageR ank was developed at Stan ford Universi ty with the involvement of our founders, and was therefore published as research . Most of our current ranking technology is protected as trade-secret . PageRank is a query -independent technique for determining the impo rtance of web pages by looking at the link structure of the web . PageRank treats a link from web page A to web page B as a "vote" by page A in favor of page B . The PageRank of a page is the sum of the PageRank of the pages that link to it . The PageRank of a web page also depends on the importance (or PageRank) of the other web pages casting the votes . Votes c as t by importan t web pages with high PageRank weigh more heavily and are more influential in deciding the PageRank of pages on the web . Text-Matching Techniques . Our technology employs text -matching techniques that compare search queries with the content of web pages to help determine relevance . Our text-bas ed scoring techniques do far more than count the number of times a search term appears on a web page . For example, our technology determines the proximity of individual search terms to each other on a given web page, and prioritizes results that have th e search terms near each other. Many other aspects of a page's content are factored into the equation, as is the content of pages that link to the page in question . By combining que ry independent measures such as PageRank with our text -matching techniques, we are able to deliver search results th at are relevant to what people are trying to find . Advertising Technology
Our advertising program serves millions of relevant, targeted ads each day based on search terms people enter or content they view on the web . The key elements of our advertising technology include :

Google AdWords Auction System . We use the Google AdWords auction system to enable advertisers to automatically deliver relevant, targeted adve rt ising. Every search query we process involves the automated execution of an auction, resulting in our advertising system often processing hundreds of millions of auctions per day . To determine whether an ad is relevant to a pa rt icular que ry, th is system weighs an advertiser's willingness to pay for prominence in the ad listings (the CPC) and interest from users in the ad as measured by th e click-through rate an d other factors . If an ad does not attract user clicks, it moves to a less prominent position on the page, even if the adve rtiser offers to pay a high amount . This prevents advert isers with irrelevant ads from "squatting" in top positions to gain exposure . Conversely, more relevant, well-targeted ads that are clicked on fr equently move up in ranking, wi th no need for advert isers to increase th eir bids . Because we are paid only when users click on ads, the AdWords ranking system aligns our interests equally with those of our adve rt isers and our users . The more relevant and useful the ad, the be tt er for our users, for our advertisers an d for us . The AdWords auction system also incorporates our AdWords discounter, which automatically lowers the amount advert isers actually pay to the minimum needed to maintain their ad position . Consider a situation where there are three advert isers -Pat, Be tt y and Joe--each bidding on the same keyword for ads that will be displayed on Google .com . These advertisers have ads with equal click-through rates and bid $1 .00 per click, $0 .60 per click and $0 .50 per click, respectively. With our Ad Words discounter, Pat would occupy the first ad position and pay only $0 .61 per click, Betty would occupy the second ad position and pay only $0 .51 per click, and Joe woul d
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Table of Con tents occupy the third ad position and pay the minimum bid of $0 .05 per click . The AdWords discounter saves money for advertisers by minimizing the price they pay per click, while relieving them of the need to constantly monitor and adjust their CPCs . Advertisers can experience greater discounts through the application of our smart pricing technology introduced in April 2004 . This technology can reduce the price of clicks for ads served across the Google Network based on the expected value of the click to the advertiser. AdSense Contextual Advertising Technology . Our AdSense technology employs techniques that consider factors such s keyword analysis, word frequency, font size and the overall link structure of the web to analyze the content of individual web pages and to match ads to them almost instantaneously . With this ad targeting technology, we can automatically serve contextually relevant ads. To do this, Google Network members embed a small amount of custom HTML code on web pages that generates a request to Google's AdSense service whenever a user views the web page . Upon receiving a request, our software examines the content of web pages an d performs a matching process that identifies advertisements that we believe are relevant to the content of the specific web page . The relevant ads are then returned to the web pages in response to the request . We employ similar techniques for matching advertisements to other forms of textual content, such as email messages and Google Groups postings . For example, our technology can serve ads offering tickets to fans of a specific sports team on a news story about that team . Large-Scale Systems Technolog y Our business relies on our software and hardware infrastructure, which provides substantial computing resources at low cost. We currently use a combination of off-the-shelf and custom software running on clusters of commodity computers . Our considerable investment in developing this infrastructure has produced several key benefits . It simplifies the storage and processing of large amounts of data, eases the deployment and operation of large-scale global products and services and automates much of the administration of large-scale clusters of computers . Although most of this infrastructure is not directly visible to our users, we believe it is important for providing a highquality user experience . It enables significant improvements in the relevance of our search and advertising results by allowing us to apply superior search and retrieval algorithms that are computationally intensive . We believe the infrastructure also shortens our product development cycle and allows us to pursue innovation more cost effectively . e constantly evaluate new hardware alternatives and software techniques to help further reduce our computational costs . This allows us to improve our existing products and services and to more easily develop, deploy and operate new global products and services . Sales and Suppor t e have put significant effort into developing our sales and support infrastructure . We maintain 21 sales offices in 11 countries, and we deploy specialized sales teams across 18 vertical markets . We bring businesses into our advertising network through both online and direct sales channels . In all cases, we use technology and automation wherever possible to improve the experience for our advertisers and to grow our business cost-effectively . The vast majority of our advertisers use our automated online AdWords program to establish accounts, create ads, target users and launch and manage their advertising campaigns. Our direct advertising sales team focuses on attracting and supporting companies around the world with sizeable advertising budgets . Our AdSense program follows a similar model . Most of the web sites in the Google Network sign up for AdSense using an automated online process . Our direct sales force focuses on building AdSense relationships with leading Internet companies . Our global support organization concentrates on helping our advertisers and Google Network members get the most out of their relationships with us .
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Table of Contents

Mute to Wob Sftea

AdSense Program

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We also offer a service known as AdSense for search . AdSense makes targeted adve rt ising available not just to Google, but also to other impo rtant companies like AOL and Ask Jeeves, an d hundreds of other partners . This Google network of AdSense partners is an impo rt ant part of our business success as it helps us to help our adve rtisers reach an ever wider audience. Yet another option we offer the members of the Google network is a service called AdSense for content, which you see pictured on the right . With this product, we try to provide financial incentives to make it easier for people to publish content . It's not free to put up just a web site and keep it up to date . By running AdSense for Content on their sites, these publishers can use ads from the Google network of advertisers to generate revenue and offset some of their operating costs that they have . We partner with them to run targeted ads on their sites, and thanks to our `revenue sharing' program, both of us generate revenue in a new way . George will talk to you more about this, but we share the revenue from these ads with the publishers . We hope this program will enable the publishing of additional web content that would not have otherwise been available on the Internet and Wet/aFue~oryAg ec~sedrsb~evant ; cast efeclweetiine advertising Search Term AdWords Ads Search Result s A-22

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