I/P Engine, Inc. v. AOL, Inc. et al
Filing
608
Response to 115 MOTION to Seal I/P Engine, Inc.'s Motion to Seal Exhibits 15, 16, 17, 18, and 21 of IP Engine's Memorandum in Support of Its Motion to Compel Defendant Google, Inc.'s Custodial Document Production, 125 MOTION to Seal Motion to Seal I/P Engine's Opposition to Google and IAC's Motion to Compel Plaintiff to Supplement its Infringement Contentions Along with Exhibits 11, 12, 14, 15, 18, 21, and 22 in Support filed by I/P Engine, Inc.. (Attachments: # 1 Exhibit Exhibit 15 (Lesser Redacted), # 2 Exhibit Exhibit 16 (Lesser Redacted), # 3 Exhibit Exhibit 17 (Lesser Redacted), # 4 Exhibit Exhibit 18 (Unredacted, Public Form), # 5 Exhibit Exhibit 21 (Lesser Redacted), # 6 Exhibit ECF 125 (Lesser Redacted), # 7 Exhibit Exhibit 11 (Lesser Redacted), # 8 Exhibit Exhibit 12 (Lesser Redacted), # 9 Exhibit Exhibit 15 (Lesser Redacted), # 10 Exhibit Exhibit 22 (Lesser Redacted))(Schultz, Donald)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF VIRGINIA
NORFOLK DI VI SI ON
)
VP ENGINE, INC.,
Plaintiff,
v.
AOL, INC. et al.,
Defendants.
)
)
)
)
)
)
)
)
)
Civ. Action No. 2:11-cv-512
MOTION TO SEAL EXHIBITS 15, 16, 17, 18 AND 21 OF I/P ENGINE'S
MEMORANDUM IN SUPPORT OF ITS MOTION TO COMPEL DEFENDANT
GOOGLE, INC.'S CUSTODIAL DOCUMENT PRODUCTION
EXHIBIT 15 FILED UNDER SEAL
DICKSTEINSHAPIROLLF
1825 Eve Street NW I Wasbingti.m, DC 2000A-5403.
Itt (202) 420-2200 I rke (202) 420 7201 I dicksterishap:ro.com
March 9, 2012
Via E-mail
David Per[son, Esq.
Quinn Emanuel Urquhart & Sullivan, iLP
50 California Street, 22nd Floor
San Francisco, CA 94111
Re:
1/P Engine's Proposed Search Terms
Dear David:
I write in response to Meg's March 7, 2012 letter regarding search terms.
Regarding "keyword spam score," I/P Engine believes this term is relevant
— which, as agreed by Google, is relevant to this case. Although
I/P Engine cited the one Google document, that single document clearly sets forth the
and VP Engine seeks information on
is calculated, how it is represented, how it is used in the AdWords system,
and how it is discussed at Google. This includes the system architecture and
operational/functional descriptions of each component of
which clearly
incorporates
. Hence, I/P
Engine's ability to determine these inquiries is relevant to this case.
Regarding the terms "virtuous circle," ("Relevance" and "holy grail"), "conversion rate," and
"revenue per search," VP Engine maintains that these terms are relevant to this case because they
are terms used by Google in its ordinary course of business related to the accused product. See
the attached publicly available documents — which 1/P Engine will be producing with bates
ranges shortly.
For example, referring to G-IPE-0061318, Google states under the heading
"we will have achieved the "holy grail"
This is likely the
. . •" Moreover,, we refer you to the attached publicly
available document (Relevancy: The Holy Grail of PPC). Certainly, given Google's statements
related to
the term ("Relevance" and "holy grail") is
relevant.
Confidential Outside Counsel Only
Los Angeles I New York Orange County I Silicon Valley I Stamford I Washington, DC
OS M DB-3 037402
DICKSTEINSHAPIROLLP
David Perlson, Esq.
March 9, 2012
Page 2
Moreover, terms such as "conversion rate" and "revenue per search" are used in publicly
available documents such as the attached Ad Words Help page (Improve your conversion rate —
AdWords Help) and article (000gle's Revenue per Search Overtakes Microsoft's). These appear
to be measures used to evaluate Googles search advertising systems.
In regards to "virtuous circle," we attach an article discussing Google and the "virtuous circle"
(Reverse Engineering Google's innovation machine). Additionally, a corresponding search term
may be (virtuous w/5 cycle). Referring to G-IPE-0011256, Google states under the heading
"MOTIVATION":
If Google agrees to the foregoing search -terms, then VP Engine will agree to withdraw "MI
and 111111" as proposed search terms.
results of your investigation with respect to (("LPQ" or "Landing Page
Quality") and score),
"), "Ad Shard", and
"Empirical Media." We also await word on the term ("Relevance" and ("Inventory" or "Ads
Coverage")). We understand that you will be providing us with those results in the next few
days.
1/P Engine awaits the
We remain willing to discuss these issues.
Be,st jegards,
,
t.Charles J. M6ntc& Jr.
tc-1
(202) 420-5167
MonterioC@dicksteinshapiro.com
UM/
cc:
Stephen E. Noona
David Bilsker
Kenneth W. Brothers
Jeffrey K. Sherwood
DeAnna Allen
Confidential Outside Counsel Only
DSMDB-3037402
AdWords Relevancy l Holy Grail of MCI Google AdWords "Eps
ii
ten.csebt Rua Pon h 0,nvSw 5Ifl.n
httri/www.calcu
arketing.com/b log/tee hniques/relevancy-the-h
wt.,t.ea)k,DIosam/bmth.Jne.tGawe(cllrJ*awl.
Relevancy: The Holy Grail Of PPC
rin going to tutus 111V fest posi on whal I before is tne rnaa rurderrarnal concept ri PPc
relevancy. Giving users srhnt bey are looking (or. Dreeling them to where their went to do •
answering Mai- questions.
1le01 21
—
Why? Because paid Searctr relettrinCy l'art pay rnaSsise diVidendS. Not only is a highly relevant pay per dick
(PPG) campaign more likely to receive a higher dick-hrough rale (CTR). higher Qualify Store. hkitier ad
ranking., lower cost. pen alidt (CPC) nett benefit tram laaawastod open& but uSets will more qualthod so
bounce rates are Ikety to tall Me rumba( a people whe immediately 'bounce back). coiwersion rates increase
and return On rwesirrient (ROI) WI ultimately imptcee. So a highty relevant paid starchcarrpaign is definitely a
good thing
lii atXiieva P1°C icievanui, keywords, ads and landing pages need la Went together in tenders_ Messages In
ads need to mach users'Searcti queries, landing pages need [Detach nteasegashl flea arid tandem pages
need Se Mole to users' odginal scorches_ (For a More detailed explanation of how each component ireerlinks,
you noght Ike to COCISUlt Aegias19'S Inert%ntwow.occ O'slo.corrahloantat..hivanvi.persisenNe ,voupppc -acrooni..
truntirrtserewl great article on AcnAiards relevancy and Qualify Score).
Closely metchieg ado end Medina pagne to keywordato oncounsoe only targeted and qualthal Wens lo viol
and one Mors been hound since the dawn of Googlo Adinfanis.
your sile is a Oblate beery,
So nothing new then– dees 111W wean relevancy i5 no longer relevant?
Wed, not exactly. ter two masons
Impossible to achieve
Firstly relevancy cart never be actseved in its poled NMI There wg always be ways a PPC advertiser can
improve his keywoni selection, negative keyword liSt. math type strategy, ad coPy Middling and lancIng page
selector) to give the um>, a more engaging anti personalized =perinea-ie. Joel like there winnows be a 100 rare
on llitafkitirrotwyt_t da..crefsha'SterL there Mill never ba a perfectly reletoM PPO campaign, One can only
skive towards perfection – towards the Holy Grail of relevancy,
Higher expectations
Secondly he bar of ielevancy is constantly being ralSed..nv search enghe continually improve balk Algorithms
to provide asess with reran relevant organic seamh results, so paid wards aids wit have to improre to keep lip
with the growing expectalionsof searcrors. Ads which might have been considered 'mite relevant' last year
may ho consented not so relevant* now. Ads wrtcri stricrentlyanswer StO spesseens ot searchers Wray may
not dc so rem year when people start to demand a more perannalized and tailored service.
So not onty
is the tidy Gralt ot ten...my te perfectly relevant campaign) Impossible to nerieve, but 4 is galling
more and morelmpossblo to achieve ea wo speak.
Cul et is flOt 1031 No-one extrecis perfection. atter sell. Just being better than the Oerransillencanreap massive
tonekto for athertisers. And us I'm about to point OW, getting better thane* competition donarrtneed tato
rerecult. There ore opportunities everywhere
Opportunities
Say you're interns-tad in its4ing Sydney and want senteeerrere to stay, Load up GOegto. ward) To' :Alai=
thea4,..pjaaJltimmiagtegsarn,pot.miglaslAgiaipsyParryllgits.gag) and lock Mete paid Search revolts.
Of the so Ppc ads, g maga r the wvoife 'Sydney' and *hotels'. Most of the ads era calling out to Ihe user,1
have hotels in Sydneyl Come tomer Pest Of the ads axe relevant to yotr search.
Rut lot's Say you known idle bit more about your Sydney hetet requirements, After all, you can't be botherms
*eking IntOugn each of Ule hundreds of paid search rosulls ter the 22,auto.ece organic rotas yor that matter).
Cnalet0 think of R. you ate kik:rested hi going to Sydney next weekend, you your refine your search query.
Search forwookond brcek eisLaytintir.IntipgiLvno wanr•ltcht,,n,AgoatonevadayMnankono.kanannill•Et aPin.I.iinCil End
1 of 5
leek a the paid semi, results. Although most ads menden 'Sydnoy, not a Mpg% acleorliser
319;2012 1:07 PM
AdWords Relevancy [Holy Grail of PPC 1 Google AdWords Tips
http://www.calculatemarketing.com/blog/techniques/relevancy-thc-h_
iridodes the words 'weekend or break' in Uwe ads Nu-arre is shouting out to the user, 'Vest have weekend
breaks In Sydneyl Come ta flier Every ad appear to be a generic 'Sydney ?toter ad that may or may not be
redevant lo your weekend requirements.
Suppose. instead. when starching tor 'weekend breaks in Sydney'. you saw one of the following ads:
Weritend Breaks in Sydney
Great Friday, Saturday &Sunday
rates at rne LUSUry Hotel, Sydney.
www.luxuryhotet.com .aufsydriey
Lhtrs
,,i_pnpakibaj! clarivpii
,
_22:,a,&)yjii an mitelhaili7W..9...hs.tr.e.S.M_WVeh7.y.Y.7!.igi7Nft7'..g.t2.r.tO21._...
ii,
5vdriey Weekend Break?
Stay at the Sydney Luxury Hotel
any Friday- Sunday tor only $199pp!
www.luxuryhotel.corn.aolsydney
ing;llwwwrzemar.lweemu.urrear rcrrwww. atm mitehe.corn.auhrg•euMentn,rurcarlsr20ear071weecens :3 ,2:110; tte.7.alltiza:i1
091
Suppose they took you thnough to a ape
'weekend break' page, speciliCally designed for people looking le
slay at the hotel over the weekend. None with suggestions of locat Sydney sights, activities and restaurants
that =Ad easily be fitted in over a weekend were reviews hum people staying at the hoist on Friday and
Saturday nights,
Would you be more likely to consider Ks hotel in your plane? I know m ght.
More opoorlunities
Okay any 36 peopte searched for 'weekend breaks In Sydney' In Jane riot these Were 35 people who knew
what they ware Writing tor and were delivered poor, genetic. one-rneSSage-hts-all ads.
'Weekend breaks in Sydney is rust ono example. Imagine all the hundreds tit similar qualified searches people
could make to End your products or services. sea people searched tor :51,11wiL.Ett)
ihttp:raw.iyi.Msnititchir2.ritir.„,u5&rad517009.1,7is5entbai.;bil4-)niea4rid) in June. bul most advertisers fag tO
mention 'CRY or even their location in their ads. lystney . hrls the r!,;(. Ka' gritoznaionait heilma.su
!still had 190 searches, bat orgy one advertiser mentions the phrase
The Rocks' In their ads. 73 people searched her
hOtely Sedneir laireghwiivoraorTtrhul Lum-__
nr
topigaz
rjaaureag=grox„,y , but only a handful of advertisers mention
_j_gi
star' or '3`. in their ads.
These are people who ;mow whet they want are wiling to pert with their cash If they cart fond it
rupiii.liwobaXiisvcinii~s.ina.rock,
it doesn't take long to find hundreds of other examples of keywords tot have significant search IfillUrna and are
being poorly served. There are oppodunilies everywhere.
Whet's MOTs, as demand tar beder search results grows. people wig start Making more of these 3.9. 5 and
5-word searches and expect bettor, relevant, mom personalised results. The winners will he the advertisers
who cater tor them. The losers will be the ones erho don't.
So how do .1 go about Improving the relevancy of my AdWords campaign?
Patience
I'm not gang to pretend there is a quirgc ovomight ftp (because there isn't). A highly relevant AdVaordis Campaign
takes patience, commitment and dedication.
Nor are there locImiques that wont for everyone. The whole purpose of Ns Hog is te share with you the PAC
techniques I hevO fOLIN to work in my experience. although I recedoise they will be tar from the be-olk
and-end-eller mild search management so t welcome your ideas and comments. Paid search is an ongoing
hottto to become bettor and batter, and it isn't going to Slop arly lima Soon.
But to keep things niik3 and simple, hens's a quick 5 minute sun-down n1 the essentials of mating a highly
relevant PPC campaign!
Keyword Research
Research keywords that people are searching tor There are hee tOols out there, such as Goopla'a keyword
Lggt.thrtpaidemygnis.aoeute.ce.oldssIsedtrevwordTgr,agemag, SO use them. Build up a comprehensive
keyword rAt. Not just with generic high-vokmre keywords, 2111:71 as 'cheap Sydney MUMS% but also with long-tail
keywords such as 'cheap hotels In Sydney CEILY and 'cheap hotels Sydney Dail%
tong-Mhs can
collectively be of significant volume arid provide a great opportunity for tailored ads,
Then research negative keywords, lots of them. Why waste money On clicks you know are completely
inalevanty Use tho keInvord tool to Identity kerNOttia that Might broad match to 'cheap Sydney hotels', Go
thmegh each result, making a note of anything yOu think is irrelevant. ts your Sydney hotel miles away horn
Sydney Almon? It so, add 'airport' as a negoevo keyword. Keep brairmastrOlOg negothes mil you have at West
a hundred.
Ad Group Structure
2 of:5
3/9/2012 1107 I'M
AdWords Relevancy j Holy Grail of PPC j Google AdWords Tips
http://www.calculatentarketing.com/blog/techniquesirelevancy-the-h_._
Once you have donrr your initIal research. group your koywords into small, dos.* limped ad groups of
generally fie Mere than 20-30 keywords each. Write ari descriplions that are relevant to me ad group's
keywords and include the ad groups keyWOrdS in your ads where possible. It you think yDU could write a more
relevant ed for a keyword if the keyword was in ifs awn ad group. split out that keyword into its own ad group
snd write a more rekvent and thitoree ad fa 0.
Think a the keyword as the goes-lion and the ad as the answer. Keep asking yoursolf. It searched for this
keyword and saw this ad. is it answering my question? II not. change it 5o it does.
Include offers and prices that are relevant to Ihe keyword, In mil 'Sydney Hotels Christmas 2009'arf group,
haw about Mentioning Christmas 2000one-es or early booking discounts?
Spend C As-artists syrktey
Great Rates for 25-25 Dec 2009.
Book by 31 July for Stie Discount
www.luxuryhoiet.corn,dalchristmas
ott_girLave,aixiiplicheli roix.xiktittgz=i.ataninegiog.eumatowpi-coolgsti_ggipetaRsreyirhiiianas
yd km!
You're trying to make your ads as relevant as possible to the user's searches SO think about hovf you
angle your produds serviGes to appeal to users searching each of yorsr keywords.
Next, deap-link your keywords lathe most relevant page
on your
Could
sire. Don't have a roloyani landing page for a
set or keywords? Write one.
Rinse and repeat until you have hundreds ot ad groups, each with tailored ads and landing
pages that thatch
Me keywords trey cOntain.
Optimization
Then get opanismg. test new keYWOlds. New ado Now landing pages. Two keywords In ihrt same nri grouP
getang a lot .1 volume? Sprit the twO keywords out into separate ad groups andywite new ads that beller match
those keywords.
Run search query
reports to highlight
searches your keywords have broad.matched
Are they relerVant? It Bo, ltd theirs as ntw keywords in new ad gmupS and
and pthasemiatched to.
wigs tailored ads ter them. If not, add
thern as negative keywords to prevent your ads ShaWing forthem again.
It moy Seeth Ike a lot of work but its worth it With patience. your CTR wit Marl to increase. SO Will your Quality
Score. People will start to spond bnger OR your site arid view more pages. Returning visitors wig rise stB people
decide tO come back. Conversious rates will grow and sales Imiume wild Increase.
of relevancy Is not something you can aadeve overnight, or achieve at all far ttlAreuttet It is
only something you can arrive towards. PPC success favnUrs the dedicated. So keep testing and optimising.
The Hedy GOIO
Alan Wench Is an experienced Goo* AdVisiordS Consultant helping busIneSseI In Amnia inaease their
(01O rn 015 ley eStlilfiltalLIMPwwW uttCulOie^l ,1hMg145;_TI:I.V212.Y.:.1.!kl.g..#22 -DPV,E from PPC Inafkerogi
For more information on how a highly-relevant and atored approach to PPC con benefit your business, ggLig
ustrizilwino iisktkietear_kannaeargicrenaritrenet today for a tree ionsUitagOn.
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COMMENTS (10)
your cow site,
TRACKBACKS (5)
IdTA13-1)
MattsstiargspLia by heanneout on July 25th„
3 of 5
3/9,2012 1:07 PM
Improve your conversion rale - AdWords Help
htlp://support_google_coniladwordsThinIanswer. pyThl=en&answer=240419R
Search AdWords help
Improve your conversion rate
Are you getting a good amount of traffic from your ads but not such a good amount of people actually buying or signing up for
things? You can use Conversion Tracking to measure how many people are actually buying or signing up for things (we call
these actions "conversions") after they land on your website. Then, there are a number of things you can do to improve your
conversion rate, like adding more specific keywords and negative keywords.
Track your success with Conversion Tracking
Before you start making any big changes to youi auwurit, it's probably a good idea to sea how much business your ads are
currently generating. AdWords shows you the number of impressions and clicks you get with your ads, but wouldn't it be great if
AdWords could also show you the number of conversions you're genii-9? VVeU, AdWords can do that — with
Conversion Tracking .
After setting up Conversion Tracking, you'll be able to see how effective your campaigns are once you make adjustments to
them. For example, If you make a change to a campaign and notice your conversion rate increasing, that's a good sign that you
change is leading to a better perforning campaign.
Use specific keywords for better conversion rates
Once you're able to track your conversions, you can then focus on improving your conversion rate. Specific keywords often tenc
to have a better conversion rate than general keywords. For example, consider the keywords below. Which one do you think
leads to a higher conversion rate?
A.
Acme
B.
Acme printers
C.
Acme 710o
Generally, more spedfic keywords Re "Acme 710e tend to lead to a better conversion rate than general keywords like "Acme."
That's because people searching for specific models or product numbers have typically already researched their product and
want to make a purchase.
Keep in mind, however, that using more specific keywords can lead to fewer impressions. If your keywords are too specific,
fewer people may end up searching for those terms. The trick is to find the right balance between being general enough to
match what people are searching for, and specific enough to lead to conversions.
Use negative keywords to refine your traffic
Another way to try to improve your conversion rate is to use negative keywords , When you use negative keywords, your ad
won't show up when people search for those particular keywords. This is helpful when you're trying to limit your ad so that it
doesn't show up for people who are just browsing around and aren't ready to purchase anything yet
For example, some advertisers use ''free'' as a negative keyword. Unless your site offers free products or trials, you might want
to add this as a negative keyword to attract fewer people who are just looking for free products. People searching for free
products are probably less likely to make purchases.
Use the search terms report to reach the right customers
AdWords shows you how well your individual keywords are doing, but it can also show you the exact words that your customers
searched for when your ad showed up. You can view this list of terms in the search terms report .
After reviewing this report, you can then decide to add or exclude certain keywords from your keyword fist. Doing this can help
I of 2
3/9/2012 12:37 PM
Improve your conversion rate - AdWords Help
http://support.google.com/adwords/bin/answer.py?bl-en&answer=2404198
you target the right customers by either expanding or refining who can see your ad.
Example
Let's say you sell video games on your website. After looking at the search terms report, you see that your ad showed
up when people searched for "video game magazine." People searching for magazines probably aren't looking to buy
video games right now. In this case, you might want to consider adding "magazine" as a negative keyword so that
your ad won't show for these searches.
Meanwhile, you also see that your ad showed up for people searching for "video game figurines." And it just so
happens that you sell video game figurines too! In this case, you might want to consider adding "video game figurines"
as a specific keyword so that your ad has a better chance of showing up for this search.
Include prices in your ad to attract potential buyers
Another way to get more relevant traffic is to include prices in your ad text. If a customer sees the price of your product and still
clicks your ad, you know he's interested in potentially buying that product at that price. If he doesn't like the price, he won't click
your ad, and you'll save yourself the cost of that click.
As an experiment, you might want to consider adding prices in your ad text to see if that hekos your ads lead to a better
conversion rate. This can be especially effective when your prices are lower than your competitors1
To test whether this will work for you, you can run an experiment by creating a new ad and rotating your ads. When using ad
rotation, you can compare the clickthrough rates and conversion rates of the ad that includes the price versus the one that
doesn't.
Next steps
• Learn how to add new keywords and use keyword rnatcWrig options.
• Learn how to use ad rotation.
updated 02/2B/201
2 of 2
3/912012 12:37 PM
Gongle's Revenue per Search Overtakes Microsoft's - MarketingVOX
httpifiwww.rnarketingvox.corn/googles-revenue-per-search-overtakes-mi_
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1 of 2
3/912012 12:39 PM
Google's R evenue per Search Overtakes Mierosofts - MarketingVOX
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HARVARD BUSINESS
SCHOOL PUBLISHING
Reverse engineering Googie's innovation machine
Printer version
FROM HARVARD BUSINESS SCHOOL PUBLISHING
Every piece of the business plays a part, every part is indispensable, every failure
breeds success, and every success demands improvement.
In the pantheon of internet-based companies, Google stands out as both particularly successful
and particularly innovative. Not since Microsoft has a company had so much success so quickly.
Google excels at IT and business architecture, experimentation, improvisation, analytical
decision making, participative product development, and other relatively unusual forms of
innovation. It balances an admittedly chaotic ideation process with a set of rigorous,
data-dnven methods for evaluating ideas. The company culture attracts the brightest technical
talent, and despite its rapid employee growth Google still gets 100 applicants for every open
position. It has developed or acquired a wide variety of new offerings to augment the core
search product. Its growth, profitability, and shareholder equity are at unparalleled levels. This
highly desirable situation may not last forever, but Google has clearly done something right.
Indeed, Google has been the creator or a leading exponent of new approaches to business and
management innovation. Much of what the company does is rooted in its legendary IT
infrastructure, but technology and strategy at G000le are inseparable and mutually permeable
—making it hard to say whether technology is the DNA of its strategy or the other way around.
Whichever it is, Google seems to embody the decades-old, rarely fulfilled vision of IT pundits
that technology should do more than just support the business; it should engender strategic
opportunity and be architected with that purpose in mind. As such, Google may well be the
internet-era heir to such companies as General Electric and IBM as an exemplar of management
practice.
We haven't spent a lot of time in the Googleplex, and between us we've consumed only one of
the company's tasty and free cafeteria meals. One of us impulsively tried to question Sergey
Brin in the Googleplex courtyard, but he beat a hasty retreat and came close to calling security.
Fortunately, however, the company is quite open (there are scores of official and unofficial blogs
accessible through the company's website, for example), and non-insiders can find countless
clues as to how the company approaches innovation. Many of those clues we unearthed,
appropriately enough, through Google searches. Based on our years of observing how Google
does what it does so welt, we have identified a number of key innovation practices that others
can profitably adopt. To be sure, some of Google's attributes—two are its category-killing
search engine and a massive, scalable IT infrastructure—would be very hard and very costly to
emulate. But others—technology explicitly architected for innovation coupled with a
well-considered organizational and cultural strategy—can be applied diligently and successfully
by businesses across many industries.
Practice Strategic Patience
Google's mission "to organize the world's information and make it universally accessible and
useful" is so broad as to be imperial, yet Google clearly takes it seriously. Beyond its core
search and advertising capabilities, the company has embarked on ventures involving online
productivity, blogging, radio and television advertising, online payments, social networks,
mobile phone operating systems, and many more information domains.
What information management tools the company hasn't developed it has acquired: Picasa for
photo management; YouTube for online videos; DoubleClick for web ads; Keyhole for satellite
photos (now Google Earth); Urchin for web analytics (now Google Analytics). Google seeks to
master not only bits but also electrons: It recently announced an ambitious project to generate
low-cost green electricity. While few of these ventures make money tOday, they are all bricks in
the wall of its ambitious strategy, and few doubt Google's resolve or its ability to make progress
toward the ultimate goal. Almost every day the company announces a new product or feature
that chips away at information disorganization.
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With such a farsighted mission, the short-term profitability of a new offering doesn't seem to
matter as much to Google as it might to other businesses. The company's managers are
strategically patient. CEO Eric Schmidt has estimated that it will take 300 years to achieve the
mission of organizing the world's information. His 1,200-quarter forecast might invite smirking;
still, it illustrates Google's long-term approach to building value and capability. Google, unlike
many companies, can afford its broad mission and collection of innovations simply because its
search-based advertising is a fantastically profitable product that provides cover for many
unprofitable ones. The company certainly cares about accumulating customers, but its
executives believe that over time the business model and the money will take care of
themselves. At a 2007 Bear Stearns conference, Schmidt put it this way: "Ubiquity first,
revenues later....If you can build a sustainable eyeball business, you can always find clever ways
to monetize them."
In other words, not everything will take 300 years. If Google's expressed mission is to organize
the world's information, it has a somewhat less exalted but equally important unexpressed
commercial mission: to monetize consumers' intentions as revealed by their searches and other
online behavior. Search-based advertising is the first highly successful instantiation of this
mission.
What makes strategic patience work for Google are the company's clarity of purpose and
attention to detail, Everything Google does extends its reach_ It is informational kudzu, always
putting down new roots based on the thoroughly internalized principle that information shall be
organized by analyzing users' intentions. Companies aiming to learn from Google must first
understand that clear, simple directives underlie the vast infrastructure and ostensible chaos
that we'll describe here.
Exploit an Infrastructure "Built to Build"
Google has spent billions of dollars creating its internet-based operating platform and
developing proprietary technology. The investment in infrastructure allows the company to
guarantee specified service levels and sub-second response times. It also allows Google to
rapidly develop and roll out new services of its own or its partners' devising. The proprietary
technology gives the company unprecedented control over the design and evolution of its
infrastructure (and emergent strategy). The main attributes of Google's infrastructure are
these:
Scalability.
While the internet is of course available to every company, Google has made major investments
to get more out of it and to construct a proprietary platform that supports new and growing
Online services. According to unofficial but widely reported statistics, Google owns a network
infrastructure consisting of approximately one million computers; these run an operating
System that allows new computer clusters to plug in and be globally recognized and instantly
available for use, The operating software that performs this magic is a customized version of
open source Linux (which itself is built to make it easy for third parties to add features of
competitive value).
Another aspect of the infrastructure Is that the internet platform is built to scale. For example,
when Google needs more data centers, the proprietary operating system makes them easy to
add. And the company can move data around the world seamlessly to meet changing user
demand. Managing the petabytes of data Google accumulates requires special databasemanagement tools. Because existing commercial systems couldn't efficiently support such large
volumes of data, Google developed a proprietary database called Bigtable, which is tuned to
work with Google's operating system to process growing volumes of data quickly and efficiently.
An accelerated product - development life cycle.
Google's infrastructure is well suited to executing an entire product-development life cycle
rapidly and efficiently. Google engineers prototype new applications on the platform; if any of
these begin to get users' attention, developers can launch beta versions to see whether the
company's vast captive customer base responds enthusiastically. If one of the applications
becomes a hit, Google's enormous "cloud" of computing capability can make room for it. In the
process of moving products from the alpha to the beta phase, Google simultaneously tests and
markets them to the user community. In fact, testing and marketing are Virtually
indistinguishable from one another. This creates a unique relationship with consumers, who
become an essential part of the development team as new products take shape and grow.
Google does more than just alpha and beta test applications—it can host them on its
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infrastructure. Google's customers then transition seamlessly from testing to using products as
they would any other commercial offering.
Support for third-party development and mashups.
Google created its proprietary infrastructure to be a more efficient and reliable alternative to the
internet, ensuring a better user experience and higher quality of service. These purposeful
investments in hardware, operating systems, and database management enable the company
to exert control from end to end and to enhance such services as Gmail, Maps, AdWords, and
the advertising placement system AdSense. When Google creates an application, it pays
attention to the way it will fit into the infrastructure. Google Maps was therefore architected as
a service so that either the company's own engineers or those of third parties could use it as a
module to enrich additional services.
Indeed, Google's flexible infrastructure acts as an innovation hub where third parties can share
access and create new applications that incorporate elements of Google functionality. These
outsiders can easily test and launch applications and have them hosted in the Google world,
where there is an enormous target audience-132 million customers globally—and a practically
unlimited capacity for customer interactions. This benefits both parties: Google gets its product
widely adopted, and its partners can devote their energies to developing product functionality
important to their customers. For instance, a real estate company like Zillow.com can focus on
getting high-quality data on properties that have been bought and sold, and leave the maps and
display elements to Google or Microsoft.
In exactly this way, third parties browsing Google's infrastructure began creating what are
known as mashups—IT applications that combine data and program functionality from more
than one external source into an integrated customer experience. For example,
Housingmaps.com combines data from Craigslist with Google Maps to create an application that
allows users to see apartments for rent or houses for sale plotted on a map of the local area.
This notion of allowing useful services to be mixed and matched with relative ease across
organizational boundaries has interesting implications for the competitive environment and for
organizational efficiency, engendering a "just try it" class of lean innovation. (Technically, it is
made possible by web protocols such as XML and industry standards such as RosettaNet; these
allow for the level of interoperability among systems that IT users have long demanded.)
This model is attractive on several counts: The interactions provide continuous feedback for
iteratively improving or adding features to Google's product offerings. Moreover, the operating
platform furthers the goals of Google's advertisers by getting their messages in front of relevant
customers whose interests are revealed through their search terms. The dynamic interplay of
Google, its third-party innovators, users, and advertisers creates a virtuous circle with benefits
for all—and especially for Google (see the exhibit "Google's Innovation Ecosystem").
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can achieve the kind of purposeful design that allows the company to roll out innovations very
rapidly. For example, the engineers In Bangalore, India, who launched Google Finance combined
preexisting components scavenged from the Google infrastructure to create their new product.
Following this model, a company could create reusable software components, bake them into its
infrastructure, and make them accessible to the enterprise—or to members of the extended
enterprise who might be inspired to use them in building and delivering their own applications.
Rule Your Own Ecosystem
In the ecosystem we've just described, Google plays the role of a keystone—the component
that holds all others in place, as Marco Iansiti and Roy Levien describe in their book The
Keystone Advantage. As owner and operator, Google can control the evolution of its ecosystem
and claim a disproportionate percentage of the value created within it Because every
transaction is performed through, the Google platform, the company has perfect, continuous
awareness of, and access to, by-product information and is the hub of all germinal revenue
streams. There's no need for Google to do market surveys and statistical analyses to forecast
trends in the ecosystem; the information is already in Google's database.
While the sheer scale of Google's platform and the dominance of its search technology are
uniquely powerful assets, it's still possible to emulate a model built expressly to foster
innovation. Other companies can provide platforms that facilitate interactions with the partners
within their value systems, becoming the hub of exchanges between and among them. Li &
Fung, founded in Guangzhou, China, in 1906, has done just that within the apparel industry.
Once it understood its hub position, Li & Fung ceased to be a trading company and became an
orchestrator of highly customized end-to-end supply chains. It now participates in myriad
decisions ranging from sourcing raw materials to manufacturing garments and managing supply
chain logistics for the delivery of finished goods. Li & Fung's global platform has created a
standardized way for several thousand partners to instantaneously interact and coordinate
activities.
Within the enterprise software market, Salesforce.com has used its AppExchange platform to
build an ecosystem of individual developers, independent software vendors (ISVs), and end
users. Its infrastructure hosts applications, integrates them, and supports users' database and
data-center requirements. Because of its position as the hub of all activities within its
application domain, Salesforce.com can sell more subscriptions to its product. Developers
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benefit from the AppExchange infrastructure and access to customers.
Exercise Architectural Control
Under the right conditions, a company can create and exercise architectural control_ As we've
discussed, Google has demonstrated the feasibility of tracking the performance of mashups—a
testament to the strength of its infrastructure. However, even companies lacking such
infrastructure can maintain a firm hand in managing their ecosystems.
In executing an ecosystem strategy, it's critical to negotiate relationships from a strong
competitive position, particularly when using an internet-based operating platform. Consider
Amazon, which allows third parties to bundle its capabilities into their branded services. Amazon
benefits from the ease with which it can track web behavior and closely monitor the
performance of those services. For example, it allows a third-party developer, Amazon Light
4.0, to affb: a different user interface to Amazon's database of books. In addition, AL4 combines
news from Yahoo, blogging from Google, tagging from del.icio.us , and search from eBay into
the same service. When'a user decides to buy a book, the service directs the request to
Amazon. AL4 initially included links to Netflix and iTunes; but since Amazon was providing an
important service resulting in transactions and revenues for AL4, it was able to exercise its
power to remove those competitors from the ecosystem.
The promise of revenues for everyone fuels these opportunistic alliances. However, during the
early phases of innovation, revenues are speculative. Neither Google nor the third party building
an application knows whether customers will find it useful. Given this uncertainty, third parties
may prefer to innovate and test the application without first engaging in contract and revenuesharing negotiations (delaying complicated and potentially entangling discussions until a critical
mass of users embraces a product appreciably reduces the risk of failure). Customers benefit
from faster access to more profuse innovations; Google benefits because it creates additional
options for driving incremental traffic to its platform; the developer benefits if one of its
applications creates enough value to warrant negotiations with Google to arrange a revenuesharing deaL In the end, though, architectural control resides in Google's ability to track the
significance of any new service, its ability to choose to provide or not provide the service, and
its role as a key contributor to the service's functional value.
But control and ambition are not things you flaunt. Ecosystem-oriented innovators strive to
avoid the appearance of competition by claiming to help everyone. For example, Google
executives seldom miss an opportunity to remind the world that they don't compete with media
and content companies. Instead, they characterize media companies as their partners. Not
everyone is so sure: Sir Martin Sorreil, chief executive of the advertising giant WPP Group,
noted in the firm's 2006 annual report that it's not clear whether Google is friend or foe. The
deals Google is doing suggest that its ambitions are far broader than just online advertising.
Google hopes to use its platform, with applications relevant to ad buying, to help media
companies track the effectiveness of campaigns and help advertisers allocate their marketing
dollars effectively across print newspapers and magazines, radio, television, mobile devices, and
the web. It is quite possible that what Google learns across various media as it solves problems
for the ecosystem partners may position it to become the competitor that it now claims not to
be.
This model has vulnerabilities, of course_ As the infrastructure provider, Google has to prove
itself constantly to keep its legions of users from being tempted by rivals. Otherwise, many
might defect—and take Google's coveted advertisers with them. Likewise, if Googie were to
violate customers' trust by not properly securing their data or if its platform suffered significant
downtime, those derelictions, too, could trigger a large-scale loss of customers. Innovation and
continuous improvement are strategies to hedge against those prospects. And at Google,
there's more to innovation than technology and infrastructure. Google's organizational culture
plays a key role.
Build Innovation into Organizational Design
Companies wishing to emulate Google should also look to its organizational design. Many
aspects are importable; let's take a look at the key ones.
Who Should Use Google as a Role Model?
If your company aims to improve innovation capacity, consider emulating these key attributes
that have contributed to Google's success.
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One dear reason for Google's success at innovation is that the company does what many others
do not: budgets for it in employee time. New ideas at Google are often generated by
employees, from the bottom up, in a prescribed system of time allocation. Technical employees
are required to spend 80% of their time on the core search and advertising businesses, and
20% on technical projects of their own choosing. As one new Google engineer put it in a blog:
"This isn't a matter of doing something in your spare time, but more of actively making time for
it. Heck, I don't have a good 20% project yet and I need one. If I don't come up with something
I'm sure it could negatively impact my review."
Managers, too, are required to spend some of their time on innovation, dedicating 70% tO the
core business, 20% to related but different projects, and 10% to entirely new businesses and
products. The company recently created a new position—"Director of Other"—to help manage
the 10% time requirement. (Nontechnical, nonmanagerial employees have no discretionary
time—a regrettable omission, we believe.) These percentages—particularly the 20% slice for
engineers—are closely managed, although the allocation is not necessarily weekly or even
monthly. For example, an engineer might spend six months on the core business, and work for
a couple of months on a discretionary project. Even CEO Eric Schmidt and founders Sergey Brin
and Larry Page try to adhere to the scheme. This explicit investment in innovation—supported
by the management strategy—has produced streams of new products and features. During one
six-month period, Marissa Mayer, Google's head of search products and user experience,
explained at a talk at Stanford, more than 50 new products resulted from Google engineers'
20% time investments—accounting for half of all new products and features (including Gmail,
AdSense, and Google News) developed during that period.
Eliminate friction at every turn.
Before becoming an authorized project, an idea must pass through a qualification process. It
must be prototyped, piloted, and tested with actual users in a controlled experiment. Yet it
would be a mistake to assume that Google's process is slow and bureaucratic. As another
engineer-blogger put it, change can still happen quickly and efficiently:
In my first month at Google, I complained to a friend on the Gmail team about a couple of small
things that I disliked about Gmail. I expected him to point me to the bug database. But he told
me to fix it myself, pointing me to a document on how to bring up the Gmair development
environment on my workstation_ The next day my code was reviewed by Gmail engineers, and
then I submitted it. A week later, my change was live. I was amazed by the freedom to work
across teams, the ability to check in code [submit workable programs] to another project, the
trust [placed] in engineers to work on the right thing, and the excitement and speed of getting
things done for our users....I didn't have to ask for anyone's permission to work on this.
Google's approach to innovation is highly improvisational_ Any engineer in the company has a
chance to create a new product or feature. That individuals can have such influence has allowed
Google not only to attract high-quality employees (including some of the world's best computer
scientists, statisticians, and economists) but also to create a large volume of new ideas and
products. A recent New York Times article, which explored Google's perceived assault on
Microsoft's hegemony in business software applications, quoted former Microsoft engineer Vic
Gundotra on what drew him to defect to Google: "It became obvious that Google was the place
where I could have the biggest impact. For guys like me, who have a love affair with software,
being able to ship a product in weeks—that's an irresistible draw." Google appears to be adept
at stripping away nonessential process while still preserving important checks and balances for
value, quality, and usability.
Let the market choose.
There is no grand design for how new offerings fit together_ Instead, Google executives assume
that users will determine the success of innovations and that the company's strategy will
emerge as particular offerings prosper and build on each other—or else wither. In effect, Google
has "crowdsourced" its product strategy.
The emphasis in this process is not on identifying the perfect offering, but rather on creating
multiple potentially useful offerings and letting the market decide which are best. Even a
modest fraction of Google's more than 132 million users constitutes a massive test bed and
focus group for evaluating the potential of new products. Among the company's design
principles are "ubiquity first, revenues later," and "usefulness first, uSability later." When Google
can't build ubiquity, it buys it—as seen in its enormous investments in YouTube and DoubleClick
to acquire those already pervasive web franchises.
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Cultivate a taste for failure and chaos.
Google is on the lookout for its third major commercial hit, after search and advertising. Its
approach is to release many products and hope that some of them will become blockbusters.
It's not entirely clear how many products Google currently supports (a Wikipedia entry lists 123
as of February 2008). Schmidt admitted in an interview that even he didn't know how many
offerings Google had on the market; at another point, he conceded that the number of new
products is "confusing to almost everyone." While more than 100 products might not impress
executives at Procter & Gamble, it is a breakneck pace of technology innovation for an
organization that's less than a decade old. (Indeed, Brin hopes to have Google launch fewer
products with more features, lest customers have to use Google's own search engine to hunt
down the company's offenngs.)
Given the strategy to let a thousand flowers bloom, many products are bound to fail. Flowever,
Google executives appear to be undeterred by failure. In fact, Schmidt encourages it: "Please
fail very quickly—so that you can try again" is how he described his outlook to the Economist.
Similarly, Page told Fortune that he had praised an executive who made a several-million-dollar
blunder: "I'm so glad you made this mistake. Because I want to run a company where we are
moving too quickly and doing too much, not being too cautious and doing too little. If we don't
have any of these mistakes, we're just not taking enough risk.'" Needless to say, that level of
risk tolerance is rare in corporations, despite the widespread belief that error and innovation go
hand in hand.
The word "chaos" comes to mind when reflecting on innovation at Google. Shona Brown, before
she became Google's senior vice president of business operations, coauthored a book that was
subtitled "Strategy as Structured Chaos." Laszlo Bock, who reports to Brown as head of
personnel, told the Economist, "We kind of Eike the chaos. Creativity comes out of people
bumping into each other and not knowing where to go." This means that a revolutionary new
product emerging from the Google soil might not get noticed for a while—but recall that Google
is in no hurry.
It is too early to say whether this approach to innovation will be a demonstrably superior way of
creating numerous highly successful products. It's not too eady, however, to conclude that the
strategy yields an impressive number of new products and product features. Google's
commitment to budgeted innovation and a frenzied, low-friction product-development process is
already worthy of emulation by firms that simply need more new products and services to offer
the marketplace.
Support Inspiration with Data
Innovation need not be entirely chaotic, and it isn't at Google. A key ingredient of innovation at
the company is the extensive, aggressive use of data and testing to support ideas. In a talk
given at Stanford in 2006, Marissa Mayer stated that presentations about new products made to
the executive team had better contain plenty of supporting data. This is not surprising in a
company founded by two highly analytical Stanford computer-science graduate students.
Google's focus on analytics and data goes far beyond that of most companies. Still, it's within
the reach of most organizations to adopt an analytics-driven approach to evaluating innovation.
Google has a massive amount of data available. For example, insight gleaned from the vast
clickstreams of its own and its partners' websites can be used to test and support any new idea
or product offering (unless it relates to such offline ventures as the green-energy initiative).
Google takes an analytical, fact-based approach not only to its core business of page-rank
algorithms but also to making any change in its web pages and deciding what new services to
offer. It's relatively easy to perform randomized experiments on the Internet: Simply offer
multiple versions of a page design, an ad, or a word choice. Every day Google does thousands
of experiments for its own benefit. It also offers customers the ability to do them. For example,
to help customers understand the value of their advertising with Google, the company bought a
web analytics company, renamed it Google Analytics, and now offers customers free tools for
assessing online ad effectiveness. Google is clearly competing through analytics.
Another order of analysis involves Google's use of nearly 300 prediction markets consisting of
panels of employees. It uses the panels to assess customer demand for new products ("How
many Gmail users will there be on January 1, 2009?"); company and product performance
("When will the first Android phone hit the market?"); competitor performance ("How many
iPhones will Apple sell in the first year?"); and some just for fun ("Who will win the World
Series?"). Prediction markets can be surprisingly accurate decision-support tools. One caveat,
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however: Senior executives who embrace their use should be prepared to hear the truth rather
than the answers that will most gratify them.
Gongle also employs an idea management system whereby employees can e-mail ideas for new
products, processes, and company improvements to a companywide suggestion box. Every
employee can then comment on and rate the ideas. This, too, is a form of prediction market,
though without the monetary bets (artificial currency, in Google's case). Google's founders and
senior leadership seem to be saying, "We're smart, but we're not smart enough to ignore data.
Nor are we smarter than thousands of our bright, motivated employees.'
From a technological and data standpoint, most companies would face few obstacles in adopting
the sorts of analytic and democratic approaches to innovation decision making that Google
uses. What truly sets Google apart from most businesses in this regard is its culture.
Create a Culture Built to Build
Google has an unusual culture of which only Some aspects are shared by other internet-based
businesses. It is largely technocratic, in that individuals prosper based on the quality of their
ideas and their technological acumen. Google's use of prediction markets suggests it places a
high value on the intellect and opinions of employees. Likewise, giving them budgeted time for
innovation shows high regard for their creativity. Google also attempts to provide plenty of
intellectual stimulation, which, for a company founded on technology, can be the opportunity to
learn from the best and brightest technologists. One employee told the "Google Jobs" website
that his favorite perk was the series of regular "Tech Talks" given "by distinguished researchers
from around the world....I've come to really appreciate the level of commitment Google has to
continued learning and education for their engineers." That Same employee, demonstrating that
stimulation spans broader interests, told the website that the "most amazing experience" he'd
had at Google was a single day during which "the chef Mario Batali came to give away copies of
his new book and [the cafeteria served] one of his menus for lunch. Then in the afternoon
Thomas Friedman gave a talk about the flattening world, and Robin Williams gave an
impromptu comedy sketch to close out the day."
If a company actually embraced—rather than merely paid lip service to—the idea that its people
are its most important asset, it would treat employees in much the way Google does. Google's
founders and executives have thought through many different aspeCts of the knowledge-work
environment, including the design and occupancy of offices (jam-packed for better
communication); the frequency of all-hands meetings (every Friday, with beer); and the
approach to interviewing and hiring new employees (rigorous, with many interviews). None of
these principles is rocket science, but in combination they suggest an unusually high level of
recognition for the human dimensions of innovation. Brin, Page, and Schmidt have visited and
appropriated ideas from other organizations—such as the software firm SAS Institute—that are
celebrated for how they treat their knowledge workers.
In exchange for the privileged treatment, Google expects hard, almost obsessive, work. It
therefore devotes considerable effort to identifying the best people, both before and after they
are hired. Employees are scored on 25 performance metrics, from how frequently they host
Tech Talks to the variability of their interview assessments for potential recruits (an interviewer
with variable ratings is considered good, because all recruits are not equally strong).
Management also systematically models the attributes of high-performing employees. It
continually modifies its hiring approach based on an ongoing analysis of which employees
perform best and most embody the qualities of "Googleness." Few organizations are both so
paternalistic and so highly analytical in evaluating performance. Another enterprise might try to
create such a culture, but that would require a rare degree of self-confidence on the part of its
executives_
As Google grows, will it continue to attract such talented and highly motivated people? Can it
retain its sheen? Newer startups like Facebook now compete for the same talent pool and may
boast cooler technologies and trendier products. Furthermore, Google may need to find new
financial incentives for employees, since its stock options are unlikely to keep growing at the
rate that has held since its IPO.
Innovating on internet time requires dynamic capabilities to anticipate market changes and offer
new products and functions quickly. Google has made substantive investments in developing
the capacity to innovate successfully in this fast-changing business environment. The company
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is pioneering approaches to organizational culture and innovation processes that continue to
attract high-quality employees. At the moment, Googfe sets the standard for twenty-firstcentury productivity and growth. If your company employs knowledge workers and needs to
innovate, can you afford to wait and see whether Google's approaches pay off over the long
term? We doubt It.
By Bala Iyer and Thomas H. Davenport (Baia Iyer (biyerObabson,,edu) is an associate professor
of technology operations and information management at Babson College in Wellesley,
Massachusetts. Thomas H. Davenport (tdavenvort(07 babson.edu ) is the President's Distinguished
Professor of Information Technology and Management at Babson College. His most recent book,
with Jeanne Harris, is competing on Analytics: The New Science of Winning (Harvard Business
School Press, 2007).)
President and Fellows of Hariard College
Source: Harvaril pirisiness Review
0 2012 The Economist Intelligence Unit Limited. All rights reserved_
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