I interviewed Omid a couple of months ago for my B2.0 column, here it is in full.
TITANS OF TECH
The Wizard of Ads
Google’s Omid Kordestani conjured a formula that took its sales to $3 billion. Now he’s rethinking the world of advertising again.
By John Battelle, October 2005 Issue
You’ve heard of Larry Page and Sergey Brin, Google’s famous co-founders. But there’s another figure insiders know to be Google’s “business founder”: Omid Kordestani, the company’s 12th employee and senior vice president for global sales and business development. He may be the only sales guy on the planet who’s taken a company from zero to $3 billion in revenue — and from all appearances, he’s just getting started.
When Kordestani joined Google in the spring of 1999, the company had plenty of lava lamps, but no business model to speak of. Kordestani, a veteran Netscape salesman, recognized that the startup had one incomparable asset: its burgeoning Web traffic. Having overseen Netscape’s lucrative banner-advertising deals, Kordestani was a pro at leveraging the value of traffic.
Advertising — yes, those dead-simple text ads that appear alongside Google’s search results — accounts for 99 percent of the company’s revenue, making his formula for success seem deceptively easy. But where users once signed up to buy text ads with a credit card, Kordestani, 41, now has to manage relationships with agencies that want more control over their clients’ campaigns and with publishing partners who see Google as a prime source of online revenue — and a long-term threat to their media businesses. Business 2.0 sat down with Kordestani to find out how he keeps Google’s unstoppable sales machine rolling and what he sees coming next.
Is Google a technology company or a media company?
We’re absolutely deep in advertising, but let me clarify. The difference between us and our competition is that we innovate through applying technology. The angle of a media company is you’re packaging content or advertising inventory. We look at ads as commercial information, and that goes back to our core mission of organizing the world’s information. When people in the media world hear this, they say, “What are these guys talking about?”
Google has introduced a lot of products lately, but the engine of your revenue and profit is clearly your text-based AdWords. How did they start?
When I joined Google in 1999, we still hadn’t suffered the dotcom collapse, and a lot of money was still being spent on classic portal sponsorship deals, the kind I did at Netscape — multimillion-dollar deals. And at Google, I called those same clients and asked them to do a $1,000 or $5,000 AdWords test with me.
Once we proved that the text ads on Google could be successful and not interfere with the search experience, then it really turned into a science. We applied auction theory to maximize value — it was the best way to reach the right pricing, both for advertisers and for Google. And then we innovated by introducing the rate at which users actually click on the ads as a factor in placement on the page, and that was very, very useful in relevance.
Sergey Brin once told me that if AdWords didn’t work, he figured that Google could always run to DoubleClick as a life preserver. How close did you get to doing that deal?
Initially we debated whether to build our own ad product. Larry and Sergey believed we could develop a better product than the existing online advertising offerings, but we knew that they could be a fallback if Google’s ad program did not work.
Right after the collapse, people were cynical about online advertising. But we monitored our traffic and the click-through rate of the ads. It quickly became apparent that AdWords was working. The model was perfect because people were willing to try something out for $1,000 and see if they could get enough leads to justify additional spending. And as we gradually built a customer base, it had this nice trend line, up and to the right.
Did you ever realize how big this was going to get?
I didn’t. This is a difference between Larry and me. Larry said, “Are you crazy? I always thought it was going to be this big.” What was amazing about these founders was that during the hardest times, they had confidence that we could get through things. I’m very optimistic, but I’ve been through two unsuccessful startups, and I was at Netscape, where we had incredible challenges after competition heated up. So I wanted to be more paranoid about things.
Do you feel the pressure of being a public company now?
I certainly do, yeah. This level of growth is just unprecedented. But our business is different from traditional businesses. I’ve been in the enterprise software business, where the customer is trained to maximize discounts by waiting until the last day of the quarter to buy. You end up having the sales force trying to save the quarter on the last day.
The beauty of our business is we can’t do that. The way the auctions and the pricing models are working together involves lots of math — that’s the beauty of it. When it’s more predictable, when it’s more math-based, then in some ways you have more control. It’s not about doing a diving catch at the end of the quarter to make your numbers, but making sure all the dials on the dashboard are where you expect them to be.
What do you see as the future of advertising?
The measurability of online advertising will extend broadly to all areas of media. You have companies spending billions of dollars on television. As more and more consumers adopt technologies like TiVo, I think you’ll be able to have much more useful forms of advertising — more targeted, more measurable, and with new pricing models. Just imagine if we made it possible for our advertisers to quickly publish relevant ads that could range from the local plumber on one end to Super Bowl commercials on the other.
You’re now selling ads for a vast network of third-party websites. Is Google turning into an ad agency?
No. As a matter of practice, Google will work with advertisers in any way they want to work with us, whether directly, through a traditional agency, or through a specialty search-engine marketing firm. Google sees agencies as crucial. Agencies create and execute marketing strategies for their customers, and Google helps them execute those objectives.
You’ve taken some knocks from advertisers who feel frustrated because, they say, they can’t get anybody at Google on the phone. What are you doing about that perception?
People call us a black box because we make things too simple. I have a huge organization focused on this. And I apologize if people are not having the best experience. I take that seriously.
I’ve heard horror stories about click fraud. What’s your take?
We watch it very carefully. Whenever we find it, we are very good at refunding the advertisers. We’ve got some of our best researchers working on this. It becomes a little bit of a cat-and-mouse game where people become more sophisticated and try to beat the system, but ultimately we find it.
Google is the big target now. Microsoft is clearly gunning for you. Any feeling of déjà vu from your days at Netscape?
Netscape ran into a bad mix of competition and “gold rush” mentality in short order. Google, being a generation later, was able to learn from what Netscape did well and build on it. The best déjà vu is working with the distinguished Netscape alumni at Google.
John Battelle is program chair of the Web 2.0 conference and author of “The Search” (Portfolio, September 2005).
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For almost 10 years now I’ve done research in information retrieval/search. I was initially attracted to this area because I perceived it as an application in which one could use technology in a neutral way, as an economic and social leveler. You remember all that democratizing hype from the mid-90s, right?
So 1998-99 was an interesting time. In that era, I first heard about Overture, and I first heard about Google. Overture completely rankled me. The whole idea behind paid relevance was anathema to everything I believed search should be. Google, on the other hand, stood in direct opposition to that. And everyone, consciously or subconsciously, realized that, and loved ’em for it. It was that do no evil approach that everyone loved, and that Google consciously fostered.
However, in time, Google took pointers from the Overture playbook, and introduced AdWords. Yes, yes, I know. They don’t actually mix the paid links in with the rest of the ranks. They put it off to the side. And yet there is still a conflict of interest here, albeit subtle. It goes back to the whole notion of “relevance”. Case in point: Does Google intend for the paid results on the right to be “relevant” to your query? Yes, absolutely. That is the whole point of AdWords. So if these results are so relevant, why are they not on the left hand side, with the rest of the retrieved results? Not because someone paid for them to be there. But why are those web sites not in the ranked list of algorithmically-neutral retrieved results, simply by their own virtue or merit of being relevant? If you’ll notice, the ads are not just text, but do include a link to a web page. So shouldn’t Google’s main search engine rank those pages high, if they are indeed relevant to your query, even if no one has paid for them?
What I am trying to say, and I admit I’m not doing the best job of it, is that the very existence of separate Adwords-based result-links represent a catastrophic and irrecoverable failure of the Google search engine. If the web pages pointed to in these ads really are relevant, then they should appear, ranked highly, on the left. If they are not relevant, then they shouldn’t even be part of the paid results.
The consequence of this, I feel, is that Google has a direct (billions of dollars) financial incentive -not- to improve its search engine. Because if those web pages pointed to in the paid links started showing up in the regular results (just on their own merit and not as a result of being paid to be there) then advertisers would stop spending money on the ads. Advertisers would get the hits, without having to fork over the cash.
So money still affects the search results, it seems. The supposedly technologically neutral ranked list on the left is only improved in ways that don’t interfere with the success of the Adwords program. Indeed, 98% of Google’s revenue comes through this, so if Google improved its results such that advertising was no longer necessary, that the “relevant” commercial links appeared anyway, that money would dry up.
I guess the question I have, to any reader of this blog with more knowledge of this than myself (and that is probably most of you 🙂 is: are my concerns legitimate? I have reasonable trust that Google doesn’t actually let people boost their relevance, by paying for it, in the main engine. But can Google still organize the world’s information, when a successful organization of that information might do away with the need for advertising altogether?
My God.. This is simply great.
To be frank Mr John you know I was having this same doubt I read the same wuestion through every line in the “The Search “.
Good that you talked abt it now.
Could you please clarify my thinking
Problem: Search results are affected by dollars or not.
Description :U pay for ad. They give you high rank. Eventually your site is doing good and become a prominent player.I mean with out paying for the adword you still deserves a high rank..So why pay for google rank?
What is googles strategy on this?
please do clasrify my email id vijayvijay@gmail.com
Thanks
Vijay
Sorry When i meant rank.. I meant placing in the spnsored links. After more than 80% people cant distinguish between ads and ranking by studies..
>>>>>> Once we proved that the text ads on Google could be successful and not interfere with the search experience
It would be hard to imagine that having THREE Sponsor Links at the TOP before the Organic SERPs could NOT interfere with the user Search Experience
Take a Look at this Eye Tracking Study of Google SERPs
http://ww1.prweb.com/prfiles/2005/02/28/213516/cropped.jpg
http://blog.eyetools.net/
Would be interesting to get his comment on THIS
Great job w/Omid, John. The book is fabulous as well.
I just shared your link w/some Netscape alums and friends. Omid was an smart sales guy at Netscape. He (and Tim Armstrong too), deserves it all.
Brilliant. Hats off Omid!
Nice interview. Didn’t realise the Netscape influence was so strong at Google.
Really disagree with first comment.
By keeping the paid results separate from organic listings, Google maintains the integrity of their index (at least theoretically). For some searches paid results give better results, for most searches, organis results give better results.
I can choose which to use.
To clarify my first comment (in response to La Vie Viennoise)… it all boils down to this:
By trying to preserve the integrity of your organic results through separation of pages which advertise from pages that don’t advertise, you’ve actually compromised the integrity of your organic results. The moment you consciously prevent or exclude a site from being included in the organic results, those results are no longer organic!
I know this is a subtle point, and I know most people either disagree or simply don’t care. But here’s a simple thought experiment: Imagine starting some new website, say to help troubled teens. Nobody knows about your website, and it has a low Google rank. So you start advertising on television. Soon, you’ve driven lots of traffic to your site, and as a result, you start to get a lot of authoritative in-links to your page. Organically. Because people start to know and trust you. Your Google rank “organically” rises.
Now, imagine this same scenario, but instead of doing television advertising, imagine doing Google advertising. Same thing happens.. you start to get attention, web links, authority, etc. But because you are a paying for your Google advertisement, in the interest of “integrity”, Google consciously excludes you from the “organic” results.
Why? What’s the difference?
My point is, if you really are relevant, then you should be listed in the organic results, whether or not you also advertise. No, you should not let people be able to boost their organic rank by giving you money. Google doesn’t do that, which is of course good, and I’m not suggesting that they should.
But there is a reverse discrimination going on here. If Google didn’t exclude you from the organic results, then you would no longer have a need to pay for advertising (the same way you’d no longer have to run television ads) and Google’s revenue would drop. Thus, by keeping your listing artificially separate, Google makes more money.
Where is the integrity in that?
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Nice interview. You rightly point out that Omid is one of the unsung heroes of Google, but I would like to see a further delving into the story which he was a key part of: namely scaling Google up from virtually no revenues in 2000 to the behemoth it is today. How did they do that from a manpower & systems perspective?
Who out of the big 3 do you thing will be the first to learn to index Flash and Javascript
Just wondering what your outlook is.