Sean Allen Fenn
TL;DR
In 1998, Bill Gross launched GoTo.com. It was a pioneering search site that introduced pay-per-click (PPC) advertising. PPC works by auctioning search results to the highest bidder. Yahoo acquired GoTo and renamed it Overture. Overture wasn’t a top search destination. But it laid the groundwork for the now-standard PPC advertising model. Page and Brin placed Google under Eric Schmidt’s leadership as CEO. Under his leadership, it evolved PPC further with AdWords in 2002. AdWords enhances it by considering both bid prices and clickthrough rates. It also introduced the “quality score” for ad relevance. This innovation propelled Google ahead of Overture. They attracted major partnerships. Which led to Yahoo’s failed attempt to acquire Google for $3 billion. Google’s strategic advancements continued with the acquisition of Android in 2005. Android allowed Google to enter the mobile market. This move challenged Apple’s iPhone and advertising revenue. Google’s smart acquisitions solidified its market position. This included Motorola Mobility for its patent portfolio. Meanwhile, Verizon acquired Yahoo for $4.83 billion in 2016. Less than what Yahoo could have acquired Google for when they had the chance. Larry Page and Sergey Brin have become some of the richest individuals in the world. Parent company Alphabet achieved a market capitalization of $2.32 trillion to $2.34 trillion.
Methods of Prosperity newsletter is intended to share ideas and build relationships. To become a billionaire, one must first be conditioned to think like a billionaire. To that agenda, this newsletter studies remarkable people in history who demonstrated what to do (and what not to do). Your feedback is welcome. For more information about the author, please visit seanallenfenn.com/faq.
Last week on Methods of Prosperity
The year was 1997. Another Stanford student, named Sean Anderson, helped Larry Page brainstorm names. Their new search technology needed a better name than “Backrub.” They came up with “Google,” which was a misspelling of “googol”. Andy Bechtolsheim was co-founder of Sun Microsystems. Page and Brin’s persuasive presentation impressed him. Their first investment of $100,000 came from him. The only problem was that Page and Brin hadn’t formed a company yet. That motivated them to incorporate Google Inc. Their operations evolved from a dorm room, to a garage in Menlo Park, to an office in Palo Alto. In 2003, Google expanded to the "Googleplex" in Mountain View, California. Yahoo turned down their pitch for an acquisition in 1998. Page and Brin went ahead and built out their product and team, undeterred. By 1999, Google surpassed every other search engine, except one.
The following is Methods of Prosperity newsletter number 45. It was originally deployed April 25, 2024. As of January 2, 2025, original subscribers have received up to issue number 81: Sam Zell (continued).
Part 45.
Key Lessons:
Patents (as well as trademarks) provide a moat.
Strategic acquisitions advance your position.
The game is winner-take-all.
You don’t have to be CEO.
Dominate your industry.
Never compromise.
We’re improving quality of life at scale for hard working families.
Inveresta Holdings LLC is seeking capital partners, brokers, and motivated sellers. You’re invited to secure your place on our waitlist now. You’ll receive details about our investment strategy. This is not an offer, solicitation of an offer, for anything at this time. All investments have risk. Past performance is not indicative of future results. Always do your own research.
The year was 1998. An entrepreneur launched GoTo.com. His name is Bill Gross. This was a search site which served text ads next to search results. Gross’ search site auctioned its results to the highest bidder. AltaVista, Yahoo, AOL, and MSN would pay big money for GoTo’s auction-driven results. GoTo never became a top-tier search destination, but they were on to something. It allowed advertisers to place sponsored links alongside search results. This enabled a precise way to measure returns. This strategy became known as pay-per-click (PPC), and it’s standard today. After the dotcom crash, Yahoo acquired Goto.com for $1.63 billion. They changed the name to Overture in 2001.
At that point, Overture was growing faster than Google. Overture had revenues of $288 million, while Google’s revenues were only $85 million. That year, Larry Page and Sergey Brin appointed Eric Schmidt as the CEO of Google.
That’s when Google took Overture’s idea one step further. In 2002, Google turned PPC into a smooth-running, money-printing machine called AdWords. Advertisers bid on keywords. Customers couldn’t game the system due to the sophisticated auction framework. Overture stopped at advertisers bidding on keywords. Google innovated on top of that. They didn’t determine ad prominence on a web page only by the price advertisers were willing to pay per click. It was also based on how many click–throughs that ad generated.
What are the second–order effects of click-throughs (or lack thereof)? Tracking the number of click-throughs gives advertisers better results. They can kill ads that aren’t working. Overture failed to track click-through rates. That’s why they couldn’t beat Google. Google could deliver better ad campaigns to its customers. They added a “quality score” to improve ad relevance and used a Vickrey auction. A Vickrey auction is a unique type of auction that uses a sealed bid. That means they’re secret bids. The winner pays the price of the second-highest bid, to prevent overpaying.
Before long, AOL dropped Overture for Google. That inspired Yahoo to engage in negotiations to acquire Google in the summer of 2002. Yahoo’s CEO Terry Semel offered to buy Google for roughly $3 billion. Yahoo previously declined Page and Brin’s $1 million offer in 1998. Now Page and Brin believed it was worth at least $5 billion. Google turned down Yahoo’s acquisition offer as a result.
Two years later, Google’s revenue was 2.5 times Overture’s. Google had a $23 billion market capitalization on the day it first went public, in 2004. Yahoo then decided to build its own search engine and search advertising technology. Yahoo believed they could compete with Google. Semel’s confidence in Yahoo drove this “plan B” approach. Could Yahoo develop its own competitive search solution? They acquired Google’s competitors Inktomi and Overture. That didn’t do enough to bolster its search and advertising capabilities. Yahoo struggled to integrate these technologies into its platform. They had cultural and technological differences. That made the integration process difficult. between Yahoo and the acquired companies. Yahoo executives failed to recognize the true potential of Google. They underestimated how it would become a dominant force. This lack of foresight and strategic vision led Yahoo to miss out on the opportunity. They should have acquired Google when they had the chance.
Google advanced. Page and Brin would build Google into a tech titan. Andy Rubin led the Android team. He co-founded Android Inc in 2003. The original goal was to create an operating system for digital cameras. Then they pivoted to mobile phones. Google acquired the mobile startup Android Inc in July 2005 for an undisclosed sum. Estimated to be around $50 million. The acquisition was not announced until a few weeks later, in August 2005. Andy Rubin joined Google's campus in Mountain View, California on July 11, 2005. That’s the official date of the acquisition.
Google had a strategy. Android’s mobile operating system was the way to expand. Google’s core search and advertising businesses expanded into the growing mobile market. They recognized that a mobile OS would help Google reach more users. Google increased its presence on smartphones and other mobile devices. Page and Brin likely saw the potential in Android technology. They recognized the talent of the Android team to help drive its mobile ambitions. Google viewed Android as a way to compete with other mobile operating systems. Their competition was Windows Mobile, Symbian, and BlackBerry. Can you guess what other rival Android would threaten?
Android allowed Google to develop a competing smartphone platform to the iPhone. This gave Google a way to challenge Apple’s dominance in the smartphone market. Android is open and customizable. This allowed device makers to use it on a variety of electronics. This included smartphones, tablets, and other devices. Android gained wide adoption, which positioned it as a major competitor to the iPhone.
Steve Jobs was a hero of Larry Page and Sergey Brin, but he was not happy. Not only did Google’s Android threaten the iPhone as a device, it also cut into Apple’s advertising. Google was able to leverage Android. It allowed for targeted ads which grew its mobile advertising business. This was in direct competition with Apple’s own mobile advertising efforts. It threatened Apple’s ability to monetize the iPhone platform.
The acquisition of Android patents allowed Google to better defend Android device makers. It was a barrier against patent lawsuits by Apple and other competitors. It was a moat around the Android ecosystem. Google has expressed its frustration for the current patent landscape in the US. They’ve accused Apple, Oracle and Microsoft of trying to take down Android. How? Through patent litigation, rather than innovating and competing with better products and services.
Controlling patents gives a company an edge over their competition. In December 2011, Google bought over a thousand patents from IBM. During that time, there were a myriad Android-related lawsuits.
Motorola’s extensive patent portfolio included around 14,600 granted patents. It included 6,700 pending patent applications. To add fuel to the fire, Google acquired Motorola Mobility in 2011. Google wanted to leverage Motorola’s hardware capabilities to develop better Android devices. Motorola became a dedicated Android partner. Google aimed to “enhance competition in mobile computing”. They wanted to create “amazing user experiences”. How else could they compete against dominant smartphone makers like Apple and Samsung? This was a way for Google to go “all-in” on the mobile device business.
Do you know about my livestream podcast? It’s called Hidden Secrets Revealed Live (HSRL), and I record it live on 𝕏 every Wednesday.
Larry Page resumed the CEO role in 2011. Eric Schmidt stepped down. Disagreements with Larry and Sergey may have had something to do with it. There was “friction” between Schmidt and the co-founders.
Their “point of view didn't necessarily jibe with [his] all the time, especially on issues like China and privacy”. According to The New Yorker, Schmidt “lost some energy and focus after losing the China decision”.
That decision was where Google withdrew censored searches against his wishes. Google once had a search engine in China (google.cn) but shut it down in 2010 due to censorship disagreements. Google faced challenges on multiple fronts. Which included social networking and government scrutiny. A combination of events led to Schmidt contemplating departure. Schmidt’s public image took some hits. It was a result of a series of verbal missteps and “gaffes” related to privacy issues. Which may have contributed to the decision for him to step down.
With former CEO Eric Schmidt now executive chairman, and Larry Page resuming as CEO. Google attempted to develop a social network to rival Facebook in 2011. Remember Google+?Google positioned it as a “project” as opposed to a stand-alone product. Some people felt that Google+ was a better option than Facebook. It offered features like cleaner design and better photo sharing. Facebook CEO Mark Zuckerberg saw Google+ as an “existential threat” to the company. In an effort to outmaneuver Google, Facebook went into “Lockdown” mode. Zuckerberg prevented employees from leaving the building. Facebook went so far as enticing hires away from Google. They implemented procedures to recruit top talent.
Google+ was unable to achieve the same level of traction and user adoption as Facebook. Google+ was a standalone social network. They integrated it across Google’s products. That discontinued it as a Facebook competitor. Facebook solidified its dominance in the social media landscape. Google+ was unable to pose a serious threat despite the resources Google devoted to it.
Facebook may have won that battle, but Google had their revenge against Yahoo. Verizon Communications acquired Yahoo’s internet properties for $4.83 billion in 2016. Less than the $5 billion that Yahoo had previously offered to acquire Google with.
Google restructured into a subsidiary of their holding company, Alphabet, in 2015. Eric Schmidt became executive chairman of Alphabet. Page became Alphabet’s CEO. Brin became its president. Under the new structure, Google remains Alphabet’s largest wholly owned subsidiary. They organized other Google projects and businesses under different Alphabet subsidiaries. The restructuring aimed to provide more transparency for investors. Google’s core internet businesses are separate from its riskier “Other Bets”. Which includes self-driving cars, internet balloons, and medical research. They appointed Sundar Pichai as the new CEO of Google. Pichai has been at Google since 2004. As of December 2019, Sundar Pichai is the CEO of Alphabet and its subsidiary Google. He also serves on Alphabet’s Board of Directors.
In conclusion, Sergey Brin’s estimated net worth is between $144 billion and $164 billion. He’s one of the wealthiest individuals in the world. Larry Page’s estimated net worth is between $149 billion and $157.9 billion. As of January 2025, Alphabet (Google) has a market capitalization of $2.32 trillion to $2.34 trillion.
Stay tuned for next week!
I like you,
– Sean Allen Fenn
PS: You don’t have to follow me on 𝕏, but you can partner with me to bring about serious advancement for each other.
Now you can join our SelfActualizer community. Learn more here.
