seriously, as not only the market and competitive landscape will have changed. The expectation would require assumptions about the scale-up process into large-scale production and a successful entry into the market.
The first case will be similar to that of natural science when usually the initial condi- tions and corresponding equations of motion (or situation-related differential equa- tions) suffice to predict time-dependent trajectories. For the current discussion the ini- tial configuration (ch. 4.3.2) would be the starting point.
We shall take care as far as possible of the caveat that the very dynamic develop- ments of new firms in the first years in business (Table I.71) and short-term success does not allow inferences about sustainable success.
Serious issues for ex ante approaches are raised by the high complexity of new tech- nology-based firms (Figure I.128) which makes statistical approaches largely ques- tionable due to sample selection and keeping the structure in the answer sets. The multi-dimensionality of factors contributing to survival and growth of an NTBF and the much randomness of environmental changes impacting firm size result in situations which are often not expectable.
thoughtless bandwagon climbing, or incompetence whether in design or execution” (p.
46).
Finally, there is the unexpected outside event (cf. the German firm Heyl; Table I.76) This area indicates that “outside events that is events that are not recorded in the information and the figures by which a management steers its institution, are just as important. Indeed they often are more important” (p. 52).
Unexpected events or developments are often associated with the metaphor of the
“Black Swan.” And specifically (according to Nassim Nicholas Taleb) technological breakthroughs are referred to as “positive Black Swans” – unexpected events or de- velopments with huge positive consequences that in retrospect look inevitable. Some of them, such as Google (Box I.24) in technology entrepreneurship, come seemingly out of nowhere to dominate within a short time. Others take years to mature and are surprising only as people forgot they were there.
In the GST context expectation of a startup’s development by an outside observer is teleologically bound to known, explicitly measurable goals (objectives) or an explicit definition of what is viewed as “success” (Figure I.78, Figure I.122, Figure I.130) by the founders referring to the level of achieving the objectives – making intrinsic con- nections with varieties of strategy expressed in various forms.
Therefore, Google does not represent a “Black Swan.” Its early success is incommen- surable (impossible to measure or compare in value or size or excellence) with its early intentions and goals. It was “unexpectable” (Box I.24)!
Box I.24: Could one have expected extremely high growth on and soon after Google’s foundation?
Google Inc. is an American multinational Internet and software corporation specialized in Internet search, cloud computing, and advertising technologies. It hosts and deve- lops a number of Internet-based services and products and generates profit primarily from advertising through its AdWords/AdSense programs. The company was founded by Larry Page and Sergey Brin in 1998 while the two were attending Stanford University. 94
For Google an exorbitant jump in revenues is observed very few years after founda- tion (Figure I.159, Figure I.160). Google achieved crossing explosion-like the marker of $10 billion just eight years after foundation. Google has grown into one of the world’s biggest Web companies by market capitalization since its 2004 initial public offering.
According to Larry Page Google’s rise was due to being an innovator in both techno- logy and business. In order to be successful in technical innovation, said Page, you must understand the business and marketing side of the equation [Page and Schmidt 2002].
We shall consider the first five to six years of existence of Google, but shall focus, in particular, on the business orientation at and shortly after foundation (the first three years). This would provide the relevant information input into the expectation of further development (and growth) of the firm by an outside observer.
Google began in January 1996 as a research project by Larry Page and Sergey Brin when they were both PhD students at Stanford University in California. 94 The primary focus of “the “Google project” was to create a better search engine for the Web – better, for instance, than AltaVista or Excite. The project was called “The Anatomy of a Large-scale Hypertextual Web Search Engine” or simply, The Anatomy of a Search Engine.
The challenge was to crawl the Web efficiently and provide more relevant results than the search engines that were available at that time (better search and information handling). The project should provide a solution of the following problem: The dra- matic growth of the Web presented problems for crawling the Web – keeping the crawled information up to date, storing the indices efficiently, and handling many que- ries quickly. The Google project relied on the PageRank technology that the pair developed. [Woopidoo].
The famous search algorithm of Larry Page and Sergey Brin is essentially applying the ranking method used for academic articles (more citations equals more influence) to the sprawl of the Internet.
PageRank is not the Google ranking algorithm. Instead, it is just one of many different factors. However, it is the most known and a key element of what Google does. Stan- ford University, where PageRank was developed by Google’s co-founders, owns the patent on PageRank. However, Google’s IPO filing revealed that Google has been granted a perpetual license and that in October 2003, it extended an agreement giving it exclusivity to PageRank through 2011 [Sullivan 2004].
Page and Brin decided to convert their research project in Stanford University’s com- puter science graduate program into a formal company. Originally, Google was run from within the university under the Stanford University Website, with the domain google.stanford.edu. 94
The founders started with their own funds and those of their friends and family, but the site quickly outgrew their own available resources. In its early year Google allowed no advertising in their search engine results. The search engine became profitable in 2000 with the introduction of unobtrusive text advertisements placed along side search results. They eventually received private investments [Woopidoo].
The early assumption was that although ads would be an important source of reve- nue, but licensing search technology and selling servers would be lucrative. However, Internet search was considered such a low priority at the time that Page and Brin
could not find anyone willing to pay a couple of million dollars to buy their technology [Lietdke 2008].
The first external funding for Google was an August 1998 contribution of $100,000 from Andy Bechtolsheim, co-founder of Sun Microsystems, given before Google was even incorporated. They filed incorporation papers so they could cash a check made out to Google Inc. (incorporated on September 4, 1998). Google was based in a friend’s (Susan Wojcicki) garage in Menlo Park, California. And Craig Silverstein, a fellow PhD student at Stanford, was hired as the first employee. 94
Early in 1999, while still graduate students, Brin and Page decided that the search engine they had developed was taking up too much of their time from academic pur- suits. They went to Excite CEO George Bell and offered to sell it to him for $1 million.
He rejected the offer, and later criticized Vinod Khosla, one of Excite’s venture capital- ists, after he had negotiated Brin and Page down to $750,000. On June 7, 1999, a $25 million round of funding was announced, with major investors including the venture capital firms Kleiner Perkins Caufield & Byers (KPCB) and Sequoia Capital. 94
After foundation in 1998 Larry Page and Sergey Brin channeled their energy into its free search product and left much of the business planning to a 22-year-old Stanford graduate named Salar Kamangar, Google’s ninth employee. Larry Page and Brin managed the company up until it reached more than 200 employees in 2001, when they handed over the CEO position to Dr. Eric Schmidt [Woopidoo]. Eric Schmidt joined Google as chairman and chief executive officer – and revenues jumped tremen- dously for 2001-2002 (Figure I.159, Figure I.160).
“Kamangar joined Google after graduating from Stanford University in 1999, five years before the initial public offering, and his meteoric rise mirrored the company’s own comet-like trajectory. In seven years, Kamangar has gone from newbie to key player in one of the most remarkable corporate success stories of the decade. Among his accomplishments were writing the first business plan, becoming a founding member of the Google product team, and leading the engineering team that launched AdWords, Google’s proprietary method for tailoring Web ads to search terms.” [DeBruicker 2006]. Google generated profit primarily from advertising through its AdWords pro- gram.
In 2000, against Page and Brin’s initial opposition toward an advertising-funded search engine, Google began selling advertisements associated with search key- words. 94
Google’s rapid growth since its incorporation triggered further developments, acquisi- tions and also partnerships. In particular, there was another piece of software impor- tant for Google, “one they stumbled into when they bought Applied Semantics.”
[Altucher 2009] Sergey Brin has long been friends with Applied Semantics co-founder Gil Elbaz, Google pointed out. Interestingly, both Google and Applied Semantics had similar beginnings, as search engines with funky names launched in the late 1990s.
However, Applied Semantics moved more properly into the contextual advertisement, when it launched its AdSense program [Searchenginewatch 2003].
Google did not invent AdSense. Instead, they acquired the AdSense technology lock, stock and barrel – including the AdSense name – from Applied Semantics that Google purchased in April 2003 which was known as Oingo Inc. “Applied Semantics tooted their own Adsense horn well before Google picked them up.” An Oingo press release mentioned AdSense already on December 4, 2000 and an application for a trademark on October 22, 1999 showed the name already [FirstMention].
AdSense 95 is a proprietary search algorithm that was based on word meanings and built upon an underlying lexicon called WordNet, which was developed by researchers at Princeton University. The AdSense program places paid listings into Web pages, by analyzing the content of those pages and then selecting ads that seem most appro- priate [Altucher 2009].
“Applied Semantics is a proven innovator in semantic text processing and online ad- vertising,” said Sergey Brin, Google’s co-founder and president of Technology. “This acquisition will enable Google to create new technologies that make online advertising more useful to users, publishers, and advertisers alike.” 96
When Google acquired Applied Semantics in April 2003 Susan Wojcicki, director of product management, explained more benefits. “Bringing on additional engineering support is also a key component.” [Searchenginewatch 2003]. With the acquisition Google gained additionally employees already versed in the contextual ad space, an engineering team with its own unique ideas and methods of powering contextual ads plus a few existing partnerships [Sullivan 2003].
Furthermore, the acquisition of Applied Semantics gave Google new traffic for its paid listings, new strengths in the contextual advertising space, which Google entered and also potentially hurt then major Google-competitor Overture [SearchEngineWatch 2003]
Google’s core business of selling search-based advertising, which allows companies to purchase ads tied to specific keyword searches, became one of the most lucrative and rapidly growing markets in the high-tech sector. A detailed description of Google’s contextual ad business, Googlenomics, is described by Ley [2009].
Google’s early years were during the Dot-Com Recession and the disruptive jump in revenues in 2001/2002 cannot be attributed straightforwardly. However, reference to the origins to Google’s profits (search services versus advertisement contributions) provides the answer: It is the explosion based to a large extent on its AdSense ap- proach (Figure I.159).
As a summary, given the original intention when founding the firm on focusing on Web search Google’s later shift to contextual advertisement including the enforcement of the ad orientation and the related change of the business model, the role of Salar
Kamangar for developing AdWords and by taking over the firm Applied Semantics with its AdSense program, stumbling into that as Altucher [2009] described it, the explosive growth of Google (Figure I.159, Figure I.160) could not be expected considering founding intentions and orientations, but could not even expected looking at the development over the first two to three years.