← all stories

After the Web · Era 4 · Dot-coms and the crash

1996–2004IPO · 2004

Google

Two Stanford graduate students built link-based search as an academic project and at first sold it to other companies' portals. Google launched pay-per-click paid placement in February 2002, when GoTo.com (Overture) was already selling it. Overture's lawsuit was closed by a 2004 settlement: a license to the patent and 2.7 million shares for Yahoo.

Founders Larry Page · Sergey Brin
Domains google.com · google.stanford.edu (historical, 1997–98)
searchadtechauction-modelbackend-infraplatform

In brief

Google began as an academic project of two Stanford graduate students, not as a business: in a 1998 paper the authors wrote that search engines living on advertising would be inherently biased toward the advertisers. In its first years the company made money by selling its search to other companies' portals, and in October 2000 it launched advertising paid by impressions. Google introduced pay-per-click paid placement only in February 2002, while GoTo.com (the future Overture) had launched it as early as June 1, 1998. Overture filed suit in April 2002, and the case was closed by a settlement on August 9, 2004, ten days before the IPO: Google received a license to the patent and gave Yahoo 2.7 million shares for two disputes at once. Google's revenue for 2002 is $347.8 million in the first S-1 and $439.5 million in the August S-1/A: these are two ways of accounting for the same year.

How it started (the founders)

Larry Page and Sergey Brin met in 1995, when Brin was assigned to show the Stanford campus to a prospective graduate student. Page and his advisor decided to collect the links on the web; by Page's account, nobody was looking at the links, at which pages linked to which. The idea of ranking by links was set out in a patent application with a priority date of January 10, 1997; the patent was issued to Stanford University, not to Page personally. Brin came to it from the analysis of large data sets. The work was carried out by the Stanford Digital Library Project group with support from NSF, DARPA, and NASA; by the authors' own account, Scott Hassan and Alan Steremberg made a key contribution to the development, but they did not become co-founders of the company.

The company was incorporated in September 1998 (per secondary sources, on September 4), shortly after Andy Bechtolsheim's $100,000 check, written in August to a legal entity that did not yet exist. Until the end of 1998 the site lived on the university domain and belonged to Stanford.

Year-by-year timeline

Lesser-known but significant facts

  1. The founders' 1998 paper warned explicitly against the very model on which Google later grew rich. The authors expected that ad-funded search engines would be biased toward advertisers, and showed this with the query "cellular phone." A little over two years later Google began selling advertising.
  2. In 1999 GoTo.com and Google stood in the same list of Netscape search providers. Seven companies were equal "Premier Providers"; three years later one of them sued another.
  3. The first version of AdWords was not an auction. In October 2000 the price depended only on the position of the ad and was charged per impression; bids per click appeared in February 2002. The 2002 press release does not mention GoTo/Overture.
  4. The 2004 settlement closed two disputes, not one. Besides the patent, the parties were in dispute over Yahoo's warrant from the 2000 agreement; in June 2003 Google issued Yahoo 1,229,944 shares under the conversion terms, and Yahoo demanded more. For the two disputes Google gave up 2.7 million shares; in the S-1/A of 2004-08-18, the block is valued at $243 million at the midpoint of the IPO range ($90): $205 million (the midpoint of the $195–215 million estimate) goes to a one-time non-cash charge, and $38 million goes to intangible assets received under the settlement; in the version of 2004-08-09 (range $108–135), the charge was $260–290 million.
  5. 2002 revenue differs between the two versions of the S-1. The April S-1 shows $347.8 million, the August S-1/A $439.5 million; in the second, advertising revenue is presented gross, and payments to partners moved into cost of revenues. These are two methods of accounting, not the correction of an error.

Legend vs. the record

The first growth lever

The first lever: Google became the search "backend" for other companies' portals with ready-made traffic, and its own advertising caught up later. Netscape in June 1999, Yahoo in June 2000, AOL in May 2002. By the time of the Yahoo deal Google was serving 76 sites in 20 countries. In 2003 the Yahoo agreement accounted for less than 3% of revenue, and AOL for about 15% in 2002; the company did not depend on one partner the way Overture did, with about 60% of its revenue coming through Microsoft and Yahoo.

The second lever was paid placement. Google's revenue grew from $86.4 million in 2001 to $347.8 million in 2002 (+302%) per the first S-1, and to $439.5 million in the S-1/A. This growth cannot be tied to AdWords Select alone: the AOL deal also took effect in 2002 estimate. AdSense's share of revenue grew from 24% in 2002 to about 50% in the first half of 2004.

The paired story

The pair: Google and Overture Services (GoTo.com). The story: who invented paid search and who made the money from it. One idea, selling places in search results for a pay-per-click bid, ended differently for the two companies.

The fork: the same model, a different outcome. At Overture the pay-per-click bid was a product that depended on two partners; at Google it was one source of income alongside a search engine that drew users on its own. How much of this difference is owed to ranking that factors in click-through rate, and how much to the size of Google's audience, the documents do not separate estimate.

Scale in 2002: Overture reported gross revenue of $667.7 million, and Google $439.5 million on the gross basis of the S-1/A, so Overture was roughly 1.5 times larger. In the Overture dossier: the GoTo launch, the patent, the revenue structure, the 2003 Yahoo deal.

Parallels today (projects from the catalog)

What a builder can take from this in 2026

  1. The best technology is not yet a business model. From 1999 Google sold search to portals, from 2000 advertising impressions, and it added pay-per-click paid placement in 2002, when others had already invented and patented it.
  2. Someone else's distribution channel does not replace your own. Netscape, Yahoo, and AOL gave Google an audience, but in these deals Google paid its partners guaranteed payments: the price of a channel is written into the contract, not only into growth.
  3. Before launching a product that resembles someone else's, check the competitor's patents. The suit came 62 days after the launch, dragged on for more than two years, and was closed ten days before the IPO.
  4. Dependence on two partners is more dangerous than someone else's model. At Overture about 60% of revenue went through Microsoft and Yahoo; at Google neither Yahoo nor AOL provided a share like that.

Discrepancies and what we could not verify

Sources (primary first)

Internet History Keeper

Every historical dossier here is free and open, and it will stay that way. If you want the series to keep going (new dossiers, checks against primary sources, the English edition), support it with a subscription for $9.90 a month. It is support, not access, and you can cancel at any time.

Become a keeper — $9.90 a month →

The same thing, about today

The same breakdowns, but of projects launching right now: what the product is, where the first users came from, how they charge. The card is free, the full dossier is $5 (the dossier itself is written in Russian).

Browse the dossier catalog →