Since going public in August of 2004, Google (NASDAQ:GOOG) has roughly quadrupled in value. It now sports a market capitalization greater than Disney (NYSE:DIS), Amazon.com (NASDAQ:AMZN), General Motors (NYSE:GM), Ford (NYSE:F), and the parent companies of The Washington Post, The New York Times, and The Wall Street Journal combined. On a recent installment of The Motley Fool Radio Show, David Gardner talked Google with Pulitzer Prize-winning Washington Post reporter David Vise, the author of the new book The Google Story. In the first of three installments, David Vise talks hardware, hard profits, and hefty valuations.
David Gardner: David Vise is a Pulitzer Prize-winning reporter for The Washington Post and the author of the new book The Google Story. He joins us from his office in Washington, D.C. David, welcome.
David Vise: Thank you. It is great to be here.
David Gardner: David, you write that in terms of empowering individuals, Google is the most significant innovation since the printing press.
David Vise: There has never been anything quite like Google and its transformative power. Any individual without technical knowledge of a computer or how it works can sit down and, in the blink of an eye, get answers to questions and find information fast. And it is free. I think there is no breakthrough since the printing press that has more profound implications.
David Gardner: And you are drawing a contrast there between Google and Yahoo! (NASDAQ:YHOO), which is also a very big and successful company today and preceded Google? Are you saying that Yahoo!, despite doing some similar things, didn't quite do what Google did?
David Vise: That is right. Yahoo! has a very good search engine, but most people who use Yahoo!'s search engine do so because they have email accounts at Yahoo.com and it is a search engine that is the easiest to access from there. Most people who do searches on Google do so because they go to Google.com and they are seeking it out because Google has become synonymous with search. "To Google" is a verb that means "to search." That is true not only in English, but Google is a global presence in more than 100 languages.
David Gardner: So that whole "Do You Yahoo?" marketing campaign of some years ago just didn't have traction?
David Vise: Yahoo's business model is different. Yahoo! has really got a business model that is oriented to keeping you on the Yahoo! site as long as possible for you to be informed, entertained, to check your email, to do searches, whatever it may be. Google's business model, on the other hand, is to get you off Google as quickly as possible and get you to whatever it is that you are looking for on the web.
David Gardner: So many different directions I could go from here, but let's back up for a second. In 1998, Google co-founders Sergey Brin and Larry Page dropped out of graduate school at Stanford to, in their own words, "change the world." Is that still the prime directive for Google today?
David Vise: Yes, it really is. Their mission is to organize all of the world's information and make it accessible. They are looking to do things in the most innovative ways possible, and they are probably two of the most ambitious people I have ever met. Their ambition really is a very, very significant factor inside the culture and tone of the entire company.
David Gardner: David, how do Google's founders view Google today?
David Vise: Well, Larry Page, one of the co-founders of Google, is not very satisfied with the results of Google searches. On a scale of 1 to 10, he thinks that Google delivers about a 3. They want to do everything they can to improve the quality of search. For us ordinary mortals out here, we probably think search is pretty good, but Page thinks it has a long way to go.
I would say also that they have a very long-term time horizon. They talk about things they want to accomplish not next week, next month or next quarter, but over the next 20 years.
David Gardner: It is hard to talk about Google, of course, without talking about the stock. Google went public a little more than a year ago and now has a market cap in excess of $100 billion. For comparison, that's around twice as much as Disney's market cap. What is driving Google's valuation today?
David Vise: The valuation today is being driven by the fact that the fastest-growing revenue source of advertising is on the Internet, and Google is getting more of that than anyone else. Google profits entirely through small, text-based ads that are placed to the right of Google's search results and above Google's search results. That is true on Google.com.
That is also true on all the network-affiliated websites that have Google search and allow Google to deliver up ads. So, it is estimated that of all the rapidly growing ad dollars that are moving to the Internet from other places, Google itself is ending up with about one out of every three or four of those dollars. The projections are for Internet advertising to increase dramatically in the years ahead. Why? Because that is where people are spending more and more of their time. The ad dollars will follow the eyeballs.
David Gardner: OK, but now the stock is up four times in value. What do you think of the stock today? Undervalued, overvalued, do you want to make a call?
David Vise: There is no way for me, as a journalist, to responsibly give investment advice, but I would say that the stratospheric increase in market value that has been created by Google since its public offering is unparalleled in the history of American capitalism. We are talking about $110 billion of market value. That is more than The Washington Post, The New York Times, The Wall Street Journal, Disney and Amazon.com, General Motors, and Ford put together.
David Gardner: And all in seven years.
David Vise: Yeah. And, as a public company, in a year and a half or even less. So there is an enormous amount of value that has been created. A lot of people try to figure out where the Google stock price is going. This is early in the game. Is this Microsoft in 1990? I think it is impossible to know. There are risks in any investment, and there certainly are risk factors here. At the same time, I don't think anyone, including Google's founders, ever imagined that the company would be worth this much, this fast. And they have been heavy sellers of the stock.
David Gardner: Now, switching gears: David Vise, part of the brilliance of Google, you write, is GoogleWare, thousands of computers that form the backbone of Google's search technology. Give us a snapshot of what is actually happening when I Google something.
David Vise: When you do a Google search, you think that Google goes out there and searches the whole Internet and gives you a result or a table of results on your computer. That is not what happens at all. Google has actually downloaded previously and indexed and organized the Internet. Your search request is broken down into tiny little parts that are farmed out to personal computers that are linked by sophisticated software. You get your search results very, very, very quickly. Most of the time in under one second, a fraction of a second. The reason is that Google has already downloaded, indexed and organized this and your search request is being matched against that pre-existing database.
I would add that Google has what is believed to be the most powerful computing network in the world today. Most of us have rarely had a problem ever doing a Google search. The reason is that they have created redundant facilities around the world with multiple copies of the Internet, so that if your Google search can't be handled because of a technical glitch in one place, it gets picked up somewhere else.
Fool co-founder David Gardner's interview with David Vise, author of The Google Story, continues tomorrow and Friday on Fool.com.
