About Google! 2008 Annual Report Unemployment 100 80 60 40 20 0 100 80 60 40 20 0 Foreclosure ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 We are all in uncharted waters. – CEO Eric Schmidt Query volume index for “unemployment” and “foreclosure” from Google Trends 2008 Founders’ Letter Since 2004, when Google began to have annual reports, Larry and I have taken turns writing an annual letter. I never imagined I would be writing one in the midst of an economic crisis unlike any we have seen in decades.
As I write this, search queries are reflecting economic hardship, the major market indexes are one-half of what they were less than 18 months ago, and els. unemployment is at record levels. Nonetheless, I am optimistic about the future, because I believe scarcity breeds clarity: it focuses minds, forcing g people to think creatively and rise to the challenge. While much smaller in scale than today’s global collapse, e, the dot-com bust of 2000-2002 pushed Google and others in the industry to make some tough decisions — and we all emerged stronger as a result. This new crisis punctuates the end of our ? st decade e as a company, a decade that has brought great change to Google, the web and the Internet as a whole. As I re? ect on this short time period, our accomplishments and our shortcomings, I am very excited about what the next 10 years may bring. But let me start a little farther back — in 1990, the very ? rst web page was created at http://info. cern. ch/. By late 1992, there were only 26 websites in the world, so there was not much need for a search engine. When NCSA Mosaic (the ? rst widely-used web browser) came out in 1993, every new website that was created would get posted to its “What’s New” page at p a rate of about one a day.
Just ? ve years llater, in 1998, web pages numbered in the t tens of millions, and search became c crucial. At this point, Google was a small research project at Stanford; later that r year, it became a tiny startup. The search y iindex sat on a small number of disk drives enclosed within Lego-like blocks. Perhaps a few wi thousand people, mostly academics, used the service. Fast forward to today, the changes in scale are striking. The web itself has grown by about a factor of 10,000, as has our search index. The number of people who use Google’s services every day is now in the hundreds of millions.
More importantly, billions of people now have access to the Internet via computers and mobile phones. Like many other web companies, the vast majority of our services are available worldwide and free to users because they are supported by ads. So a child in an Internet cafe in a developing nation can use the same online tools as the wealthiest person in the world. I am proud of the small role Google has played in the democratization of information, but there is much more left to do. Search remains at the very core of what we do at Google, just as it has been from our earliest days.
As the scale has changed dramatically over the years, the presentation and quality of our search results have also undergone many changes since 1998. In the past year alone we have made 359 changes to our web search — nearly one per day. Some are not easy to spot, such as changes in ranking based on personalization (launched broadly in 2005), but they are important in getting the most relevant search results. Others are very easy to see and improve search efficiency in a very clear way, such as spelling correction, annotations, and suggestions.
While I am proud of what has been accomplished in search over the past decade, there are important areas in which I wish we had made more progress. Perfect search requires human-level arti? cial intelligence, which many of us believe is still quite distant. However, I think it will soon be possible to have a search engine that “understands” more of the queries and documents than we do today. Others claim to have accomplished this, and Google’s systems have more smarts behind the curtains than may be apparent from the outside, but the ? eld as a whole is still shy of where I would have expected it to be.
Part of the reason “To organize the world’s information and make it universally accessible and useful. ” is the dramatic growth of the web — for any particular query, it is likely there are many documents on the topic using the exact same vocabulary. Nonetheless, as the web grows, so does the breadth and depth of the curiosity of those searching. I expect our search engine to become much “smarter” in the coming decade. So too will the interfaces by which users look for and receive information. While many things have changed, the basic structure of Google search results today is fairly similar to how it was 10 years ago.
This is partly because of the bene? t of simplicity; in fact, the Google home page has become increasingly simple over the years. But we are starting to see more signi? cant changes in search interfaces. Today you can search from your cell phone by just speaking into it, and Google Reader can suggest interesting blogs without any query at all. It is my expectation that in the next decade our searches and results will look very different than they do today. One of the most striking changes that has happened in the past few years is that search results are no longer just web pages. They include images, videos, books, maps, and more.
From the outset, we realized that to have comprehensive search we would have to venture beyond web pages. In 2001, we launched Google Image Search and via Google Groups we made available and searchable the most comprehensive archive of Usenet postings ever assembled (800 million messages dating back to 1981). Just this past fall we expanded Image Search to include the LIFE Magazine photo archive. This is a collection of 10 million photos, more than 95 percent of which have never been seen before, and includes historical pictures such as the Skylab space station orbiting above Earth and Neil Armstrong landing on the moon.
Integrating images into search remains a challenge, primarily because we are so reliant on the surrounding text to gauge a picture’s relevance. In the future, using enhanced computer vision technology, we hope to be able to understand what’s depicted in the image itself. photo credit: NASA CPU Transistor Counts 1971-2008 & Moore’s Law 2,000,000,000 1,000,000,000 Quad-Core Itanium Tukwila Dual-Core Itanium 2 GT200 POWER6 RV770 G80 Itanium 2 with 9MB cache K10 Core 2 Quad Core 2 Duo Cell Itanium 2 K8 P4 Barton K7 K6-III Atom 100,000,000 Transistor count 10,000,000 K6 PII K5 Pentium 486 PIII 1,000,000 386 100,000 286 8088 10,000 080 2,300 4004 8008 1971 1980 1990 2000 2008 Date of introduction While the growth of the web over the past decade has been tremendous, it has been paralleled by incredible strides in the capability of computer hardware. Without them, it would have been impossible for us to keep up. While the disks inside those duplos were on the order of 10 gigabytes (GB), the drives we use today are on the order of 1 terabyte — one hundred times larger. To put this in perspective, our ? rst major purchase when we started Google was an array of disk drives that we spent a good fraction of our life savings on and took several car trips to carry.
Today, I walked out of a store with a small box in my hand that stores more than all those drives and cost about $100. Similarly, the processors available today are about 100 times as powerful as those we used in 1998. Google has fully integrated the past 20 years of Usenet archives into Google Groups, which now offers access to more than 800 million messages: http://www. google. com/google groups/archive_announce_20. html. This is by far the most complete collection of Usenet articles ever assembled and a fascinating ? rsthand historical account.
At left is the oldest Usenet article, dating from May 11, 1981. Many books are difficult, if not impossible, to ? nd in bookstores or on library shelves, yet these make up the vast majority of books in existence. Video is often thought of as an entertainment medium, but it is also a very important source of high-quality information. Some queries seem like natural choices to show video results, such as for sports and travel destinations. Yet videos are also great resources for topics such as computer hardware and software (I bought my last RAID based on a video review), scienti? experiments, and education, such as courses on quantum mechanics. Google Video was ? rst launched in 2005 as a search service for television content because TV close-captioning made search possible and user-generated video had yet to take off. But it subsequently evolved to a site where individuals and corporations alike could post their own videos. Today Google Video searches many different video hosting sites, the largest of which is YouTube, which we acquired in 2006. Every minute, 15 hours worth of video are uploaded to YouTube — the equivalent of 86,000 new full-length movies every week.
YouTube channels now include world leaders (the president of the United States and prime ministers of Japan, the UK, and Australia), royalty (the Queen of England and Queen Rania of Jordan), religious leaders (the Pope), and those seeking free expression (when Venezuelan broadcaster El Observador was shut down by the government, it started broadcasting on YouTube). When it began, online video was associated with small fuzzy images. Today, many of our uploads are in HD quality (720 rows and greater) and can be streamed to computers, televisions, and mobile phones with increasing ? elity (thanks to improvements in video compression). In the future, vast libraries of movie theater-quality video (4000+ columns) will be available instantly on any device. Books are one of the greatest sources of information in the world, and from the earliest days of Google we hoped to eventually incorporate them into our search corpus. Within a couple of years, Larry was experimenting with digitizing books using a jury-rigged contraption in our office. By 2003, we launched Google Print, now called Google Book Search. Today, we are able to search the full text of almost 10 million books.
Moreover, in October we reached a landmark agreement with a broad class of authors and publishers, including the Authors’ Guild and the Association of American Publishers. If approved by the Court, this deal will make millions of in-copyright, out-of-print books available for U. S. readers to search, preview, and buy online — something that has been simply unavailable to date. Many of these books are difficult, if not impossible, to ? nd because they are not sold through bookstores or held on most library shelves, yet they make up the vast majority of books in existence.
The agreement also provides other important public bene? ts, including increased access to users with disabilities, the creation of a non-pro? t registry to help others license these books, the creation of a corpus to promote basic research, and free access to full texts at a kiosk in every public library in the United States. © 2009 Google – Data: U. S. Navy N B Beginning with our acquisition of Keyhole (the basis of Google Earth) in October 2004, it has been our goal to provide high-quality information for geographic needs.
By offering both Google Earth and Google Maps, we aim to provide a comprehensive world model encompassing all geographic information including imagery, topography, road, buildings, and annotations. Today we stitch together images from satellites, airplanes, cars, and user uploads, as well as collect important data, such as roads, from numerous different sources including governments, companies, and directly from users. After the launch of Google Map Maker in Pakistan, users mapped 25,000 kilometers of uncharted road in just two months.
We always believed that we could have an advertising system that would add value not only to our bottom line but also to the quality of our search result pages. Rather than relying on distracting ? ashy ads, we developed relevant, clearly marked text-based ads above and to the right of our search results. After a number of early experiments, the ? rst self-service system known as AdWords launched in 2000 starting with 350 advertisers. While these ads yielded small amounts of money compared to banner ads at the time, as the dot-com bubble burst, this system became our life preserver.
As we syndicated it to EarthLink and then AOL, it became an important source of revenue for other companies as well. While digitizing all the world’s books is an ambitious project, digitizing the world is even more challenging. Today, AdWords has grown beyond just being a feature of Google. It is a vast ecosystem that provides valuable traffic and leads to hundreds of thousands of businesses: indeed in many ways it has helped democratize access to advertising, by creating an open marketplace where small business and startups can compete with well-established, well-funded companies.
AdWords is also an important source of revenue for websites that create the content that we all search. Last year, AdSense (our publisherfacing program) generated more than $5 billion of revenue for our many publishing partners. Also in the last year we ventured further into other advertising formats with the acquisition of DoubleClick. This may seem at odds with the value we place on relevant text-based ads. However, we have found that richer ad formats have their place such as video ads within YouTube and dynamic ads on game websites.
In fact, we also now serve video ads on television with our AdSense for TV product. Our goal is to match advertisers and publishers using the formats and mediums most appropriate to their goals and audience. Despite the progress in our advertising systems and the growth of our base of advertisers, I believe there are signi? cant improvements still to be made. While our ad system has powerful features, it is also complex, and can confuse many small and local advertisers whose products and services could be very useful to our users.
Today, some Googlers have more than 25 gigabytes of email going back nearly 10 years that they can search through in seconds. Furthermore, the presentation formats of our advertisements are not the optimal way to peruse through large numbers of products. In the next decade, I hope we can more effectively incorporate commercial offerings from the tens of millions of businesses worldwide and present them to consumers when and where they are most useful. Within a couple of years of our founding, a number of colleagues and I were starting to hit the limitations of our traditional email clients.
Our mailboxes were too big for them to handle speedily and reliably. It was challenging or impossible to have email available and synchronized when switching between different computers and platforms. Furthermore, email access required VPN (virtual private networks) so everyone was always VPN’ing, thereby creating extra security risks. Searching mail was slow, awkward, and cumbersome. By the end of 2001 we had a prototype of Gmail that was used internally. Like several existing services at the time, it was web-based. But unlike those services it was designed for power users with high volumes of email.
While our initial focus was on internal usage, it soon became clear we had something of value for the whole world. When Gmail was launched externally, in 2004, other top webmail sites offered two- or four-megabyte mailboxes, less than the size of a single attachment I might ? nd in a message today. Gmail offered one gigabyte at launch, included full-text search, and a host of other features not previously found in webmail. Since then Gmail has continued to push the envelope of email systems, including functionality such as instant messaging, videoconferencing, and offline access (launched in Gmail Labs this past January).
Today some Googlers have more than 25 gigabytes of email going back nearly 10 years that they can search through in seconds. By the time you read this, you should be able to receive emails written in French and read them in English. The bene? ts of web-based services, also known as cloud computing, are clear. There is no installation. All data is stored safely in a data center (no worries if your hard drive crashes). It can be accessed anytime, anywhere there is a working web browser and Internet connection (and sometimes even if there is not one — see below).
Perhaps even more importantly, new forms of communication and collaboration become possible. I am writing this letter using Google Docs. There are several other people helping me edit it simultaneously. Moments ago I stepped away and worked on it on a laptop. Without having to hit save or manage any synchronization all the changes appeared in seconds on the desktop that I am back to using now. In fact, today I have worked on this document using three different operating systems and two different web browsers, all without any special software or complex logistics.
In addition to Gmail and Google Docs, the Google Apps suite of products now includes Spreadsheets, Calendar, Sites, and more. It is also now available to companies, universities, and other organizations. In fact, more than 1 million organizations use Google Apps today, including Also editing now: Sergey, KarenW, AlexS Genentech, the Washington D. C. city government, the University of Arizona, and Gothenburg University in Sweden. Because tens of millions of consumers already use our products, it is easy for organizations — from businesses to non-pro? ts — to adopt them.
Very little training is required and the passionate Google users already in these organizations are usually excited to help those who need a hand. In many ways, Google Apps are even more powerful in a business or group than they are for individuals because Apps can change the way businesses operate and the speed at which they move. For example, with Google Apps Web Forms we innovated by addressing the key problem of distributed data collection, making it incredibly simple to collect survey data from within the enterprise — a critical feature for collecting internal feedback we use extensively when “dogfooding” all of our products.
There are a number of things we could improve about these web services. For example, since they have arisen from different groups and acquisitions, there is less uniformity across them than there should be. For example, they can have different sharing models and chat capabilities. We are working to shift all of our applications to a common infrastructure. I believe we will achieve this soon, creating greater uniformity and capability across all of them. We have found the web-based service model to have signi? cant advantages. But it also comes with its own set f challenges, primarily related to web browsers, which can be slow, unreliable, and unable to function offline. Rather than accept these shortcomings, we have sought to remedy them in a number of ways. We have contributed code and generated revenue for several existing web browsers like Mozilla Firefox, enabling them to invest more in their software. We have also developed extensions such as Google Gears, which allows a browser to function offline. In the past couple of years, however, we decided that we wanted to make some substantial architectural changes to how web browsers work.
We ? rst created mobile search for Google back in 2000 and then we started to create progressively more tailored and complex mobile offerings. Today, the phone I carry in my pocket is more powerful than the desktop computer I used in 1998. It is possible that this year, more Internetcapable smartphones will ship than desktop PCs. In fact, your most “personal” computer, the one that you carry with you in your pocket, is the smartphone. Today, almost a third of all Google searches in Japan are coming from mobile devices — a leading indicator of where the rest of the world will soon be.
However, mobile software development has been challenging. There are different mobile platforms, customized differently to each device and carrier combination. Furthermore, deploying mobile applications can require separate business arrangements with individual carriers and manufacturers. While the rise of app stores from Apple, Nokia, RIM, Microsoft, and others as well as the adoption of HTML 5 on mobile platforms have helped, it is still very difficult to provide a service to the largest group of network-connected people in the world.
We acquired the startup Android in 2005 and set about the ambitious goal of creating a new mobile operating system that would allow open interoperation across carriers and manufacturers. Last year, after a lot of hard work, we released Android to the world. As it is open source, anyone is free to use it and modify it. We look To date, more than 1,000 apps have been uploaded to the Android Market. forward to seeing how this open platform will spur greater innovation. Furthermore, Android allows for easy creation of applications which can be deployed on any Android device.
To date, more than 1,000 apps have been uploaded to the Android Market including Shop Savvy (which reads bar codes and then compares prices), our own Latitude, and Guitar Hero World Tour. The past decade has seen tremendous changes in computing power ampli? ed by the continued growth of Google’s data centers. It has enabled the growth and processing of increasingly large data sets such as the web, the world’s books, and video. This in turn has allowed problems once considered to be in the fantasy realm of arti? cial intelligence to come closer to reality.
While the earliest Google Voice Search ran as a crude demo in 2001, today our own speech recognition technology powers GOOG-411, the voice search feature of the Google Mobile App, and Google Voice. It, too, takes advantage of large training sets and signi? cant computing capability. Last year, PicasaWeb, our photo hosting site, released face recognition, bringing a technology that is on the cutting edge of computer science to a consumer web service. Just a few months ago we released Google Flu Trends, a service that uses our logs data (without revealing personally identi? ble information) to predict ? u incidence weeks ahead of estimates by the Centers for Disease Control (CDC). It is amazing how an existing data set typically 2007-2008 U. S. Flu Activity – Mid-Atlantic Region • Google Flu Trends • CDC Data ili percentage 4% April 21, 2008 2% 0 While the world is increasingly going online, there is also a grave risk to the future of the Internet — multiple governments (in Europe, the Americas, and Asia) are exercising or contemplating enacting various forms of censorship.
We are aggressive about the legal means we use to defend freedom of expression and we always tell our users when information or websites have been removed from our web search results for such reasons. Last December, as part of our commitment to free expression and guarding our users’ privacy, Google was one of three companies to sign on to the Global Network Initiative — an effort by companies, human rights groups, socially responsible investors, and others to come together to protect and advance those rights.
While Google has always promoted these rights, the Initiative enables us to join together with the other groups to lobby on behalf of these causes. As a company, ultimately we have limited options other than withdrawing from a country altogether and providing no information or communications tools at all to its people. Since open access to information is critical for human rights, including freedom of expression, I believe those nations that value those rights should make them a critical part of their foreign policy and trade negotiations agenda. sed for improving search quality can be brought to bear on a seemingly unrelated issue and can help to save lives. I believe this sort of approach can do even more — going beyond monitoring to inferring potential causes and cures of disease. This is just one example of how large data sets such as search logs coupled with powerful data mining can improve the world while safeguarding privacy. Given the tremendous pace of technology, it is impossible to predict far into the future. However, I think the past decade tells us some things to expect in the next.
Computers will be 100 times faster still and storage will be 100 times cheaper. Many of the problems that we call arti? cial intelligence today will become accepted as standard computational capabilities, including image processing, speech recognition, and natural language processing. New and amazing computational capabilities will be born that we cannot even imagine today. While about half the people in the world are online today via computers and mobile phones, the Internet will reach billions more in the coming decade.
I expect that by using simple yet powerful models of computing such as web services, everyone will be more productive. These tools enable individuals, small groups, and small businesses to accomplish tasks that only large corporations could achieve before, whether it is making and releasing a movie, marketing a product, or reporting on a war. When I was a child, researching anything involved a long trip to the local library and a good deal of luck that one of the books there would be about the subject of interest.
I could not have imagined that today anyone would be able to research any topic in seconds. The dark clouds currently looming over the world economy are a hardship for us all, but by the time today’s children grow up, this recession will be a footnote in history. Yet the technologies that we create between now and then will de? ne their way of life. Sergey Brin Co-Founder; President, Technology Larry Page Co-Founder; President, Products UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K Mark One) E ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2008 OR ‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 000-50726 Google Inc. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 77-0493581 (I. R. S. Employer Identification Number) 1600 Amphitheatre Parkway Mountain View, CA 94043 (Address of principal executive offices) 650) 253-0000 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Exchange on Which Registered Class A Common Stock, $0. 001 par value The Nasdaq Stock Market LLC (Nasdaq Global Select Market) Securities registered pursuant to Section 12(g) of the Act: Title of Each Class Class B Common Stock, $0. 001 par value Options to purchase Class A Common Stock Indicate by check mark if the Registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act.
Yes E No ‘ Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ‘ No E Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes E No ‘ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ‘ Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Check one): Large accelerated filer E Accelerated filer ‘ Non-accelerated filer ‘ Smaller reporting company ‘ Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ‘ No E At June 30, 2008, the aggregate market value of shares held by non-affiliates of the Registrant (based upon the closing sale price of such shares on The Nasdaq Global Select Market on June 30, 2008) was $116,684,274,176. At January 31, 2009, there were 240,289,354 shares of the Registrant’s Class A common stock outstanding and 75,004,353 shares of the Registrant’s Class B common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant’s Proxy Statement for the 2009 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the Registrant’s fiscal year ended December 31, 2008. Form 10-K For the Fiscal Year Ended December 31, 2008 INDEX TABLE OF CONTENTS Page PART I Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. PART II Item 5. Item 6. Item 7. Item 7A. Item 8. Item 9. Item 9A. Item 9B.
PART III Item 10. Item 11. Item 12. Item 13. Item 14. PART IV Item 15. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Management’s Discussion and Analysis of Financial Condition and Results of Operation . . . . . . . . Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 18 32 33 33 33 34 37 38 60 62 97 97 97 98 99 100 100 100 101 i PART I ITEM 1. Overview Google is a global technology leader focused on improving the ways people connect with information. Our innovations in web search and advertising have made our web site a top internet property and our brand one of the most recognized in the world. We maintain a large index of web sites and other online content, which we make freely available via our search engine to anyone with an internet connection. Our automated search technology helps people obtain nearly instant access to relevant information from our vast online index.
We generate revenue primarily by delivering relevant, cost-effective online advertising. Businesses use our AdWords program to promote their products and services with targeted advertising. In addition, the thousands of third-party web sites that comprise the Google Network use our AdSense program to deliver relevant ads that generate revenue and enhance the user experience. We were incorporated in California in September 1998 and reincorporated in Delaware in August 2003. Our headquarters are located at 1600 Amphitheatre Parkway, Mountain View, California 94043, and our telephone number is (650) 253-0000.
Our Mission Our mission is to organize the world’s information and make it universally accessible and useful. We believe that the most effective, and ultimately the most profitable, way to accomplish our mission is to put the needs of our users first. We have found that offering a high-quality user experience leads to increased traffic and strong word-of-mouth promotion. Our dedication to putting users first is reflected in three key commitments: • We will do our best to provide the most relevant and useful search results possible, independent of financial incentives.
Our search results will be objective and we do not accept payment for search result ranking or inclusion. We will do our best to provide the most relevant and useful advertising. Advertisements should not be an annoying interruption. If any element on a search result page is influenced by payment to us, we will make it clear to our users. We will never stop working to improve our user experience, our search technology and other important areas of information organization. BUSINESS • • We believe that our user focus is the foundation of our success to date.
We also believe that this focus is critical for the creation of long-term value. We do not intend to compromise our user focus for short-term economic gain. How We Provide Value to Our Users We serve our users by developing products that quickly and easily find, create, organize and share information. We place a premium on products that matter to many people and have the potential to improve their lives. Some of the key benefits we offer include: Comprehensiveness and Relevance. Our search technologies sort through a vast and growing amount of information to deliver relevant and useful search results in response to user queries.
This is an area of continual development for us. When we started the company in 1998, our web index contained approximately 30 million documents. We now index billions of web pages and strive to provide the most comprehensive search experience 1 possible. Our team continually improves our relevance algorithms to objectively determine the best answers to our users’ queries and to place these answers at the top of our search results. We are also constantly developing new functionality and enhancing our offerings to allow our users to more quickly and easily find information. Objectivity.
We believe it is very important that the results users get from Google are produced with only their interests in mind. We do not accept payment for search result ranking or inclusion. We do accept fees for advertising, but the advertising is clearly marked and separated and does not influence how we generate our search results. This is similar to a newspaper, where the articles are independent of the advertising. Inclusion and frequent updating in our index are open to all sites free of charge. We believe it is important for users to have access to the best available information, not just the information that someone pays for them to see.
Global Access. We strive to provide our services to everyone in the world and the Google interface is available in 120 languages. Through Google News, we offer an automated collection of frequently updated news stories in 24 languages in 61 editions. We also offer automatic translation of content between various languages and provide localized versions of Google in many developing countries. Ease of Use. We have always believed that the most useful and powerful search technology hides its complexity from users and gives them a simple, intuitive way to get the information they want.
We have devoted significant efforts to create a streamlined and easy-to-use interface based on a clean search box set prominently on a page free of commercial clutter. We introduce new navigational or informational features when we believe they will be most useful to our users, and only after extensive usability testing and experimentation. Pertinent, Useful Commercial Information. The search for information often involves an interest in commercial information—researching a purchase, comparing products and services or actively shopping.
We help people find commercial information through our search services and advertising products. We also present advertisements that are relevant to the information people seek. Our technology automatically rewards ads that users prefer and removes ads that they do not find helpful. Multiple Access Platforms. The mobile phone is the primary way that many people around the world access the internet. We have continued to invest in improving mobile search and have introduced applications that allow users to access search, email, maps, directions and satellite imagery through their mobile devices.
Improving the Web. We want to make the web experience as good as possible for users around the world. This includes providing platforms for developers to build, deploy and run increasingly rich applications. For users, we are investing in areas to improve their experience in using web-based applications, including making browsers more stable and powerful. Products and Services for our Users Our product development philosophy involves rapid and continuous innovation, with frequent releases of early-stage products that we then iterate and improve.
We often make products available early in their development stages by posting them on Google Labs, at test locations online or directly on Google. com. If our users find a product useful, we promote it to “beta” status for additional testing. Once we are satisfied that a product is of high quality and utility, we remove the beta label and make it a core Google product. Our main products and services are described below. 2 Google. com—Search and Personalization We are focused on building products and services on our web sites that benefit our users and let them find relevant information quickly and easily.
These products and services include: Google Web Search. In addition to providing easy access to billions of web pages, we have integrated special features into Google Web Search to help people find exactly what they are looking for on the web. The Google. com search experience also includes items like: • • • • Advanced Search Functionality—enables users to construct more complex queries, for example by using Boolean logic or restricting results to languages, countries or web sites. Web Page Translation—supports 41 languages and automatically translates between any two of these languages, with a total of 1,640 language translation pairs.
Integrated Tools—such as a spell checker, a calculator, a dictionary and currency and measurement converters. Search by Number—lets users do quick searches by entering shipping tracking numbers, vehicle identification numbers, product codes, telephone area codes, patent numbers, airplane registration numbers and electronic equipment identification government numbers. Cached Links—provides snapshots of web pages taken when the pages were indexed, letting users view web pages that are no longer available.
Movie, Music and Weather Information—enables users to quickly and easily find movie reviews and show times, information about artists, songs and albums and weather conditions and forecasts. News, Finance, Maps, Image, Video, Book, Blogs, and Groups Information—Users are often best served by different types of results. When relevant, we also search display results from other Google products including Google News, Google Finance, Google Maps, Google Image Search, Google Video, Google Book Search, Google Blog Search, and Google Groups. • • • Google Image Search.
Google Image Search is our searchable index of images found across the web. To extend the usefulness of Google Image Search, we offer advanced features, such as searching by image size, format and coloration and restricting searches to specific web sites or domains. Google Book Search. Google Book Search lets users search the full text of a library-sized collection of books to discover books of interest and to learn where to buy or borrow them. Through this program, publishers can host their content and show their publications at the top of our search results.
We also work closely with participating libraries to digitize all or part of their collections to create a full-text searchable online card catalog. Google Book Search links bring users to pages containing bibliographic information and several sentences of the search term in context, sample book pages, or full text, depending on author and publisher permissions and book copyright status. In October 2008, we reached a settlement agreement with the Authors Guild and the Association of American Publishers over lawsuits in the U. S. over Google Book Search.
If approved by the court, millions more in-copyright books will be accessible to our users. Many books will be available for purchase even if they are out of print, expanding the market for authors and publishers to earn money from their works. Google Scholar. Google Scholar provides a simple way to do a broad search for relevant scholarly literature including peer-reviewed papers, theses, books, abstracts, and articles. Content in Google Scholar is taken from academic publishers, professional societies, preprint repositories, universities, and other scholarly organizations.
Google Finance. Google Finance provides a simple user interface to navigate complex financial information in an intuitive manner, including linking together different data sources, such as correlating stock price movements to news events. 3 Google News. Google News gathers information from thousands of news sources worldwide and presents news stories in a searchable format within minutes of their publication on the web. The leading stories are presented as headlines on the user-customizable Google News home page.
These headlines are selected for display entirely by a computer algorithm, without regard to political viewpoint or ideology. Google Video. Google Video lets users upload, find, view and share video content worldwide. Google Blog Search. Google Blog Search enables users to search the blogging universe more effectively and find out users’ opinions on a wide variety of subjects. The Google Blog Search index includes every blog that publishes a site feed. iGoogle and Personalized Search. iGoogle connects users to the information that is most useful and important to them in an easy-to-use and customizable format.
Users add gadgets and themes created by Google and developers to create a powerful and personalized homepage and arrange the content the way they want. iGoogle includes Personalized Search, which gives our users better search results based on what they have searched for in the past, making it easier to quickly find the information that is more relevant to them. Users can also view and manage their history of past searches and the results they have clicked on, and create bookmarks with labels and notes. Google Product Search. Google Product Search helps users find and compare products from nline stores across the web and directs users to where they can buy these products. Users can search for product information that is submitted electronically by sellers or automatically identified by Google software. Google Custom Search. Google Custom Search allows communities of users familiar with particular topics to build customized search engines. These customized search engines allow the communities to help improve the quality of search results by labeling and annotating relevant web pages or by creating specialized, subscribed links for users to get more detailed information about a particular topic.
Google Base. Google Base lets content owners submit content that they want to share on Google web sites. Content owners can describe and assign attributes to the information they submit and Google uses this descriptive content to better target search results to what users are looking for. Google Webmaster Tools. Google Webmaster Tools provides information to webmasters to help them enhance their understanding of how their web sites interact with the Google search engine. Content owners can submit sitemaps and geotargeting information through Google Webmaster Tools to improve search quality.
Applications Information created by a single user becomes much more valuable when shared and combined with information from other people or places. Therefore our strategy for products we develop in this space is simple: develop tools for our users to create, share and communicate any information generated by the user, thus making the information more useful and manageable. Examples of products we have developed with this strategy in mind include: Google Docs. Google Docs allows our users to create, view and edit documents, spreadsheets, and presentations from anywhere using a browser.
These documents are useful to our users as they are accessible anywhere internet access is available, manageable as they are stored within our servers and automatically backed up, and shareable in that they allow real time editing with co-workers and friends over the internet. Google Calendar. Google Calendar is a free online shareable calendar service that allows our users to keep track of the important events, appointments and special occasions in their lives and share this information with anyone they choose.
In addition, web sites and groups with an online presence can use Google Calendar to create public calendars, which are automatically indexed and searchable on Google. 4 Gmail. Gmail is Google’s free webmail service that comes with built-in Google search technology to allow searching of emails and over seven gigabytes of storage, allowing users to keep their important messages, files and pictures. We serve small text ads that are relevant to the messages in Gmail. Google Groups. Google Groups is a free service that helps groups of people connect to information and people that have interest in them.
Users can discuss topics by posting messages to a group, where other people can then read and respond. Google Groups now contains more than one billion messages from Usenet internet discussion groups dating back to 1981. The discussions in these groups provide a comprehensive look at evolving viewpoints, debate and advice on many subjects. Google Reader. Google Reader is a free service that lets users subscribe to feeds and receive updates from multiple web sites in a single interface. Google Reader also allows users to share content with others, and functions with many types of media and reading-styles. rkut. orkut enables users to search and connect to other users through networks of trusted friends. Users can create a profile, personal mailboxes, post photos and join or manage online communities. Blogger. Blogger is a web-based publishing tool that lets people publish to the web instantly using weblogs, or “blogs. ” Blogs are web pages usually made up of short, informal and frequently updated posts that are arranged chronologically. Google Sites. Google Sites allows users to easily create, update and publish content online without technical expertise, with control over who can see and update the site.
Google Sites supports a variety of information such as videos, calendars, presentations, spreadsheets, discussions and texts. YouTube. YouTube is an online community that lets users worldwide upload, share, watch, rate, and comment on videos, from user generated, niche professional, to premium videos. YouTube is also a video platform providing general purpose video resources to the web community. YouTube videos are embedded in blogs, social networks and web applications, and YouTube programming interfaces are utilized by many registered developers to create third-party products and services.
In addition, YouTube offers a range of video and interactive formats for advertisers to reach their intended audience. Client Google Toolbar. Google Toolbar is a free application that adds a Google search box to web browsers (Internet Explorer and Firefox) and improves user web experience through features such as a pop-up blocker that blocks pop-up advertising, an autofill feature that completes web forms with information saved on a user’s computer, and customizable buttons that let users search their favorite web sites and stay updated on their favorite feeds.
Google Chrome. Google Chrome is an open-source browser that combines a minimal design with technologies to make the web faster, safer, and easier to navigate. Google Pack. Google Pack is a free collection of safe, useful software programs from Google and other companies that improve the user experience online and on the desktop. It includes programs that help users browse the web faster, remove spyware and viruses. Picasa. Picasa is a free service that allows users to view, manage and share their photos.
Picasa enables users to import, organize and edit their photos, and upload them to Picasa Web Albums where the photos can be shared with others on the internet. Google Desktop. Google Desktop lets people perform a full-text search on the contents of their own computer, including email, files, instant messenger chats and web browser history. Users can view web pages they have visited even when they are not online. Google Desktop also includes a customizable Sidebar that includes modules for weather, stock tickers and news. 5 Google GEO—Maps, Earth and Local Google Earth.
Google Earth lets users see and explore the world and beyond from their desktop. Users can fly virtually to a specific location and learn about that area through detailed satellite and aerial images, 3D topography, street maps and millions of data points describing the location of businesses, schools, parks and other points of interest around the globe. Google Earth includes Sky, an astronomical imagery library with images of over 100 million stars and 200 million galaxies, and Ocean, with a detailed bathymetric map of the earth’s ocean floors. Google Maps.
Google Maps helps people navigate map information. Users can look up addresses, search for businesses, and get point-to-point driving directions—all plotted on an interactive street map or on satellite imagery. Google Maps includes StreetView, 360-degree street-level imagery available in several regions around the world, and Google Transit, which provides up-to-date information on local transit options in many cities. Google Maps provides a comprehensive search experience by combining yellow-pages listings with ratings and reviews and other business nformation. In addition, Google Maps lets users create their own maps and allows developers to put their content on top of our base map data. We display relevant targeted ads for searches done through Google Maps. Google Sketchup and Sketchup Pro. Google Sketchup is a free tool that enables users to model buildings in 3D, and can be used as a tool for populating Google Earth with architectural content. The Pro version of this tool is sold to professional designers and includes additional features. Google Mobile and Android Google Mobile.
Google Mobile lets people search and view both the “mobile web,” consisting of pages created specifically for wireless devices, and the entire Google index. Users can also access online information using Google SMS by typing a query to the Google shortcode and checking their email using Gmail Mobile. Google Mobile is available through many wireless and mobile phone services worldwide. Google Maps for Mobile. Google Maps for Mobile is a free Java client application that lets users view maps and satellite imagery, find local businesses and get driving directions on mobile devices.
Google Maps for Mobile offers many of the same functions as Google Maps, including draggable maps combined with satellite imagery. In addition, the My Location feature allows users to view their approximate location on the map. Blogger for Mobile. With Blogger for mobile devices, users can take pictures with their camera phones and then post their pictures and text comments to their blog using MMS or email. Google Gmail, News and Personalized Home for Mobile. Several of our services, such as Gmail, News and Personalized Home are also available as mobile applications.
GOOG-411. GOOG-411 is a free, speech-enabled application allowing users to call 1-800-GOOG-411 to search for businesses by name or category. Android. Android is a free, open-source mobile software platform which allows developers to create applications for mobile devices and for handset manufacturers to install. Android is being developed with the Open Handset Alliance, a group of more than 45 technology and mobile companies, with the goal of providing consumers a less expensive, richer and more powerful mobile experience.
Search by Voice. Search by Voice lets users do a Google web search just by saying what they are looking for. Search results are formatted to fit phone screens. Search by Voice is currently available for the iPhone and Android phones. 6 Google Checkout Google Checkout is a service for our users, advertisers and participating merchants that is intended to make online shopping faster, more convenient and more secure by providing a single login for buying online and helping users find convenient and secure places to shop when they search.
For merchants, Google Checkout is integrated with AdWords to help advertisers attract more leads, convert more leads to sales and process sales. We believe that Google Checkout’s streamlined checkout process lowers shopping cart abandonment and barriers to purchase, which increases conversion of clicks to sales for participating merchants. We charge merchants who use Google Checkout 2% of the transaction amount plus $0. 20 per transaction to the extent these transactions exceed 10 times the amount they spend on AdWords advertising.
Google Labs Google Labs is our test bed for our engineers and adventurous Google users. On Google Labs, we post product prototypes and solicit feedback on how the technology could be used or improved. Current Google Labs examples include: Picasa for Mac, a software that allows Mac users to organize, edit, create, and share photos, In Quotes, a feature that allows users to find quotes from stories linked to Google News, and Google Audio Indexing, a new technology that allow users to find spoken words inside videos and jump to the right portion of the video where these words are spoken.
The Technology Behind Search and Our User Products and Services Our web search technology uses a combination of techniques to determine the importance of a web page independent of a particular search query and to determine the relevance of that page to a particular search query. Ranking Technology. One element of our technology for ranking web pages is called PageRank. While we developed much of our ranking technology after Google was formed, PageRank was developed at Stanford University with the involvement of our founders and was therefore published as research.
PageRank is a queryindependent technique for determining the importance of web pages by looking at the link structure of the web. PageRank treats a link from web page A to web page B as a “vote” by page A in favor of page B. The PageRank of a page is the sum of the pages that link to it. The PageRank of a web page also depends on the importance (or PageRank) of the other web pages casting the votes. Votes cast by important web pages with high PageRank weigh more heavily and are more influential in deciding the PageRank of pages on the web. Text-Matching Techniques.
Our technology employs text-matching techniques that compare search queries with the content of web pages to help determine relevance. Our text-based scoring techniques do far more than count the number of times a search term appears on a web page. For example, our technology determines the proximity of individual search terms to each other on a given web page, and prioritizes results that have the search terms near each other. Many other aspects of a page’s content are factored into the equation, as is the content of pages that link to the page in question.
By combining query independent measures such as PageRank with our text-matching techniques, we are able to deliver search results that are relevant to what people are trying to find. Infrastructure. We provide our products and services using our homegrown software and hardware infrastructure, which provides substantial computing resources at low cost. We currently use a combination of off-the-shelf and custom software running on clusters of commodity computers. Our considerable investment in developing this infrastructure has produced several benefits.
This infrastructure simplifies the storage and processing of large amounts of data, eases the deployment and operation of large-scale global products and services, and automates much of the administration of large-scale clusters of computers. Although most of this infrastructure is not directly visible to our users, we believe it is important for providing a high-quality user experience. It enables significant improvements in the relevance of our search and advertising results by allowing us to apply superior search and retrieval algorithms that are computationally intensive.
We believe the infrastructure also shortens our product development cycle and lets us pursue innovation more cost effectively. 7 How We Provide Value to Our Advertisers and Content Owners Google AdWords For advertisers seeking to market their products and services to consumers and business users over the internet, we offer Google AdWords, an auction-based advertising program that lets advertisers deliver relevant ads targeted to search queries or web content across Google sites and through the web sites of our Google Network, which is the network of online and ffline third parties that use our advertising programs to deliver relevant ads with their search results and content. The Google Network is also increasingly encompassing different forms of online and offline media as well, including content providers who use our advertising programs to deliver ads in online video, television and radio broadcasts. AdWords is accessible to advertisers in 41 different interface languages. Advertisers in our AdWords program create text-based or display ads, bid on the keywords that will trigger the display of their ads and set daily spending budgets.
AdWords features an automated online signup process that lets advertisers quickly implement ad campaigns on Google properties and the web sites of our Google Network members. Ads are ranked for display in AdWords based on a combination of the maximum cost-per-click pricing set by the advertiser and click-through rates and other factors used to determine the relevance of the ads. This favors the ads that are most relevant to users, improving the experience both for the person looking for information and for the advertiser who is generating relevant ads.
The AdWords program offers advertisers the following additional benefits: Return on Investment. Many advertising dollars are spent delivering messages in an untargeted fashion, and payment for these advertisements is not tied to performance. AdWords shows ads only to people seeking information related to what the advertisers are selling, and advertisers choose how much they pay when a user clicks on their ad. Because we offer a simple ad format, advertisers can also avoid incurring significant costs associated with creating ads.
As a result, even small advertisers find AdWords cost-effective for connecting with potential customers. In addition, advertisers can create many different ads, increasing the likelihood that an ad is suited to a user’s search. Users can find advertisements for what they are seeking, and advertisers can find users who want what they are offering. Branding. We also offer Site Targeting, a service that lets advertisers target specific web sites with text, image and Flash ads, so that they can more effectively reach specific sets of customers.
In addition to targeting sites by content, advertisers can choose placements on sites based on user demographic attributes. To protect user privacy, we use only third-party opt-in panel data to map the demographics of sites in our networks. Site Targeting is an auction-based system where bidding is based on a maximum cost per impression, and SiteTargeted ads compete with keyword-targeted ads in the same auction. Access to the Google Search and Content Network. We serve AdWords ads on Google properties, our syndicated search partners’ web sites, and the thousands of third-party web sites that make up the Google Network.
As a result, we can offer extensive search and content inventory on which advertisers can advertise. Apart from keyword-based ads targeted to search queries and Site Targeting, we also offer advertisers an effective contextual advertising option—Content Targeting—that displays their ads on relevant content pages across our network of partner sites and products. As a result, AdWords advertisers can target users on Google properties and on search and content sites across the web. This gives advertisers increased exposure to people who are likely to be interested in their offerings.
The Google Network significantly enhances our ability to attract interested advertisers. Campaign Control. Google AdWords gives advertisers hands-on control over most elements of their ad campaigns. Advertisers can specify the relevant search or content topics for each of their ads. Advert