Googled: The End of the World as We Know It

PART TWO The Google Story

CHAPTER SEVEN The New Evil Empire?

(2004-2005)

In Edgar Allan Poe’s story The Purloined Letter, an incriminating letter disappears from the private residence of the French queen. The Parisian police prefect takes on the case, but even after an extensive search, he cannot find the letter. And though he manages to narrow the search to a chief suspect, a government minister, he lacks evidence to arrest him. The prefect decides to consult the noted amateur detective C. Auguste Dupin. He explains that each night for three months, he has slipped into the minister’s home to assiduously search for the letter, removing cushions, the bottoms and tops of bedposts, the floorboards, the bindings of books—without success. The prefect is agitated; the suspect is a mere poet, he says, and he cannot believe such a “fool” could outwit him. Dupin, however, disagrees; he thinks the prefect and his detectives are the foolish ones, limited by their experiences, their routines, and “their own ideas of ingenuity.” They could not comprehend the acumen and cunning of a mind schooled not just as a poet but as a mathematician who follows his own “mathematical reasoning.”

Months go by, and the prefect returns, still unable to prove the minister’s guilt and ready to sign over the reward. Dupin, after persuading the prefect to sign a check, pulls the letter from his desk drawer. He explains that he cracked the case by climbing inside the supple mind of the suspect and imagining what he would do to conceal the letter. He imagined that the minister tricked the police by not attempting to conceal the letter. Rather, to avoid detection the letter was soiled, slightly torn, and crumpled in a card rack lying in plain sight in the middle of the minister’s room. Dupin found the letter where it had always been: under the nose of the prefect and his detectives.

Until 2004, most traditional media executives treated Google the way the prefect treated evidence: they failed to see the digital threat right under their noses. But soon after the IPO, their heightened awareness was captured in an eight-minute Flash-based movie that virally spread across the Internet. Called Epic 2014, it was a faux documentary by two young journalists, Matt Thompson and Robin Sloan. With a voice-of-God narrator, it recounted how year by year a new media giant, Googlezon (the merged Google and Amazon), acquires or murders media companies, including the New York Times Company. By 2014, this Orwellian colossus employs its algorithms and computers to snare advertising and customize packages of news for individuals, whose wants are revealed by the cookies Googlezon gathers to track the behavior of its users.

Not surprisingly, this depiction jarred Googlers. When Sheryl Sandberg joined the company in late 2001, she believed she had a public mission, a mission parallel to the one she felt as a ranking member of the Clinton administration. Yet to her shock, not long after the IPO, she first heard Google referred to as the “evil empire.” She was attending a Google conference—“I was standing there with our partners and they said, ‘How do we sustain ourselves against the power of—’ I thought they were going to say Microsoft. Instead they said, ‘Google.’”

The hostility, said Eric Schmidt, “did not begin until Google went public and people realized how much money we were making.” The reaction had more to do with fear than envy. It took Microsoft fifteen years to exceed one billion dollars in revenues; it took Google just six years. The evidence was now visible that Google was attracting more Internet advertising than anyone else, and these dollars were being siphoned from traditional media. This was perceived as a threat to most traditional media companies, and perhaps none more so than the advertising industry. Google was able to sell advertising with just a few search words, and without charging the same 2 to 5 percent fee extracted by the media buying agencies. The buy was better targeted. And for advertisers it was more efficient, for Google only charged the advertiser when the consumer actually clicked on an ad. “There’s that same ‘think big’ attitude about markets and opportunities,” Steven I. Lurie, a former Microsoft executive who had friends at Google, told the New York Times at the time of the IPO. “Maybe you can call it arrogance, but there’s that same sense that they can do anything and get into any area and dominate.”

IT WAS IN THE CONTEXT of this growing backlash that the fight with book publishers, begun a few years earlier, started to come to a head. Like the Googlezon film, the uproar over digitizing books seemed to surprise Googlers. In their assessment, by scanning books and making them part of search, they were performing an ambitious and noble public service—they thought of the effort as their “moon shot”—and they assumed that they could do this without seeking permission of the copyright holders. Google knew that only about a third of the more than twenty million books ever published were no longer protected by copyright. But the mission was to scan all books. With books under copyright, Google said it would merely show “snippets,” which it claimed was permissible under the fair use clause of copyright law. Google did not precisely define the maximum number of words in a “snippet.” Nor does the law, but the rule of thumb is that fair use involves only enough text to briefly explain a book or briefly quote from an article or song.

Google believed it had provided protection to authors and publishers. In its contracts with libraries, Google said that if, within three years of the digital transfer of material, “Google decides not to use that content” (a particular book) because of a copyright dispute, the library would destroy the digital copy. They believed authors and publishers would see Google Books as a wonderful way to promote authors and their works, and to bring back books no longer in print. Google had earlier launched a Partners Program, signing up publishers who agreed to allow snippets to be shown for certain books, along with a link to an online bookseller. But publishers did not agree to allow all books to become part of search. The gulf between Google and the publishers and authors was vast. Google wanted to push the envelope of copyright, expanding the definition of fair use to allow more extensive quotations from books. It stressed the rights of search users, echoing the views of Web pioneers like Kevin Kelly, the “senior maverick” at Wired magazine, who said that in return for government copyright protection, authors and publishers had a “copyduty” to “allow that work to be searched.” Google was offering to pay the cost of moving and scanning the books; what publisher—or library or university or author—could refuse that offer?

One clue of Google’s fundamental attitude toward books—and fundamental innocence of the publishing process—is a conversation I had with Brin while reporting this book. It was the second of our three interviews and upon entering the small conference room down the hall from the second floor glassed office he shares with Page, Brin playfully ribbed me for writing this book. “People don’t buy books,” he said. “You might as well put it online.” He meant: You might as well publish it for free.

“You might make more money if you put it online,” he said. “More people will read it and get excited about it.”

There’s little evidence that such a free book succeeds, I said. Stephen King tried it, and gave up the effort because he thought it was doomed.

“I guess that’s true,” he acknowledged a little sheepishly.

Following Google’s business model, would he expect authors to generate their income by selling advertising in their books? If there was no advance from a publisher, who would pay to cover the writer’s travel expenses? (I made thirteen week-long roundtrips to Google from New York, rented a car, stayed at hotels, and paid for dinner interviews most nights.) With no publisher, who would edit and then copyedit the book, and how would they get paid for their work? Who would pay lawyers to vet it? Who would hire people to market the book so that all those potential online readers could discover it? The usually voluble Brin grew quiet, ready to change the subject.

But our rhetorical go-round hinted at something fundamentally true about Brin and Page and the dynamic company they have forged. Their starting predicate is that the old ways of traditional media are usually inefficient, and scream to be changed. This is a reason Google fundamentally misread the reaction of publishers and authors. While Google did reach various agreements with a variety of libraries, including Harvard, Stanford, the University of Michigan, Oxford University, the Library of Congress, and the New York Public Library, publishers did not like the idea of not getting paid for the use of their books. The Association of American Publishers denounced Google’s plan as an invitation to piracy, for the books stored on servers would be vulnerable to hackers. Publishers claimed they could be hit by the same thunderbolt that struck the music industry: free downloads.

Richard Sarnoff, the chairman of the Association of American Publishers and the executive vice president of Random House, said, “Google went to libraries and said we will digitize all your books and just use snippets of copyrighted books. They said it would be good for libraries and for users. This is true. But we have laws in this country which govern what we can do and not do. Like copyright, which prevents people from copying things for their own commercial use. And this is for Google’s commercial use, for search.” The publishers demanded that Google seek their permission before digitizing any book that was still protected by copyright. “The Internet is a grazing medium,” Sarnoff said. “Books tend to be a longer term experience.” Grazing can be a great way to promote a book, he said. “But we want to be extremely careful to make sure discovery does not become consumption.” To illustrate his fear of piracy, he pulled out his iPhone and said that the small device can hold fifty thousand books, all easily down-loadable. This, he noted, is the approximate capacity of a midsize bookstore. In October 2005, the publishers announced that they had filed a lawsuit.

Paul Aiken, the executive director of the Authors Guild, wanted authors to share in any profits from their books, but said his primary concern was piracy. He mentioned “the huge risk” posed by backup copies in Google’s possession and the libraries. “Google is giving back to the University of Michigan a digital copy of each book for their own use. What happens to the University of Michigan copy?” What happens, he said, when they share the copy with other Michigan libraries? What happens “if they lose the backup?” Or it’s hacked into? Sarnoff was also concerned that Google’s definition of “a snippet” was vague. A longer snippet from a novel is likely too brief to rob the book of value, he said. But a snippet of a reference book may be “taking real value” from the author. In a fundamental sense, the differences between Google and its Silicon Valley allies, who want to share information, and publishers and authors, who want to be compensated for it, boil down to a definition of property rights. On the Internet, it is common to make copies of pages and share the information of those who produce content. In traditional media, such “sharing” is often considered theft. The Authors Guild also filed a lawsuit against Google.

To David Drummond, Google’s senior vice president of corporate development and chief legal officer, the difference came down to this: “Fair use is as important a right as copyright infringement. It is a balance that is struck between encouraging people to innovate, and a public sphere.” He defined a snippet as similar “to a Google search. You see just two or three lines.” He rejected the idea of sharing revenues with publishers and authors for the snippets that would appear in a book search, likening a Google search to a book review, which no one claims as a violation of copyright law. As for pirated copies from the libraries, he said, “We’ve got provisions in the library agreements that they agree not to abuse. We would hope that these are major institutions that take their copyright responsibilities very seriously. These are also research organizations that have not insignificant expertise in data security.” The president of Stanford, John L. Hennessy, who is on the Google board, agreed that university libraries have to “guarantee” the security of digital books. But he wants to keep the focus on “finding a way to move forward,” to bring the information in books to people. “We need to rethink our copyright framework that is still a remnant of the past. In the digital age, for example, why should the library buy a physical copy of a book? Why can’t the library just buy a digital copy?” Physical books, he adds, are “too big. They cost too much to store. They’re too hard to deal with, and they’re too hard to search.”

Columbia University law professor Tim Wu supports Google’s efforts to digitize books, which he also sees as essential for comprehensive search. But he thought Google was being evasive. “If they had a copyright lawyer among their founders,” he said, “they never would have started the company. The basic business of a search engine is to copy everything. To make your copy, and then search it. The first thing that happens, arguably, is infringement of copyright law. I say ‘arguably’ because there’s never been a case on it. From day one, Google went out and copied the whole Internet. Can you imagine a company starting in the film world and the first thing they did was make a copy of every film in existence? That company couldn’t have gotten started. The Web is always about copying, but copyright law is all about making copying illegal.” There is an unavoidable disconnect between the two.

Over the next several years, the Association of American Publishers and the Authors Guild lawsuits wended their way through the legal system. While they did, another disconnect surfaced: a contradiction between Google’s push to liberalize the intellectual property rights of others while protecting its own. Buried in Google’s 260-page 2004 IPO prospectus is this admission: “Our patents, trademarks, trade secrets, copyrights and all of our other intellectual property rights are important assets for us. There are events outside of our control that pose a threat to our intellectual property rights.” They cited the politics of other nations, the various legal interpretations. Then they provide a sentence that could have been uttered by a publisher: “Any significant impairment to our intellectual property rights could harm our business or our ability to compete.”

Looking back, many of Google’s nonengineers admit, when asked, that Google made a mistake by not more closely consulting and coordinating their efforts with publishers and authors. “I think that’s true,” said Megan Smith, Google’s vice president of business development, who explained that “we moved too fast” and “involved the Authors Guild much later” than we should have. “We’re a technology company,” chimed David Eun, vice president of strategic partnerships. “We thought people would understand that we had good intentions.” Asked if Google was guilty of innocence or arrogance, Paul Aiken of the Authors Guild said, “It’s probably both.”

MEL KARMAZIN THOUGHT it was arrogance. Having left Viacom earlier in 2004 after an unhappy half decade with Sumner Redstone (and before it was split into two companies, Viacom and CBS), he was now the CEO of Sirius satellite radio, which blankets the United States with a cornucopia of radio options. He described an early meeting he had with Tim Armstrong, Google’s sales chief. “The first thing he said was, ‘We have so many advertisers that we don’t have enough content in which to put all of this advertising, so we would like to get into selling radio advertising.’” Armstrong proposed to sell national satellite radio spots the way Google sold search words, in an auction.

“How much money will you guarantee me?” Karmazin asked. Armstrong made an offer that Karmazin considered way too low. “I believe the system would have been successful,” Karmazin now said, “but it would have had the effect of lowering prices.” Again, he was struck, as he had been on his 2003 visit to its campus, by Google’s boundless ambitions. Again, he believed that its mathematical approach was all wrong. Google didn’t understand that you were “selling the sizzle, not selling a cost per point”—each rating point signifying the size of the audience is sold at a set rate. “You’re selling a spot in Desperate Housewives.” To those at Google, Karmazin was slavishly following a formula that digital technology had proved wasteful.

It wasn’t just Google that loomed as a threat to traditional media. Yahoo was pushing into content—hiring a former Hollywood executive, Lloyd Braun, to produce and package shows for the Web, in addition to such popular features as Yahoo Finance—and in 2005 had more than four hundred million worldwide users. That year, Yahoo generated profits of $1.1 billion, and was valued by Wall Street at a whopping $50 billion, equal to the combined value of Viacom and CBS or to the Walt Disney Company. Jaws dropped when media executives read in 2005 that Yahoo CEO Terry Semel cashed in $230 million in stock options, and had another $396 million yet to exercise.

Google believed, with merit, that traditional media too often blamed digital companies for events they did not cause—for the disruptive impact of the Internet, for slowed or declining profits, for their shrinking stock price or budget cutbacks, for their rampant insecurities. It was inevitable that the Internet would alter the way consumers received and used content. But Google became a convenient piñata.

The company gave its critics a big target to swing at: in 2005 alone, Google acquired fifteen smaller digital companies and partnered with various others, including a smaller search engine, Barry Diller’s Ask.com, to which Google directed advertising as it now did for hundreds of thousands of Web sites. Google had 7,000 employees working out of 62 offices, 30 of them outside the United States, which produced nearly 40 percent of its revenues. By the end of 2005, the company had indexed 8 billion Web pages in 116 languages; its revenues soared to $6.1 billion and its net income to $1.5 billion.

Meanwhile, the tide was running against traditional media. In December of 2005, 77 percent of Americans had Internet access at work and 37 percent of all adults had high-speed access to the Internet. The slight but steady decline in newspaper circulation suddenly steepened in 2004 and 2005. The circulation of daily newspapers would plunge 6.3 percent between 2003 and 2006, with Sunday circulation falling 8 percent. Newspaper advertising revenues, which had grown on average in the high single digits since 1950, beginning in 2001 fell in four of the next seven years, and in 2006 began to fall more steeply. With investors convinced that companies like Google would grow while newspapers would not, the stock price of newspaper companies also plunged—falling 20 percent on average in 2005—leaving them less capital to diversify by acquiring growth businesses. With search and Google News and other news aggregators culling reports from all over the world, readers could easily fetch their news for free online. Newspapers cried that Google and other Web sites that aggregated news lacked what elite newspapers offered: bureaus in Baghdad and state capitals, investigative reporting, professional editors, and familiar brand names that often stood for quality. But readers could effortlessly view their stories through Google News or Google search. By the end of 2005, 40 percent of American broadband users said they got their news online.

Much of the rest of old media was also challenged. Book sales were steady, but not robust, and the industry was anxious about the decline of independent bookstores and the new leverage exerted by giants like Barnes & Noble and Amazon.com. This anxiety was only inflamed by Google’s thrust into digitizing books. The movie and television and music industries were fretting about piracy. U.S. content and software companies lost an estimated $6.9 billion in revenues to piracy in 2005, and in China about 90 percent of all content and software was pirated. About one billion songs per month were swapped on illegal file-sharing networks. Although digital companies claimed piracy was hard to control, media executives rarely believed this. They believed digital companies were building their own audiences by stealing their content, particularly that of music companies. The lubricant of trust was missing. “I don’t believe they have any incentive to solve it,” said Sony CEO Sir Howard Stringer. With the rise of high-speed Internet connections, Hollywood knew its movies and TV programs were becoming more vulnerable to hackers and illegal downloads.

Television broadcasters were antsy about new user-generated online video companies like YouTube, a site that threatened to steal not just eyeballs from TV but perhaps its content as well. And YouTube was not their foremost threat. New consumer choices drained audiences from traditional media. Three years earlier, in 2002, there was a total of 308 cable and video networks, a number that had tripled from just eight years earlier, and would double over the next four. The radio industry was also squeezed by newer technologies that allowed the iPod and Internet and satellite radio to subvert their traditional ad-supported broadcast model. The phone companies nervously watched their traditional landline business erode, and with the 2005 acquisition by eBay of Skype, a largely free Internet phone/voice service, and Google’s voice-chat software also released that year, the erosion would accelerate. The cable companies were unsettled—as were all existing media—by how new media, from sharing networks like MySpace.com or Meetup.com to video games, captured the attention of their customers. MySpace was only three years old in 2006 but already had seventy million members.

And, of course, there was the advent of online advertising, which alarmed the traditional advertising industry. Google was able to sell advertising with just a few search words. The buy was more efficient because it was cheaper, better targeted, and Google only charged when the consumer actually clicked on an ad. Google could render traditional ad agencies extraneous middlemen to their clients. Irwin Gotlieb, the global CEO of GroupM, the world’s largest media buying and planning agency with a pool of sixty billion in advertising dollars, said that the bigger problem for his business was not Google supplanting his services, but its market power. With the IPO placing a value on Google greater than GroupM’s parent, the WPP group—plus the world’s four other advertising/marketing giants combined—Google had very deep pockets.

The CEO of one media conglomerate describes the media paranoia Google provoked as intense, adding, “It’s where Microsoft was. That paranoia is even greater about Google. The service is free. It’s hard to see how anybody knocks them out when it’s free. The brilliance of its business is that consumers love them. Consumers never loved Microsoft. They never loved the phone company. They don’t love the cable company. Because we have to get money! Advertisers get a better deal than they’ve ever gotten. Consumers get a better search. And it’s all free.” What terrifies media companies, he added, is Google’s ability and appetite to reach into other businesses, from mobile phones to computer operating systems to video and advertising and even banking. “Name a business that they’re not going to disrupt.”

In Google’s 2004 annual report, published in the spring of 2005, the founders gave old media executives more cause for concern. In the report was a letter to their shareholders announcing what they called their 70- 20-10 strategy. “Seventy percent of our effort goes to our core; our web search engine and our advertising network,” Brin wrote on behalf of himself and Page. He went on to say that it was desirable for Google to diversify and that is “why we allocate 20 percent for adjacent areas such as Gmail and Google Desktop Search. The remaining 10 percent is saved for anything else, giving us freedom to innovate.” The letter cited some new products Google invented or acquired: Google Maps, which allowed users to map directions; Google Earth, which provided satellite images of the earth’s nearly sixty million square miles, allowing users to zoom in to search teeming Calcutta streets or war-torn Baghdad; Google Scholar, which allowed researchers to access academic papers and research; Google Video, which allowed users to search television programs; and Gmail. Any media company paying attention saw that Google was not just a search engine.

Even new media was put on notice when, in 2004 and 2005, Google swooped in at the last minute to beat both Microsoft and Yahoo in auctions. The first came in October 2004. Brin and Page were on an overnight flight, heading to a Madrid sales conference on a chartered Boeing 737, when they learned from Omid Kordestani that AOL Europe was close to renewing its European contract with Yahoo. (Although AOL was losing subscribers, it still had more than twenty million worldwide in 2005, making it a valuable platform to generate more searches.) “We told the pilots to head to London,” where AOL’s European headquarters were located, recalled Brin. The founders’ families were aboard to accompany them from Madrid to Rome, where they were to receive an award from the prestigious Marconi Society for their scientific contributions. When they awoke, they were astonished to find that they were not in sunny Madrid but instead at Stansted Airport outside gray London.

Brin and Page drove to AOL’s European offices. Jonathan Miller, the chairman and CEO of AOL at the time, recalled the jolt he felt Monday morning when the head of AOL Europe phoned. Miller thought they had a deal with Yahoo, but now his European executive described the proposal made by Brin, who takes the lead in business negotiations: “He offered a number that was 40 percent higher than Yahoo’s. And he told us we had two weeks to get back to them.” There were, added a still stunned Miller, “no lawyers, no nothing.”

Google won the prize.

The second victory came a year later, in the fall of 2005. Tim Armstrong was attending meetings in Mountain View when Eric Schmidt entered and whispered, “We’re about to lose AOL to Microsoft.” The merger between AOL and Time Warner was not working; the touted synergies had not materialized. Into this chaos stepped Microsoft, determined to catch up in search. Back when Google was still headquartered in a garage, Gates and Microsoft had had it within their grasp to build a powerful search engine when it purchased an online advertising company, LinkExchange. Although the creator of LinkExchange, Ali Partovi, then twenty-six, told Microsoft that his partner, college dropout Scott Banister, had come up with a way to include ads in with search using keywords and that a search auction system would be “the next big thing,” Microsoft spurned the advice and declined to start a search engine. As first reported by Robert A. Guth in the Wall Street Journal, Microsoft believed the pot of gold lay not in tiny search text ads but in portals like their own MSN. But now Microsoft had launched its own search engine, Live Search, and with its deep pockets was seeking to replace Google as AOL’s domestic search engine.

Armstrong and others hammered out a counterproposal and showed it to Schmidt, before Armstrong flew back to New York to meet with Time Warner executives. Microsoft executives were on one floor, Google executives were on another, and Time Warner shuttled between them. At one point, Armstrong said, Microsoft left, “thinking they had the deal done. We stayed.” Schmidt flew to New York, as did Brin. In the end, Google and AOL reached agreement to become worldwide partners, with Google pledging to make more AOL content available to Google users, guarantee minimum annual advertising revenues to AOL, and invest one billion dollars to acquire a 5 percent stake in AOL.

Silicon Valley companies, accustomed to thinking of Microsoft as a foe, were now becoming uneasy about Google. When Yahoo executives read Google’s financial reports, they were punched in the nose with the realization of how much more successful and efficient Google was in selling search advertising. Google’s search business was growing twice as fast as Yahoo‘s, and was attracting more text ads. Yahoo poured engineering resources into a new automated ad-sales system, code-named “Panama,” vowing that it would help them catch up. Microsoft and Yahoo conducted talks to see if there was a way to slow the Google juggernaut. And eBay, which had long sold advertising on Google, grew alarmed that Google had started a classified-advertising service that competed with its listings, and had inaugurated Google Checkout, which competed with its PayPal online payment service. So fearful of Google was eBay that the Wall Street Journal reported on its front page in 2006 that eBay was holding secret talks with Microsoft and Yahoo about allying against Google. Bill Gates further stoked the fever of fear when he told Fortunemagazine that Google was “more like us than anyone else we have ever competed with.”

GOOGLE’S MANEUVERINGS AND DEALS may have made it unpopular with various media companies, but these did not tarnish Google’s image with the public. What happened in China did. In 2002, a Chinese-language version of Google search was launched, and then Google News in 2004. As user traffic mushroomed, the Chinese government found some of the news politically objectionable. China didn’t want users to be able to search for news about “free Tibet” or for photos of Tiananmen Square protests. At first, Google refused to engage in any self-censorship. Often, the Chinese government banned Google searches. Senior Google executives believed they had to make a choice between denying Chinese citizens some political searches and denying them all searches. Google decided to comply with Chinese laws, stripped its news results of offending material and eventually, in 2006, created a separate search Web site, Google.cn, on which it would offer politically sanitized searches in China. If a user searched for a picture of Tiananmen Square on Google in London, The Guardian reported, the iconic picture of one man blocking a tank’s path appeared; if the same search was conducted on Google.cn, a picture “of happy smiley tourists” appeared.

Having escaped as a child from an oppressive government, Brin was anguished by the decision. Four years later, at Google’s annual shareholder meeting, two resolutions were introduced calling on Google to support human rights and oppose all forms of censorship in China; the resolutions implicitly rebuked Google. Page and Schmidt and Google management had the votes and defeated the resolution. Instead of vigorously opposing Google’s decision, Brin meekly abstained. When a shareholder rose to ask for an explanation, Brin gave a long tortured reply that vacillated between “I agreed with the spirit of the resolutions,” and “I am pretty proud of what we’ve been able to accomplish in China.”

Google rationalized its decision. Executives said they were complying with Chinese law, as they complied with German law to screen Nazi materials or would later comply with the government of Thailand by blocking YouTube videos that “defamed” the king. It said it was serving Chinese users, who still received more information from even a bowdlerized Google search than from any available alternative. It said that the Internet would, over time, help democratize China. And it said it would be transparent and notify users when search requests were blocked.

Google could also justifiably claim that it did not cross the line Yahoo had when, perhaps inadvertently, it shared with the Chinese government the e-mail accounts of prodemocracy journalists, resulting in long jail sentences for two journalists. But there was another reality Google confronted, and it was acknowledged in testimony made to Congress in February 2006 by Elliot Schrage, Google’s vice president, global communications and public affairs. Baidu, a Chinese search engine, had seen its market share jump from just below 3 percent in 2003 to 46 percent in 2005, he testified, while Google’s plunged to below 30 percent, and was falling. China was steering its citizens away from Google. “There is no question that, as a matter of business, we want to be active in China,” Schrage said, adding, “It would be disingenuous to say that we don’t care about that because, of course, we do.” What Schrage and Google were less transparent about was that Google had invested in Baidu, and presumably had to win the concurrence of the Chinese government in order to do so. The next year Google sold its 3 percent stake.

Perhaps for the first time, Google executives were feeling defensive, troubled that folks thought they had violated their “Don’t be evil” pledge. In the wake of China and the Google IPO, Eric Schmidt said he expanded his own job description. “It took me a while to figure out that we had to reach out to traditional media,” he said. “It’s part of acknowledging they are incumbents.” But he, like Google, was just making nice. “I’m happy to be diplomatic,” he added. “But I’m about winning!” What wasn’t clear was: Winning what? And at whose expense?

Schmidt was not diplomatic with Elinor Mills, a reporter for CNET News, a Web site that contains various online networks, including business news, technology, video games, and television programs. Mills in 2005 was working on a story about how much private information Google collected. As part of her research, she used Google search and Google Maps to run a quick search on Eric Schmidt. She located his Atherton home and address on Google Maps, his approximate net worth, political contributions, and a fair amount of other personal information. Then she published what she found, writing, “That such detailed personal information is so readily available on public Web sites makes most people uncomfortable.” It certainly made Schmidt uncomfortable.

“CNET was informed,” wrote Randall Stross, “that Google was unhappy with the use of Schmidt’s ‘private information’ in its story, and as punishment, Google as a matter of company policy would not respond to any questions or requests submitted by CNET reporters for one year.” Schmidt’s and Google’s reactions invited derision; Schmidt was accused of a “hissy fit.” Google executives tried to reason with Schmidt, to coax him to apologize, to end the ban. Months later, without offering an apology, Stross wrote that Google “quietly restored a normal working relationship with CNET.”

Google was becoming more defensive but also began to slowly worry about a potential threat far more powerful than any competitor: government. Google was alienating media companies, and when these companies speak, Washington listens. These companies are a major source of campaign funds and jobs; they provide the stage and microphone for elected officials. By 2005, broadcasters and telephone companies and others were raising questions about Google. Google may have been a multibillion dollar company, but it was unprepared to fight back. It had no political action committee; for a long time its only Washington presence was a one-man office located in suburban Maryland. This office reported to both David Drummond and Elliot Schrage in Mountain View. Drummond was supposed to oversee policy, and Schrage communications, which led to some confusion as the two often go hand in hand.

Although Google was not yet alarmed, it was on notice. At the weekly executive committee meetings, they talked about beefing up their presence in the nation’s capital. Brin volunteered to stop off in Washington to say hello to various government officials the next time he was back east visiting his parents in Maryland. But the the trip was hastily planned, as Brin admits: “Because it was the last minute, we didn’t schedule everything we wanted to.” Among the key people he didn’t get to see was Senator Ted Stevens of Alaska, then the chairman of the commerce committee, with jurisdiction over the Internet. (Senator Stevens’s knowledge of the Web appeared limited. He once referred to an e-mail by saying that “an Internet was sent by my staff.”) The Washington Post depicted the poor reception as a snub of Google; it probably didn’t help matters that Brin’s outfit that day included a dark T-shirt, jeans, and silver mesh sneakers.

Brin did manage to meet with senators John McCain and Barack Obama, and the topic was “network neutrality,” an effort by Google and others to ensure that the telephone and cable companies who provide high-speed access to the Internet didn’t charge higher fees to Web sites with heavy traffic. Around the time of Brin’s visit, an organization called Hands Off the Internet, financed by telecommunications companies, ran full-page newspaper advertisements accusing Google of wanting to create a monopoly and block “new innovation”; one ad featured a grainy photograph of a Google facility housing a sinister-looking “massive server farm.” Brin saw it for the warning it was. “I certainly realized we had to think about these things, and that people were going to misrepresent us,” he said. “We should be entitled to our representation in government.”

Like Microsoft in the late nineties, the Google leadership, “composed of ideological technologists,” as Schrage put it in 2007, was slow to appreciate the political and the human dimensions of the technical decisions it made. Schrage’s resume spans a law degree, years of teaching, a senior executive position at The Gap, and work as an international consultant on corporate social responsibility. He acknowledged that Google engineers were new to the ways of Washington. “Some call that naivete. Some might criticize this; others might applaud it. No question that people here regularly discuss Microsoft’s experience and use that as a cautionary tale.”

Later, meaning to explain rather than criticize, Schrage told me, “One can make the argument that the genes of technological innovation are frequently in conflict with emotional intelligence. Successful technological innovation is all about disruption. Effective emotional intelligence is all about collaboration, how you get talented people to work together and enjoy it.”

Collaboration was central to the thinking of Lawrence Lessig, who was widely hailed as an Internet oracle and was then teaching at Stanford Law School. Lessig had just been treated as such at Facebook, where he’d been invited to speak to its employees and expounded on the virtues of an open Web. Afterward, we had dinner at Il Fornaio in Palo Alto, which is a favorite Valley canteen, and there he asked, and answered, a central question people increasingly posed about Google: Is Google becoming what Microsoft was in 1998?

“The argument is that in an important way, they are the same,” he said. “In fact, whether now or soon, Google will have more power than Microsoft did at the time. Google’s power will extend to more than one layer of the network.” Microsoft’s power was its ability to leverage its potent operating system to control the various applications that use the operating system. So Microsoft offered a free browser to knock out the Netscape browser and attacked Java software that might “facilitate competition with the underlying operating system.”

Google’s power flows from a different source, he said. “They have produced this amazing machine for building data, and that data has its own ‘network effect’”—the more people who use it, the more data generated, the more advertisers flock to it. “Everything sits on top of that layer, starting with search. Every time you search, you give Google some value because you pick a certain result. And every time you pick a result, Google learns something from that. So each time you do a search, you’re adding value to Google’s data base. The data base becomes so rich that the advertising model that sits on top of it can out-compete other advertising models because it has better data.... The potential here is actually that the data layer is more dangerous from a policy perspective because it cuts across layers of human life. So privacy and competition and access to commerce, and access to content—everything is driven by this underlying layer. Unlike the operating system, which couldn’t necessarily control the content that you got.

“The way they are different is that I don’t think there is any evidence that Google has misbehaved in the way Microsoft misbehaved when they tried to leverage the operating system to protect themselves against competition. So far, they’ve been good guys. But that leads to a question: Why do we expect them to be good guys from now till the end of time?”

Lessig, who benefits from the broad education and reading many Googlers lack, was nevertheless alert to how Google, like Microsoft, might become intoxicated by power and succumb to the same human failures. Of Google, he said, “I fear theirs is an old story about how good people deceive themselves. As Microsoft did in the nineties, you become so convinced that you are good that you become oblivious. I sense that is true at Google today. They’ve drunk the Kool-Aid.”