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Google Inc.
Google’s mission is to organize the world’s information and make it universally accessible and useful. — Google’s mission statement In December 2005, Google paid $1 billion for a 5% stake in Time Warner’s America Online (AOL) unit. The implied $20 billion valuation for AOL came as a surprise; JPMorgan hadrecently valued the unit at $13.7 billion.1 However, the partnership was important to Google, which had signed a fiveyear deal to continue providing web search results and search-based advertising to AOL, as it had done since 2002. Google was expected to earn about $600 million in gross advertising revenue from AOL searches in 2005.2 The share of ad revenue that Google would pay to AOL was not disclosed,but seemed likely to exceed the 85-90% estimated for the prior deal.3 In addition to its $1 billion equity investment, Google would provide a $300 million credit for ads on Google promoting Time Warner products and would showcase Time Warner content in a special box on some Google search results pages. Critics complained about reports that Google would provide Time Warner with information aboutits search algorithms in order to help its partner’s pages secure higher positions in search results. Commenting on Google’s accommodations to AOL, author John Battelle said: “Each of them represents a step closer to a slippery slope. What they are giving away is the perception in the market place that Google isn’t for sale.”4 Google, based in Mountain View, California, had gross revenues of $6.1billion in 2005 and an operating income of $2.0 billion. As of year-end 2005, the company had 5,680 employees and cash and equivalents of $8.0 billion. (See Exhibit 1 for Google financials 1999-2005.) Founded in 1999, the company completed its IPO in August 2004 with an $85 offering price. Google’s share price had climbed to $414 by year-end 2005, giving the company a $123 billion equity marketvalue. Its website,, had a 37% share of all U.S. searches in Q3 2005;, its closest rival, had a 30% share.5 Leveraging its own traffic and that of AOL,, and other affiliates, Google garnered about 60% of U.S. search-related advertising revenue in 2005.6 Outside the United States, held a commanding 68% share of all search traffic in Q3 2005.7 (See Exhibit 2 forsearch engine market share data.) Since its IPO, Google had launched a flurry of products that had expanded its domain beyond web search. These included Gmail, a free e-mail service; Google Desktop, which allowed users to search the file contents of their personal computers; Google Maps; Google Book Search; Google Talk, which encompassed instant messaging and voice over Internet protocol (VoIP)services; and Google Base, a free online database for all kinds of user-provided content, ranging from help-wanted ads to product reviews. (See Exhibit 3 for a list of Google services and products.)

Professor Thomas R. Eisenmann and Smita Bakshi, Sebastien Briens, and ShailendraSingh (all HBS MBA 2004) wrote the original version of this case, which is revised and replaced by this version prepared by Professor Thomas R. Eisenmann and Senior Researcher Kerry Herman, Global Research Group. This case was developed from published sources. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, orillustrations of effective or ineffective management. Copyright © 2006 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or...
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