The Humans Behind the Google Money Machine

MOUNTAIN VIEW, Calif. — If Google were the United States government, the data that streams onto Nicholas Fox’s laptop every day would be classified as top secret.

Mr. Fox is among a small group of Google employees who keep a watchful eye on the vital signs of one of the most successful and profitable businesses on the Internet. The number of searches and clicks, the rate at which users click on ads, the revenue this generates — everything is tracked hour by hour, compared with the data from a week earlier and charted.

“You can see very, very quickly if anything is amiss,” said Mr. Fox, director of business product management at Google.

Mr. Fox and his “ads quality” team can also quickly see whether something is working particularly well. His group’s mission, to constantly fine-tune Google’s ad delivery system, has one overriding objective: show users only the ads they are most likely to be interested in and click on.

Google runs a complex auction-based system that determines which ads will appear where, and in what order. Every time the team alters the formulas that select and rank ads, Mr. Fox can run a test and quickly see the effect of the changes on users, advertisers and Google’s revenue — which, in this year’s first quarter, came in at the rate of more than $2 million an hour.

The job has given Mr. Fox, a soft-spoken 29-year-old with an obvious affinity for nuance and numbers, a detailed understanding of the complex dynamics at work inside Google’s ad-driven economic engine.

Mr. Fox, who graduated from Harvard with a degree in economics and spent two years at the management consulting firm McKinsey & Company before joining Google in 2003, also helped organize its Revenue Force. This select group of engineers, sales and finance people, product managers and statisticians from across the company is charged with keeping top executives apprised of the forces that make Google tick.

Google reveals little of these forces to the outside world. Even on Wall Street, many experts describe Google as a giant black box that they struggle to comprehend.

In recent months, for instance, analysts and investors grew increasingly worried about reports of a decline in clicks on Google ads in the United States, which they interpreted as a sign that Google’s business could be suffering from the economic slowdown. But inside Google, Mr. Fox and others were growing confident that the company would do just fine.

“I wouldn’t quite go so far as to say we are recession-proof,” said Hal R. Varian, Google’s chief economist. “But we are recession-resistant.”

Google’s financial results for the first three months of the year surpassed expectations. Still, some analysts point out that Google’s growth is slowing, especially in the United States. The extent to which that slowdown is the fault of the economy or just the size and maturity of Google’s business remains a matter of debate on Wall Street.

Mr. Fox acknowledged that searches and clicks in some areas, like real estate and travel, have grown more slowly recently. But he noted that there is not an exact correlation between clicks and revenue: “Clicks are only part of the story.”

The idea of linking ads with search results was first developed not by Google but by GoTo.com, which later changed its name to Overture Services and then was bought in 2003 by Yahoo. Overture ranked ads based on how much advertisers were willing to bid for a certain keyword. The higher the bid, the better the placement.

As Google’s engineers developed their own search advertising system, they understood early on that giving top billing to the highest bidder would have little benefit for Google if that ad did not attract clicks. That is because advertisers typically pay Google only when a user clicks on their ads.

So Google decided to rank ads based on a combination of bid price and “click-through rate,” the frequency with which users click on a given ad. Mr. Fox’s team took things from there and gradually became better at figuring out what ads would work with users.

Yahoo tried to catch up by building a new search advertising system that works more like Google’s. It helped increase revenue, but by Yahoo’s own account, Google still earns 60 percent to 70 percent more on average than Yahoo on every search. Microsoft has also lagged, in part because it lacks enough advertisers. It acknowledged as much with its recent attempt to buy Yahoo.

Mr. Fox said Google’s ability to constantly fine-tune its operations was intricately linked with its obsession with measuring just about everything that happened on its system.

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