Modelling the IC of Google’s search business

Google’s search business is a great example of a knowledge factory. While it is driven by highly complex math, the business model developed a decade ago is very simple. It all started with the competencies of two computer science graduate students at Stanford, Sergey Brin and Larry Page. The year was 1995. Page was looking for a thesis topic and was intrigued by the emerging “World Wide Web.” He saw it as a math problem. Brin got involved and by 1998, they had launched Google.

Here’s the story told through the construction of a model of this knowledge factory using Legos. 

1. It started with the competencies of a couple students: advanced math and computer science (human capital), applied to the problem of Internet search.
2. The pair built a search engine which is basically a piece of software (structural capital) that determines the value of a webpage by the number and quality of links to the site. The quality of the links is also determined by number and quality of the links to the referring site. You can see how the solution counts all these links and the fact that this quickly becomes a very complex math problem. The wonderful side benefit to this design was that the more use the Internet got, the more links there were and the “smarter” the program became.
3. The quality of the search engine attracted more and more users (relationship capital) However, the users were not paying for the service. So Page and Brin had a wildly successful tool but they didn’t have a business.
4. They remedied that through the creation of another piece of software (structural capital) that enabled advertisers to send ads just to people that were searching for their kind of product. This piece of structural capital should be gold because it is how the factory is monetized.
5. Of course, the ad service attracted advertisers (relationship capital) and Google was now a business.
6. Over time, they added competencies and continued to improve the software. But it is essentially this basic business model that has pushed the Google search business over $20 billion by 2008.

You can see that all the different pieces of IC work together to make this business. And the pieces fit together as the infrastructure of this business. That’s why we call it a knowledge factory. Managing this business is about managing this knowledge factory.

A narrated version of the construction of this model, “You Can Grow Like Google is available on YouTube.

Adapted from Intangible Capital: Putting Knowledge to Work in the 21st Century Organization by Mary Adams and Michael Oleksak.