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Free Is Too Much

"I negotiated a really great deal for this data," I bragged to Sergey as I presented a spreadsheet showing all the countries for which we would get traffic rankings once our research contract was signed. "They offered twenty percent off at first, but I hammered them down to half."

Sergey poked and sniffed at the spreadsheet as if looking for chunks of meat in a vegetable stew.

"I don't think this is going to be very useful data," he told me. "They don't have much experience in these markets, and they're trying to expand their customer base. Having Google as a client would give them some great credibility." I knew what came next. It was as inevitable as rain after a carwash. "They should really pay us," Sergey said.

"They should pay us" was the starting position for any negotiation with a vendor. As Google grew in prominence, the benefit of being tied to our rising star increased exponentially—at least in Larry's and Sergey's minds. As our brand value approached infinity, our costs should go to zero. To the founders, winning a deep discount wasn't a victory; it was an admission of failure to get something for free. Their high expectations for low prices became a self-fulfilling prophecy, because I dreaded bringing them any proposal that shaved only ten or fifteen percent off the rack rate. "Never pay retail" was a Google core value. I was lucky, though. Marketing didn't buy services every day, so I didn't spend all my time beating suppliers into submission. It was different for facilities.

By late spring of 2000, Google's rate of growth was accelerating on all fronts. Traffic was building, our advertising had caught on, and so many dot-com refugees claimed space in the Plex that the walls bulged every time someone exhaled. Lines began forming outside the men's room, leading an engineer to install a "take a number" machine next to the stalls. In oversaturated offices, the person closest to the door had to stand up when an office mate wanted to leave or enter. Corridors were so choked with desks and power cords and boxed computer components that a stroll down the hall felt like a tour of Akihabara.

"We took a building that supposedly had a capacity of 220 and packed it with 298 people," George Salah confided when no fire marshal could hear him.

Engineers Howard Gobioff and Ben Smith complained to eStaff (the executive staff) that lack of room was poor for morale and adversely affected productivity. In the midst of a hiring frenzy, they were conducting phone interviews in the stairwells and out on the grass because all the conference rooms and private offices now housed multiple full-time occupants. Cubes for two people held four workstations, and whenever employees were out of the building for more than a day, newly hired engineers would appropriate their spaces. Worst of all, work teams were split up and located in different parts of the building, hindering communication.

Larry and Sergey gave George the okay to acquire more space. Sergey helpfully advised him that SGI's office six blocks away looked "nice." It was a joke. SGI's world headquarters complex had four massive buildings, each of which dwarfed ours.

"In April 2000, an office building across from us came available," George recalls. "They wanted $8.00 per square foot and we were paying just over $2.50. I said to Larry and Sergey, 'This is a ridiculous price. I don't think we should even bother with it.' They said, 'No, let's put in an offer.'"

George saw trouble brewing. The Silicon Valley vacancy rate was parked at one percent, and landlords saw no need to negotiate. "We're going to have to deal with this guy again," he warned them. "He owns all of Mountain View. We don't want to get on his bad side. Let's not place an offer."

That only made Larry and Sergey more eager. "No, no. Put in an offer," they insisted. "A lowball offer. Let's offer $6.45 per square foot."

George called a broker. The broker called back. "The landlord screamed