Not since Federal Express burst on the scene in the 1970s has a company had the good fortune to become a verb. Today you'd be hard-pressed to find a sentient being who hasn't Googled something, probably within the hour. So ubiquitous is the company that if you Google "Google" you get more than 600 million hits. Flush with $1.7 billion from its 2004 initial public offering, Google has embarked on a sweeping series of acquisitions and product-development efforts encompassing everything from consumer and office applications to a landmark effort to create a digital library of every book ever published. Sometimes accused of profligate spending, Google has relied on CFO George Reyes to instill financial discipline since well before its coffers filled and it became the envy of Silicon Valley. Reyes sat down with CFO recently to discuss the delicate art of not acting spoiled.
You had never taken a company public before and yet you played a key role in what is certainly the most high-profile IPO this side of the dot-com bust. What was that like?
It was a very special opportunity, and it was exhilarating. Despite all the attention on the proceeds, my memories are mostly of all the meetings that led up to the IPO — and a very large celebration at Nasdaq headquarters the day of. I was fortunate to be here for two years before the IPO, which really helped me get a complete understanding of an ad-driven Internet business.
Google raised about $1.6 billion in its IPO and later spent nearly the same amount to acquire online video juggernaut YouTube. How involved were you in setting the purchase price?
As the CFO, you can't not be involved in a transaction of that size. We saw that as a one-of-a-kind asset that was highly coveted by a number of major media companies. Video clips are all the rage on the Internet, and we decided we wanted YouTube, so we put our money where our mouth was.
In making such an acquisition, Google can obviously live large, considering its financial strength. Do you face a challenge as CFO in being part of the strategic team but also a corporate steward?
I can tell you straight out that I don't feel I compromised my integrity in any way [regarding the YouTube price]. We feel we can do a lot with this asset going forward. We're actually pretty darn judicious in how we run the company. The ROIs we generate on clickstreams and related ad businesses are outrageously high. We have a lot of rigor around forecasting and financial planning and strategic decisions like the YouTube acquisition. We've been absolutely bulletproof through three years of Sarbox, and our planning-and-analysis tool sets are very robust. We really have a very good understanding of what's happening in every area of our business globally.
Google remains heavily reliant on advertising for its revenues. Are you concerned that you won't broaden your offerings in time to cope with slower growth in ad revenues?
We see online advertising as still being in its early stages, with far more opportunity ahead, so for now we love the concentration on advertising. But that's not to say that over time we won't moderate that focus in different ways.
One of your new ventures is Google Checkout, an E-payments service similar to PayPal. How has that been playing out?
We're very excited about it. For Q4 '06 [we invested] in consumer promotions [an amount equal to about] 1 percent of total gross revenue for the quarter. We have millions of buyers, thousands of merchants, and more than 100 of the top 500 online retailers.
Google is among the E-commerce giants known as the "GAMEY" companies (Google, Amazon, Microsoft, eBay, and Yahoo). Are there other companies you keep your eye on?
We regularly analyze the entire competitive environment, but we focus first on our users, advertisers, publishers, and partners. Our primary goal is to provide the best products and services to them. Innovation and competition that puts people in touch with information and expands user choice is something we welcome.
Fortune magazine recently billed Google as the best company in America to work for. Last year you added more than 2,000 people to the payroll. Do you worry about the impact of such fast head-count growth?
In some ways that article did us a disservice, because we are not, contrary to some perceptions, a bunch of goofy young kids running around on scooters. No matter how badly we need to hire, we never compromise the process, which is very torturous. In a sense, you're being let into the club — the hiring bar is very high, so we filter applicants very carefully. So far we've managed to hire the best and the brightest, with minimum turnover.
What do the best and the brightest in your finance team focus on?
The top priority for my team is to maintain a rock-solid system of internal controls. Also, to closely track our performance versus plan for all of our businesses and work closely with the business-development organization to evaluate potential transactions/acquisitions. Historically, we've done a substantial number of these smaller "tuck in" acquisitions, which we've been able to nicely integrate into our business. In terms of measuring and monitoring, we closely measure cost per clicks, revenue per thousand impressions served, and the growth in our traffic. At a higher level, we care a lot about revenue growth, operating-expense growth, profitability, and free cash flow.
What are your top goals for 2007?
To continue to profitably grow our business, to attract and retain the best talent available, and to invest in continuous business-process improvements.
How often do you Google something?
All the time! It's the fastest way to access the information I need instantly.