An Inside Look At Google's AdWords HQAn Inside Look At Google's AdWords HQ

Google's colorful logo shines like a beacon from atop a building in the center of this Michigan university town. Most don't know it, but Google Ann Arbor is the company's third-largest operation after the Mountain View, Calif., and New York Googleplexes.

Open less than a year, Google Ann Arbor is the new headquarters of the AdWords division, the company's biggest revenue generator. The Midwest outpost is already pure Googleplex culture: bins filled with various munchies line one wall like a junk-food grazing trough; an on-site cafe serves up catered lunches and a Starbucks latte machine; and a plump leather recliner, with massage controls, offers respite in a quiet corner. Lava lamps populate ledges, inflatable superheroes hang from ceilings, and on-site masseuse services and West Coast ski trips are among the employee perks.

Google Ann Arbor is staffed with only about 100 or so employees; a lot of the AdWords work is still done in Mountain View. But there are plans to increase the staff to 1,000 people and make Ann Arbor the headquarters for selling and servicing AdWords and other advertising accounts. That growth plan, laid out last year, is as good as gold, said Grady Burnett, the office's head of online sales and operations, even after Google CEO Eric Schmidt lamented to analysts in July that the company "overspent" on hiring in its second fiscal quarter.

Google could take another four years to reach its projected staff level in Ann Arbor, partly because of the training required, Burnett said. Google has leased four floors in a former bank building and thoroughly modernized them with lots of bright paint, designer tiles, and funky furniture, blowing out the low office ceiling on the top floor to create an airy, warehouse feel.

Why Ann Arbor? It's home to one of the country's best public universities, and Google wants to snatch that graduating talent before it flees Michigan and a local economy troubled by overreliance on the auto industry. Google Ann Arbor also recruits from other Midwest and East Coast universities, and has lured some Berkeley and Stanford graduates. Indeed, cubbies are mostly filled with cargo-panted 20-somethings clacking away on keyboards, the occasional dog sleeping at their feet. A smaller, more button-up contingent of employees, ad-manager types, holds animated conversations in conference rooms.

Google has said its average wage in Ann Arbor would be $47,500, a difficult one from which to support a family of four in an expensive city by Midwest standards (the relatively high number of residents holding doctorates and master's degrees in the city keep wages and living expenses well above the national median). Still, Ann Arbor is a bargain compared with the exorbitantly priced Bay Area and the wages Google has to dish out in Mountain View. The median household income in Ann Arbor was about $46,000 and the median family income $71,000 in the 2000 census, compared with $69,000 for household and $80,000 for family in Mountain View.

Google co-founder Larry Page attended the University of Michigan as an engineering undergrad and grew up in East Lansing, Mich. "He has a tremendous fondness for the area," Burnett said. Ann Arbor, with a population of 114,000, a thriving downtown, plenty of parks, and a river that snakes through the city, is the state's intellectual and cultural gem, regularly appearing on best-places-to-live rankings (or it's a quirky, liberal outpost, depending on whom you ask).

And then there's that matter of the $38 million in tax breaks over 20 years that Michigan Gov. Jennifer Granholm promised Google, during an election year, if it came to Ann Arbor (she was re-elected). Not one to be ungrateful, Google has named each of its conference rooms after a popular Michigan locale with a matching hand-painted mural, such as the Mackinac Bridge or the Tahquanemon Falls. "Google is slowly starting to engage in the community, and we see them all over the place sharing their approach to doing business, talking about their business and providing mentorship," said Michael Finney, CEO of Ann Arbor Spark, the city's economic development agency. Besides fresh talent, location, and the welcoming arms of the region's political and business leaders, Michigan also sits in the Eastern time zone, so it starts its workday in sync with customers in such places as New York, Boston, and Washington, D.C. "Having a presence in the Eastern time zone allows us to extend the hours of support and availability at a time when we have tremendous growth in our products," Burnett explains.

Most Google Ann Arbor employees are account managers, salespeople, and customer service reps for AdWords, the company's flagship cost-per-click advertising program; a client selects keywords relevant to its businesses, and its Web site link will appear under the "Sponsored Links" heading when a user performs a Google search using those keywords. The client pays Google a small fee every time a user clicks on its link. Google cites "hundreds of thousands" of AdWords customers, ranging from small local businesses to the world's largest multinational companies. Few of Google Ann Arbor's employees are software engineers, and that's not likely to change.

Burnett has familiarity with the area, too: he grew up just east of San Francisco, attended University of Michigan as an undergrad, and got his MBA from Harvard University before heading back to the Bay Area to join the dot-com mania. Tall, slender, and amiable, Burnett worked at DoubleClick as a sales VP from 1998 to 2003 and then headed up the national agency team at Google Mountain View before returning to Ann Arbor to open the new office. (Google plans to acquire DoubleClick, an online display ad company, for $3.1 billion, but that bid is under investigation by the Federal Trade Commission after Microsoft, AT&T, and others complained it would create a monopoly.) Burnett reports to David Fisher, VP of AdWords North America in Mountain View.

Ann Arbor will play a key role in evolving and expanding Google's advertising revenue, Burnett said. Google sees growth opportunities in its AdSense program, in which businesses pay to have their ads run on relevant Web sites, and in online display advertising (where Yahoo is the current leader and DoubleClick has expertise). But Google is moving beyond the Web, expanding its efforts in radio, print, and television advertising, too, Burnett said. In fact, talented individuals with experience in the media and advertising industries are just as important to the company as engineers, he said.

"It's really trying to build on what we've done, and we're doing a lot of work to figure out how to help customers address the offline media space," Burnett said. Google is also looking at different ways to offer advertising products that make use of mobile devices, he adds.

The Midwest investment shows, too, that the country's hottest company, with a stock price of more than $500 a share, is convinced that there are places between San Francisco and New York to find and attract good talent. Said Burnett on the Ann Arbor move: "It's been a fabulous decision, and we've found great people. These people have been able to make an impact on our customers very quickly."

This story was modified on Aug. 14 to correct the name of Michigan Gov. Jennifer Granholm.