Note: On Jan 3, as Fortune published this article, the Federal Trade Commission ended its investigation of Google’s search practices saying it found no evidence that the company manipulated search results in violation of antitrust laws. The European Commission and other regulators continue to investigate the issue.
FORTUNE — When Sir Martin Sorrell, CEO of WPP Group, the giant advertising agency, visited Google this past fall, CEO Larry Page sent a car to pick him up at the Rosewood Hotel about 20 miles away. Only this was no ordinary car. The Lexus SUV drove itself thanks to a slew of high-tech tools, including radars, sensors, and a laser scanner that takes more than 1.5 million measurements every second. For about 20 minutes, while navigating I-280 and the area’s busy State Route 85, the car cruised on autopilot, making quick course corrections, slowing down here when traffic loomed ahead, speeding up there to get out of the blind spot of a neighboring vehicle. “It was pretty incredible,” says Sorrell.
Page’s chauffeurless car service is no mere parlor trick. It is, as Page will tell anyone who’ll listen, the future of transportation. Never mind that most people think the mere idea of computer-driven cars is (1) preposterous, (2) dangerous, or (3) not much fun. Page makes the case for self-driving cars with the dispassionate logic of an engineer. The father of two young children, Page insists that his pet project, when ready, will actually enhance safety. Soon Google (GOOG) will be able to simulate your driving, “but just make sure you don’t die and kill anybody else,” he tells me during an interview in the private “bullpen” where he meets with his top lieutenants. He methodically enumerates the other advantages of driverless cars. There are energy savings (traffic would flow more efficiently) and productivity gains (commuting hours reclaimed). There will be cost savings too — in the millions of dollars at Google alone. The Googleplex, he says, is short on parking, and quotes for new garages have come in at $40,000 per car. Why not let the car drop you off and go park itself offsite? Page asks. “Whenever you need it,” he adds, “your phone notices that you’re walking out of the building, and your car is there immediately by the time you get downstairs.”
Sounds like a crazy mashup of the Jetsons and the ’80s TV show Knight Rider. But that’s just the kind of future Page wants Google to create, and the kind of big idea that excites him. Since Google’s founding in 1998, Page and cofounder Sergey Brin set out to build a company that made long-term bets on audacious ideas. Many quickly became essential products. And it was Page who was known for championing the craziest ones, like photographing every inch of every street to create a digital replica of the real world, scanning every book ever printed to assemble the world’s largest library, and building a machine that could translate between any two languages (4,200 pairs of languages to date). So when Fortune set out to understand the future of computing, machine learning, and even transportation, we turned to Page to learn about how Google is reinventing just about everything — including itself.
Outlandish ideas and effective, pragmatic management rarely go hand in hand. What’s remarkable about Page is that while he’s been pushing his engineers and executives to pursue big dreams, he has also been running a complex $38 billion business of 53,000 workers with surprising efficacy. When he took over in April 2011, Google’s once-phenomenal innovation engine was showing signs of age, and bureaucracy was beginning to take root. Page quickly reorganized the company to give top executives more responsibility and accountability and to sharpen Google’s focus on a handful of product areas. The result is a more top-down and aggressive organization. The changes have ruffled the feathers of some old-timers who miss the more freewheeling ways of Google’s first decade. But almost everyone agrees that Google is running more cohesively and faster than when Page took over. It’s a feat that has surprised many in Silicon Valley, where Page’s wonkish, diffident persona is legendary. “Larry’s substance has been so high, and his ability to run the company so impressive, that he has overcome all those things,” says Ben Horowitz, the entrepreneur and venture capitalist who often coaches first-time CEOs. “It’s fairly shocking how well he’s done.”
Tangible results are everywhere. Google’s rank and file is more energized, and the company’s products work better together. Page killed dozens of nonessential or unsuccessful projects, like Google Health, heeding the advice he received from the late Steve Jobs to focus. He slowed the exodus of key employees who were leaving for Facebook (FB) and other startups. Indeed, some ex-Googlers actually are coming back. Page successfully pushed Google into the hypercompetitive world of mobile computing, building on the strength of its Android operating system — an acquisition Page personally championed. Perhaps most important, under Page’s leadership Android and YouTube have become sizable businesses, silencing critics, including Fortune, which had frequently called Google a one-trick pony. (Desktop search still accounts for roughly 80% of Google’s business, but display ads, mostly from YouTube, are now a $5 billion annual business. Mobile, which includes search on phones, brings in $8 billion.)
Still, adding Page to the annals of great CEOs at this point would be premature. While Page has done much to restore Google’s sense of urgency and competitive edge, the company continues to face enormous challenges. The battle with Apple (AAPL) for dominance in mobile computing is as fierce as ever. Amazon (AMZN) has become a de facto search engine for shoppers, capturing search queries that were among the most lucrative for Google. Investors remain unnerved by the prospects for advertising, Google’s core business, on smaller screens. A few things worry Google more than the possibility of head-on fights with regulators. Years-long government probes in the U.S. and Europe could still result in blockbuster antitrust cases that could gum up the gears of innovation for years to come.
Then there is the matter of Page himself. He is a quirky introvert who lacks the outsize charisma of a typical CEO. At 39, Page has a full head of graying hair, bushy eyebrows, and a toothy grin that often broadens into an impish smile when he describes one of his seemingly crazy ideas. His typically soft monotone is now often tinged with hoarseness, the result of an unspecified vocal cord problem that kept him from public speaking for months. Those who know him well say he is personable, with a low-key sense of humor and a healthy mix of humility and confidence. But Page is intensely private, and to outsiders he often comes off as arrogant; his conversation with Fortune in November was only the second wide-ranging interview he has done with a print publication since becoming CEO nearly two years ago. To Wall Street and much of the outside world, he remains a mystery. “It is difficult to comment on him because we’ve had zero access,” says Ben Schachter, an analyst at Macquarie Group. The lack of communication, Schachter says, is particularly frustrating in light of some of Page’s big strategic bets. “When you spend $12 billion to buy Motorola and don’t explain what the strategy is, it makes it difficult for investors.”
Page will be the first to admit he is a long way from cementing his legacy. He talks of Google’s someday being 10 times larger than it is now, and tackling far more significant problems. How to get there is not obvious. New products and businesses — self-driving cars or mobile payments — must be big enough to move the needle at a multibillion-dollar behemoth. He insists that new products pass a “toothbrush test” — they must be important enough that most people will use them at least twice a day. “Google is in uncharted territory,” Page concedes. “I don’t think there’s an example from history I can take or another company and say, ‘Why don’t we just do that?’ ”
For years, Page and other Google execs have mused about the perfect search engine. It would always understand what you mean. It would know you and would deliver results tailored to your interests. And it would give you answers to things that matter to you — even when you didn’t ask. Late in 2011, during an offsite meeting with his top brass, Page insisted it was time for Google to begin to deliver on the last of those promises, which insiders sometimes call “assist” functions. That set things in motion quickly. By January 2012 Googlers had developed an idea for a product that met Page’s exacting standards, and some six months later the company unveiled Google Now, which is available on the latest generation of Android devices. Using information from your calendar, e-mail, past searches, and location, the mobile-centric search tool can alert you to leave for the airport immediately so as to not miss your flight because an accident has traffic backed up along the way. It responds to voice commands much as the iPhone’s Siri does — and with fewer errors, according to many reviewers. It can automatically update you on your favorite team’s sports scores, even if you didn’t know it was playing. Says Alan Eustace, the senior vice president in charge of search: “We’re giving you something you didn’t ask for but that we think you should know.”
That Google Now went so quickly from vision to product is a testament to Page’s reinvigorated Google. Page has long said that the biggest threat facing Google is Google itself, and since becoming CEO he has zeroed in on bloat, bureaucracy, and just about anything that slows innovation. (His obsession with speed can take peculiar forms. He once asked Sundar Pichai, the senior vice president in charge of the Chrome web browser and other apps, to be mindful of the seconds it took executives to transition onstage at companywide meetings. “You should come closer to the stage and stand, so you don’t make the company wait,” Pichai remembers being told.)
MORE: Meet the L-Team
Page’s most sweeping effort to pick up the pace at Google was a major corporate reorganization instituted early in his tenure. He scrapped Google’s old structure, made up of massive engineering and product-management groups, and replaced it with seven product-focused units dedicated to areas like search, ad products, Android, and commerce. The executives heading each of the units now have full responsibility — and accountability — for their fates. Getting a new project started no longer requires convincing executives from across the company to get on board. And once a product ships, engineers and managers can’t jump to the next thing so easily and leave important products like Gmail in unfinished “beta” versions for years, says one of Page’s closest advisers. “Now you are accountable not only for delivering something, but for revising it and fixing it,” the adviser says. In the reshuffle, some executives got less prominent roles, and some chose to leave. Among them was Marissa Mayer, Google’s first female engineer, who became CEO of Yahoo (YHOO) in July. But by and large, turnover in Google’s top ranks has been minimal.
The seven product executives form the core of the “L-Team” — short for Larry’s team. They meet every Monday at noon in one of the conference rooms in Page’s executive suite. The meetings can last two hours or more and are often followed by huddles involving a subset of the group to hash out issues that emerge across teams or to focus on products that are lagging. Page, who before becoming CEO was at times distracted or staring at his laptop during management meetings, is now very much in charge. “There is no Larry on his laptop anymore,” says a former senior executive who left in 2012. Meetings always end with action items, which Page never forgets, Pichai says. The new structure has allowed Page to impose his will more effectively and to drive his vision for Google’s services. From the beginning he emphasized design and strove to create a more unified user interface across Google’s disparate products. Now, whether you are on YouTube, the Google homepage, or Gmail, menus have a consistent look and feel. And features of Google+, the company’s social network, are now woven into a variety of products on the web and on Android. “For the first time, someone is thinking across Google products,” Pichai says.
Getting everyone in sync with his vision has not always been easy. It involved breaking ties when product execs couldn’t agree — something that by all accounts Page excels at. And it involved setting a high bar. A member of the L‑Team recently confided in board member Diane Greene that Google’s top brass had never been pushed to work so hard.
Page easily, and sometimes unexpectedly, shifts focus from day-to-day management to long-term product plans. On a flight not long ago, Page pulled Nikesh Arora, Google’s chief business officer, to a window. As they flew over Nevada, Page pointed out the desert site where the Burning Man festival (which Page, co-founder Brin, chairman Eric Schmidt, and countless Googlers have attended) takes place every year. As the two looked out the window, Page began musing that Google could improve its map imagery by sending low-flying planes to crisscross the United States. As they spoke, Page came up with a rough calculation of the cost. Google Earth now offers 3-D views of many cities, a feature developed with images it took with low-flying planes and helicopters. “He tackles problems from a very different perspective,” says Arora. “It forces you to rethink things.”
Page has been rethinking things since an early age. The son of parents who taught computer science, he was raised in Michigan, where he attended a Montessori school, which nurtures independent thought. After earning a computer engineering degree at the University of Michigan, he went to graduate school at Stanford, where he met Brin. “He would find an idea that was a bit crazy and say, ‘That’s what I want to do,’ ” says Terry Winograd, Page’s academic adviser. Among Page’s more far-out ideas was a plan to download the entire web to study how sites related to one another. Winograd advised against it. “It was crazy to think that a student could do it,” he says. Page did it anyway, and the effort led to Page’s and Brin’s development of Google. Page and Brin also defied convention in 2001 when they decided to run Google as a troika with power evenly distributed among the founders and Schmidt, who was CEO. (Schmidt remains executive chairman, and Brin oversees Google X, the unit responsible for self-driving cars and Glass, the prototype augmented-reality glasses.)
Now that he is CEO, Page is willing to sow dissent as he rethinks Google. While cutting products became a matter of pride under Page’s mandate to focus, those who had worked on shuttered products were often dismayed. Google’s popular 20% time, which allowed many engineers to work on their own ideas one day a week, has been severely curtailed. “They believed in bottom-up innovation, in trying lots of things and seeing what stuck,” says a senior manager who has since left for another company. “But that thinking shifted very dramatically.” Internally, some old-timers who were close to Page also grumble that he has become less accessible. There is no question the once-open Googleplex has become more compartmentalized. Areas where the Google+ and Android teams work suddenly began to require special badges. Page’s own suite is on the top floor of the Google+ building. Security is so tight that even Laszlo Bock, the senior vice president in charge of people operations, received an e-mail reprimand after he held the door open for someone. “I got busted once,” Bock says. “They reminded me that even if you are going in with someone, you should badge in.” Bock says the access restrictions made Googlers “very grumpy.” Page disregarded the complaints because he considered the restrictions important to guard particularly sensitive projects. “Larry is more inclined to tolerate disharmony and conflict,” Bock says. In what Bock says is a sign of his flexibility, Page lifted the badge restrictions on the Android area when they were no longer necessary.
Page pushes willingly and forcefully past obstacles with an overriding purpose: to make sure Google succeeds in the post-PC era. In March, for instance, Google raised hackles among some users and consumer advocates when it made sweeping changes to its privacy policies. The older policies limited how data could be shared across Google products and stood in the way of services like Google Now, which draws personal data from various sources. To Google, tying these capabilities together is essential as users shift from PCs to mobile devices, where apps must be more tightly integrated with one another and where hardware and software must work seamlessly.
It’s also part of an effort to skirt a problem that is nagging many tech companies that have become giants in the web era: the fact that mobile screens aren’t as friendly to ads as larger PC screens. Page says the opportunities in mobile will actually increase with better targeting of people’s location and services like “click-to-call,” which allows mobile-phone users to call with a single tap a business listed in an ad. “I’m optimistic that we can make more money than we do now, because the software’s better, devices are better, and there are more capabilities,” he says. Others share his optimism. WPP’s Sorrell, who famously called Google a “frenemy,” says that the search giant is now a “friendlier frenemy.” WPP, Google’s largest customer, increased its spending on Google by 25% in 2012, to about $2 billion. Says Sorrell: “It’s a remarkable company in a very strong position.”
In September Google introduced a new YouTube app for the iPhone and iPad in response to Apple’s decision to remove pre-installed YouTube software from those devices. In early December Google upgraded Google Now to include some of the functionality of Apple’s Passbook. Then Google released a new version of its maps for iOS, giving users another alternative to Apple’s error-riddled mapping application, which the Cupertino, Calif.-based company introduced in 2012 to replace Google Maps. So goes the tit for tat in the war between the two giants of the mobile world, which is being fought not only in the marketplace but also in courtrooms across the globe. “It would be nice if everybody would get along better,” Page says.
Despite the pitched battles, the two companies continue to work together when necessary. “We have a big search relationship with Apple, and so on, and we talk to them and so on,” he says. Page has met with Apple chief Tim Cook to try to resolve the protracted patent disputes between Apple and makers of Android phones. While they have made progress in some areas, a broader agreement has proved elusive.
It’s hardly the only battle on Page’s hands. In early December, Microsoft (MSFT) took out full-page ads in major newspapers to warn users, “Don’t get Scroogled.” The attacks were aimed at Google’s decision to turn its shopping search engine into essentially a bunch of ads. Earlier in 2012, Google changed its free shopping service into one where online stores pay to be included. It wasn’t lost on Microsoft, or anyone else who has followed Google for any length of time, that Page and Brin had long considered so-called paid inclusion “evil” because it leads to inherent bias in search results. What changed? Page doesn’t directly address the issue. He says the move to a “bid model” was necessary because a search engine for shopping can’t rely only on information scrapped from the web. It needs “really accurate, really high-quality, great information,” Page says, and Google gets that information from merchants who pay to be listed. The explanation has fallen flat with many longtime Google watchers. “They have done this 180-degree reversal, and it looks bad,” says Danny Sullivan, the editor of Search Engine Land. “It’s a stunning change.”
Stoked by Microsoft and other Google rivals, government officials in the U.S. and Europe have been exploring related questions about bias in search: whether Google favors its own services, be they maps, reviews, or shopping, at the expense of services like Yelp (YELP), and possibly in violation of antitrust laws. Page remains unapologetic. Google’s goal, he explains, is to help its customers; by integrating its travel, shopping, and review tools, for example, Google could offer a service that could “basically vacation plan for you,” Page says. It would take your preferences, combine them with information about weather, hotel, and airline prices, and suggest a vacation plan. Says Page: “I don’t think the companies that are complaining about various components of what we do are trying to do that.”
Some investors are nervous for other reasons. Page has not convinced many outsiders that some of his biggest bets make sense. While the company has touted the success of Google+, its answer to Facebook, many analysts say they see little activity on the social network. More important, many are still trying to understand how Motorola Mobility will fit into the Android ecosystem. Google, which bought the company mostly for its patents, has cut jobs and sold Motorola’s set-top-box business for about $2.35 billion. But Google plans to hold on to the company’s smartphone and tablet units, a move that makes it a competitor with its other Android partners. Google says that Motorola will not receive special treatment. Internally, Google has kept the head of Motorola, Dennis Woodside, away from the L-Team meetings to avoid conflicts over Android. Page says Google is focused on working with Android partners to create innovative devices that are widely distributed, all the while keeping those partners happy. “I think we’ve done a pretty good job of that so far.” But concerns remain that any Motorola successes could chill the close relationship Google has established with Samsung, HTC, and others. David Yoffie, a Harvard Business School professor (and HTC board member), says, “There is no reason to believe that they can do hardware more effectively than their partners.” Translation: Google’s hardware foray is a case of Apple envy.
It’s hard to wrap your head around the idea of driverless cars until you ride in one. When you do, it’s almost frightening to realize how natural it feels. I jumped into the back seat of one recently, as Dimitri Dolgov, a Google X chauffeur engineer, sat behind the wheel. He drove from the Googleplex over to Highway 101, where, with the push of a button, he put the car on autopilot. It didn’t feel that different from someone turning on cruise control. And for the next 15 minutes or so, as Dolgov turned around to chat with me, the car did its thing flawlessly. Surprisingly, I felt very safe.
Google’s self-driving cars are not ready for prime time yet, but they have cruised through hundreds of thousands of miles of California roads without incident. Schmidt likes to joke that they already drive more safely than a drunken driver and will only get better with time. Self-driving cars are still a small project within Google that many outsiders, including investors, think of as little more than a flashy, fanciful science experiment. But to Page and Brin it’s a serious endeavor with commercial opportunities. “We are definitely optimistic that they not only are transformational for the world but that they will be good business,” says Brin, who oversees the project. Consider this: Google has successfully lobbied to make driverless cars legal in California, and in November it hired the deputy director of the National Highway Traffic Safety Administration to be director of safety for the project. Page won’t say what crazy idea Google’s factory of the future will come up with next, but it is clear that there will be many more. “Not enough people are focused on big change,” he says. To Page, that’s as much a fact as it is an opportunity.
A previous version of this story mistakenly said Page received a degree in computer science. He received a degree in computer engineering. It also implied his mother was a computer science professor. While she taught programming, she was not a full professor. Fortune regrets the errors.
This story is from the January 14, 2013 issue of Fortune.
More from The Future Issue