CNBC Exclusive: CNBC's Maria Bartiromo Interviews Google CEO Eric Schmidt, Today on "Closing Bell with Maria Bartiromo" (Transcript Included)
BARTIROMO: Right.
Dr. SCHMIDT: We'd like to, but we haven't done it. And people don't like to kind of go like this. So you need a certain size screen. But there's other technology. For example, the processors in the phones have gotten faster. The batteries have gotten longer last--longer lasting. The screens have gotten brighter. The whole device has gotten lighter. So all of that has been happening while people have been talking about this. We know that these things are working now. We know because we measure it that there's been a huge increase in maps, Google Maps, hugely successful. These phones have GPSes in them. So when I want to go to the equivalent of a Starbucks, I just type "Starbucks," it says it's over there. For me, that's just a huge--a huge improvement. And that service is available almost everywhere in the world.
BARTIROMO: That's amazing. Let's--that transitions right to the rest of the world. Global has been really the hot spot for Google. Tell me how you keep that going. Where are the biggest opportunities for Google right now outside of the United States?
Dr. SCHMIDT: Well, first place, the Internet is growing faster outside the United States than in the United States. Also advertising online growth rates are higher outside the United States than they are in the United States. You've got--and of course you have a weak dollar strategy--because the US has a very weak dollar--so that also helps. For all of those reasons, revenue outside of the United States should grow dramatically over the next while, and that's great.
In our case, the biggest difference--and, in fact, perhaps the only difference--between people in the US and other people is language. Other than that, simple rule: Everybody wants the same thing. They want fashion, they want information, they want products, they want e-commerce, they want it now, they want to have fun, they want to use credit cards or debit cards. So we work very hard to make that true globally. I think most of the large, successful US corporations, the ones that you certainly cover all day, all are going to see that kind of growth if they'll well positioned internationally.
BARTIROMO: So when you look around the world, what's the most important, sort of richest area for you right here?
Dr. SCHMIDT: Well, for us, of course, Europe has been our stronghold for a long time. And Europe is just very, very strong for Google. They have relatively higher market share, they're very sophisticated consumers, and a very mature advertising rate. If you look at the global advertising market, it's the United States, Japan, China, Britain, France and Europe--and Great Britain. Those are the sort of the big five or six. Well, of course, we're doing very well in Europe, we're doing well in Japan, and we've been in the process of entering China for a while, and we're growing there nicely.
BARTIROMO: What's happening there, though? You're number one in every market except a handful in Asia. How do you break in, and really with a solid foothold.
Dr. SCHMIDT: Well, in each case, they're different. In China, of course, there's all the issues of regulation and censorship. We delayed our entry for good reasons, and as a result we're not number one there. In some of the other countries, it's because we didn't get the language right. It turns out Asian languages often have what you and I would think of are nonsensical ways in which words are put together. So, for example, all the words in Thai are put into one very long sentence. They don't have word breaks. So developing the technology to do that right and then search and index against it took us a little while longer. We've now addressed that, so we think we should do well now.
BARTIROMO: Fascinating. So what's the biggest challenge that you're facing today?
Dr. SCHMIDT: In Google's case, I think it's internal. It's the ability to manage the creative process, deal with the complexity in what is a relatively large company, in terms of people, who's doing what. We have 50 development centers all around the world, people in different time zones, `Are you doing that? Are you doing that? Do I work with you? How do check in my code?' Those sorts of things.
BARTIROMO: And for a long time, people were saying, `Look, you know, Google has this incredible campus, and, you know, spending money, and really showering employees, making sure that people are happy there.' Are you beginning a new process of managing employee growth right now and managing expenses more aggressively than you have in the past?
Dr. SCHMIDT: Well, certainly not our benefits, per se. Every day I turn around, there's some new benefit that we've come up with for our employees. It's part of our culture; we're happy to do that. And, of course, we have gross margins to afford it. So higher gross margins is one of the explanations. We have slowed our head count growth for a couple of reasons, but the biggest reason is it began to feel like we really didn't have a good sense of what people were doing. The systems in the company, literally who's doing what, what are they doing, seemed to lag our ability to hire these great people. So we slowed it a little bit. But we're still going to hire some number of thousand people this year.
BARTIROMO: Let me--let me go back to something on the DoubleClick acquisition. Are you seeing any pushback from some of the advertisers who say, `Look'--the ad agencies who say, `We're already spending a ton of money on Google. Why do we need to spend more on all this other stuff away from search?' How are you going to get them to devote more money to display, to audio, to print and TV ventures, which are--and everything else you're--and the display ads, obviously.
Dr. SCHMIDT: Because we earn it. Because you can measure it. We never want people to give us--give us money that we don't earn and that we can't prove that they--that they--that it really provides value. That's not a good business for us. So as we enter these markets, we hope to say, `We have the tools that can show you that if you put this display ad out there, you really will get the sale.' And we have ideas, we have new research in how to do that in a closed loop way that is phenomenal. So our innovation model is in very category of ads, not just text ads, to show real return, real sales, and we think we can do that. And if we do that, we'll get the business. And if we can't do it, we shouldn't get the business.
BARTIROMO: Right, because it's so measurable. That's why you don't really see a real dry up in the advertising during a recession.
Dr. SCHMIDT: Which is...
BARTIROMO: Would you agree with that?
Dr. SCHMIDT: That's our hope. Our hope is that, again, in a recession, people would say, `Look, I'm going to put my money where I know my money's being well spent.' Now, we don't know that we're in a recession, but if we were, we hope that's what will happen.
BARTIROMO: Now, earlier you said, `Look, growth levels have to slow, obviously.' What's appropriate then? I mean, when you say--I mean, investors are saying, `Look, is this company insulated? Is it not insulated?' So you say of course growth levels have to slow. To what?
Dr. SCHMIDT: Well, we don't know, but obviously, we don't plan to a growth level, we plan to an innovation level. Our idea is you just keep inventing new stuff, and it grows as quickly as it can. And there's some capacity with which we can deliver these to customers and that they can adopt them. And, of course, they have to do work. They have to learn how to use new tools, we have to talk to them, there's a lot of selling and marketing involved. It just doesn't happen automatically. Here's a new idea. People have to be comfortable with it. But once they are, we've found that growth rate is quite...(unintelligible).
BARTIROMO: As a steward of technology and innovation your entire career, what would you say is the most innovative thing out there? What's the next big thing, from your standpoint?
Dr. SCHMIDT: I've always thought that the scariest piece of innovation is knowledge understanding and language translation. I don't understand how it works, but to watch a computer--literally watch it--read something in English, dissect what it's about, translate it into a language that I don't speak and having that other person say, `Wow, that's incredible,' to me, that's magic. And it isn't magic, it's just very good computer science, very good artificial intelligence, very good physics. And that's where we are. So the things that are most impressive to me are the things where the computer does something that nobody could do, literally translate things 100 language in parallel, summarize something for me, take me to something which I didn't know I was interested in but knows that I cared about it. And we're right on the cusp of that.
BARTIROMO: Eric, your stock went from $750 to $450 in a very short period of time. What do you think happened?
Dr. SCHMIDT: I don't know. We don't really focus on short-term movement of the stock price. We said, since the company went public, that we're in this for the long term, and we want shareholders to be with us. These short-term fluctuations in outlook and so forth are not something that we focus on. We don't talk about it. We're really focused on this huge opportunity before us, which is automating the trillion-dollar industry that is advertising. We won't get all of that, for sure, but we should be able to get a significant part of that over the lifetime, certainly of my service to the company. And our goal is to build this into an institution that lasts for many, many years and is the greatest innovator in technology in this space.
BARTIROMO: So the biggest priorities right now, continuing to access that potential huge, huge advertising market. What else?
Dr. SCHMIDT: Well, our number one priority is end-user--end-user happiness. Literally, are people happy with the results that they get using Google search? So it's literally search, and every day we bring out new improvements and indices that are--taxonomies that are understanding of language, more content, bigger--all of the things that make Google such a great search experience. That's our number-one priority, even more important, for example, than advertising. The way we pay for it, of course, is by improving our advertising solutions, as you described. That's what we do in the core.
Our next big play is in this applications phase, where we think people spend a lot of time online with information, and we can help them, whether it's their e-mail, which is an easy one to understand, but what about their personal data? What about their spreadsheets and their calendar, keeping it all there? And we can help them search. We can solve the problem of `how do I live in this digital lifestyle?' If we do that right, they can do it on mobile phones as well as at home, in their office and on a Mac and on a PC, and it all works great.
BARTIROMO: This is all fantastic for the consumer. It's free, they've got access to all this stuff, they don't have to pay for it. What about...
Dr. SCHMIDT: It's a pretty good model.
BARTIROMO: Yeah.
Dr. SCHMIDT: It works pretty well.
BARTIROMO: What about the corporate customer? I understand that there are tests going on right now. What are you hearing from that customer?
Dr. SCHMIDT: We're working with the corporate customers to do the same thing inside their networks as we do with consumers. Now, corporate customers are not the same thing as consumer customers. Corporate customers have a much higher need for reliability, so we'll sign an agreement that guarantees a certain level of service. But then we charge for it. So that's a case where people are willing to pay for something which is free without the level of reliability. They also have other needs. They need greater security, for all the obvious reasons. And they also need better integration with all of the other services that their companies have. This is a long process. It's not a fast process. But it's very deeply valuable. And those customers we will have for 20 or 30 or 40 years as they build into our model. We like that model. It's an enterprise play. It's a business that I've been in for a long time, and one which will ultimately be very, very lucrative through Google.
BARTIROMO: Do you ever look back and think about what has happened to the company? I mean, you, for a long time, have been really one of the most admired companies out there, and then one of the sexy, sort of big growers out there. And then as the company got bigger and bigger, people started to get afraid of Google, they way they were afraid of Microsoft at one point as well. Do you worry that that's the perception or that perception could take hold at some point?
Dr. SCHMIDT: We do worry about perception because we want to make sure that we are--that our perception is consistent with the way we way we behave. Google runs on a set of principles, and every company has their own principles. Ours are about doing no evil, it's about trying to serve the end user. Larry Page, our--one of our founders, wrote a very thoughtful memo about what it's like to be a big company. So, for example, he authored the rule that we'll never trap people's data. So if you become dissatisfied with us, we will make it easy for you to go to our competitor. Most companies don't do that. So we're trying to find that balance between the structure of a company and the need for predictability and so forth with our real mission, which is to serve you as an end user. And if you're not happy with us, keeping you trapped, that's a mistake. We want you to have another choice.
BARTIROMO: Final question. Eric, let's face it. Microsoft wants Yahoo!. How much of a disadvantage do you think Google is at if these two players get together, what...(unintelligible)...two and third player in the market?
Dr. SCHMIDT: Well, a lot of people debate this. There's a big debate within the company. People say, on the one hand, that we stay focused, which, of course, we're very focused, while they're doing their maneuver. On the other hand, people are concerned about the history, as I mentioned, and the possibility of merger. So I don't think we really know yet. We debate it all the time.
BARTIROMO: Eric, would you like to add anything else?
Dr. SCHMIDT: No, I'm fine. Thank you very much.
BARTIROMO: Thanks so much for joining us.
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