Exclusive Interview With Google's Eric Schmidt
CNBC's Maria Bartiromo sat down with Google CEO, Dr. Eric Schmidt Tuesday at the Milken Conference in Los Angeles to discuss Google's growth and U.S. slowdown, the possibility of a Microsoft acquisition of Yahoo!, online advertising growth rates, Google's European stronghold and Google's stock, and other topics.
Here is the full, unaltered transcript of that interview:
Maria Bartiromo, host: Eric, thanks so much for joining us.
Dr. Eric Schmidt, Google CEO: Thank you for having me on again.
Bartiromo: Let's begin with this debate that seems to be brewing on Wall
Street about growth. So the company grew 46 percent in the third quarter, 40
percent in the fourth quarter, 30 percent in the next quarter, and then
sequentially 1 1/2 percent when you look quarter to quarter. How insulated
would you say is Google to the economic slowdown or recession?
Schmidt: Well, the numbers you're using are year over year, quarter over quarter in the US. Globally, of course, we had good growth, and the US numbers are masked by the fact that, a year ago, we had a very strong quarterly growth of that quarter. So the real growth rate in the US is good,
although overall growth rates are slowing, as they have for years. Just because of the scale and size of what we operate. The business has continued to be good.
Bartiromo: OK, because when you get to a certain size, it's really hard to
sort of grind down more market share when you've already got 70 percent or get
that much bigger, given the fact that the company is getting--you're a large
business.
Schmidt: But we have--we have multiple ways in which we grow. Of
course, more people use the Internet, more people are using electronic
commerce on the Internet, more people are clicking on the ads, and also our ad
technology is getting much, much better. And it's really any one of those
will push us over the top in any given quarter; sometimes they all come
together. We don't seem to be very sensitive to macroeconomics, at least
right now. We don't seem to be very sensitive to things like recession. But
we're very sensitive to how quickly do we bring in the new product improvement
or something like that.
Bartiromo: The comScore data took everybody's estimates down, and this whole
debate about whether it was accurate or not. How can you ensure that the
growth occurs, even if people pull in their spending, if perhaps advertisers
slow down on the budgets? I mean, is it fair to say that the hypergrowth of
2004 to '07 is--has been seen?
Schmidt: Well, as I said, if you think about it over a five- or six- or
seven-year period, growth rates are slowing, as they have to. So I don't
think it's a big shift. It's not, you know, today it was one way and tomorrow
it's another. In our case, we focus on quality, and we have a very simple
model. If we show fewer ads that are more targeted, those ads are worth more.
So we're in this strange situation where we show a smaller number of ads and
we make more money because we show better ads. And that's the secret of
Google.
Bartiromo: Yes, that's what Mary Meeker was saying. She's saying, `Look, it
could be that they're actually benefiting from a recession because they're
monetizing the ads better.'
Schmidt: There's been--you you know, if you were running a business
today, you would be looking very carefully at where is your marketing spend
going? And we think that you'll choose to put your marketing spend on the
thing that's most measurable, the thing that's most, you know--because you can
always defer a branding campaign that may or may not work, but you want to get
those customers and those leads right now, and that's what we do.
DoubleClick Integration
Bartiromo: Let's talk about DoubleClick. You acquired the company. How's
the integration going?
Schmidt: Well, it just started. It started about three weeks ago. And
what we're doing is we're taking their products and our products and
integrating them so that people have better tools, advertisers have more,
literally, ads, and publishers have more spots that they can publish
information into. So it's the combination of all that that we've been waiting
for so long, and it's under way. It takes six months to get all the products
together.
Bartiromo: So you think that the integration process will take about six
months?
Schmidt: It's on the order of that. And, of course, at Google ,
everything is a try. We try this, we try that, we see what works. The early
indications are that we'll be largely complete within that period.
Bartiromo: It's no secret that Google owns search, but what about the display
ads? Is it--is it fair to say that's sort of up for grabs? You know, you've
got DoubleClick, Microsoft has aQuantis. It's up for--up for grabs, that part of the business.
Schmidt: Well, it's fair to say that that Google is not the leader in
display ads, but our customers want to be able to purchase text ads and
display ads and other advertising in one purchasing bundle, and the
combination of the tools that we're developing, plus the DoubleClick
integration acquisition and so forth, allows us to offer a single product for
those advertisers. So we think that will help us with our display ads
competitiveness. We think our technology is better. And so really now it's a
question of earning those customers' respect and knowledge.
Bartiromo: So how do you ensure that that was actually the right acquisition
and not just go it alone, do it on your own?
Schmidt: Well, we had tried that. But the customers really liked the
DoubleClick product, and in our surveys we concluded that in one of
these--this was one of those cases where another company had simply built a
better product, which is why we went forward with the acquisition.
Bartiromo: Tell me what you're doing with Yahoo! in terms of testing. On
the earnings call last time, you said you're setting up ads there. How's it
going? What's involved?
Schmidt: Well, the long and short of it is that we did a test for about
two weeks, which has since ended, where Yahoo! took a small percentage of
their ads and replaced them by ours. We did this as part of a commercial
conversation, which I obviously cannot go into, but it's one of the strategic
options that we believe Yahoo! is considering at this time.
Bartiromo: Now, of course, after that, I guess the Department of Justice
announces that it's, you know, doing an inquiry about this. Have you heard
from the Department of Justice on this?
Schmidt: Well, again, without going into the specifics, you should
expect that in all of these possible transactions, all of the regulatory
bodies will be reviewing them. If there were an acquisition of Yahoo!, for
example, the Department of Justice would also be doing a review. And the
anti-trust laws allow the government--and I think properly so--to look at both
commercial deals as well as acquisitions.
Bartiromo: What kind of a combination would you like to see with Yahoo!?
What kind of a partnership would you like to see?
Schmidt: Oh, well, we actually enjoyed working with Yahoo!. We also
compete with them. They're a well run and, I think, impressive company.
We've primarily been concerned about the possibility of a Microsoft
acquisition of Yahoo! because of Microsoft's history and because of the
assets that Yahoo! has are quite valuable. And we actually think that in the
wrong hands, they could be used in the wrong way.
Bartiromo: What do you mean, Microsoft's history?
Schmidt: I think people are aware of the anti-trust trial from 10 years
ago. Microsoft has a long history in that area.
Bartiromo: Yeah, you can bet, I guess, who tipped off the DOJ about the phone
call that was made, Steve Ballmer or somebody from that side.
So what do we know about Microsoft and Yahoo!? Tell me this. I mean, I know
that, you know, we're waiting on possible news from Microsoft, possibly, a
hostile--we don't know what's going to happen next. But what kind of a
challenge would Microsoft/Yahoo! be for Google?
Schmidt: Well, today we actually do not know what's going on. We read
in the press that there's discussions and we'll see what they decide to do.
If they go ahead and the merger's ultimately successful, it would be possible
for Microsoft to integrate some of the properties and essentially eliminate
consumer choice, particularly in electronic mail, instant messaging, the
things where they have 80 or 90 percent market share, and that's a sweet spot
for Microsoft in its ability to eliminate choice.
Bartiromo: Mm-hmm. And, of course, Google has been getting all these new
killer apps, whether it's Gmail or Maps or, you know, spreadsheets.
Ultimately is the game to compete direct, head on, with Microsoft?
Schmidt: Well, Google is actually trying to be an innovator, and we're
always concerned about competition. We have found that if we can simply
invent a brand-new product that really solves a problem that really does
matter to you, we can get your business, we can get your attention, we can get
your traffic and your customers or what have you. We're trying in a new thing
called cloud computing to offer very powerful Web services that do the common
things--e-mail, word processing and so forth--where the data's kept in the
cloud, it's kept by somebody else, it's managed by professionals. You don't
need to worry about where you keep all that information. We like that model a
lot. We're getting traction. It is a competitive threat to other companies,
but we think it's a technological breakthrough.
What If Microsoft Goes Hostile?
Bartiromo: How will you respond if Microsoft goes hostile?
Schmidt: Well, a lot will depend on whether their strategy is
successful. In the short term, we have pointed out the possibility of a bad
outcome, but it really depends on what happens in the hostile.
