Exclusive Interview With Google's Eric Schmidt
Bartiromo: Do you have any sense of how these things go? I mean, can they go
in the open market, buy the stock, and then just create a proxy battle?
Schmidt: All I know is what I've read in the press, which is that
essentially you replace the board and you force--you force the deal.
Bartiromo: Let me ask you about YouTube and MySpace. YouTube has these
phenomenal growth rates. What do you think is behind that?
Schmidt: Video is powerful. And it's amazing. You know, we started off
with Mentos and the other sort of fun videos, and now people, because they
have so many digital cameras, are essentially uploading everything.
Furthermore, we're beginning to see glimpses of significant professional
content on YouTube. People are using it--because there's such a large reach,
they're learning how to reach that audience. We're working but have not yet
in my view gotten a breakthrough around monetization. So while we have lots
and lots of traffic and we have lots and lots of interesting and creative
people and all sorts of controversies--we're blocked in countries, so on and
so on--I don't think we've quite figured out the perfect solution of how to
make money, and we're working on that. That's our highest priority this year.
Bartiromo: Which is a huge priority, clearly. A lot of people feel like this
is an amazing opportunity for you. So, as far as monetizing that business on
YouTube, do you think that takes a year? Does it take the next five years?
What's your time frame on that?
Schmidt: We believe the best products are coming out this year. And
they're new products. They're not announced. They're not just putting
in-line ads in the things that people are trying. But we have a number--and,
of course, Google is an innovative place. The Yahoo! team are trying various
new forms of advertising, ones which are much more participative, much more
creative, much more--much more interesting in and of themselves. Google
believes that advertising itself has value. The ads literally are valuable to
consumers. Not just to the advertisers, but the consumers.
Bartiromo: They want to look at them.
Schmidt: When they're targeted. When they're the right ad for what
you're doing or what you care about.
Bartiromo: Mm-hmm. But, you know, it gets me to MySpace. Some people feel
like, when you look at the MySpace part of the business, that's really where
people are looking at, or feeling a bit of an economic downturn. Let me ask
you about that. The deal involving revenue promises, is that going to impact
margins in the coming two years?
Schmidt: Not materially in that sense. We have pointed out, and I'll
repeat again, that the whole social networking space has been harder for us to
monetize--that is, develop advertising businesses again--than some of the
other--than some of the other spaces that we're in. It has to do what people
are doing. When you think about it, you're in a social network, you're
looking at people's photos, you're figuring out where your friends are.
You're not as likely to be purchasing a new car at the same time or purchasing
clothes or purchasing a book or what have--whatever business that you're in.
So the development of the advertising tools and techniques, literally the
platform, has been more difficult than we have thought. But we're working on
it, and we're hopeful.
Bartiromo: You've got $12 billion in cash right now?
Schmidt: A little more than that.
Bartiromo: What are your plans for that money? A lot of people say, `Look,
the company's doing well. Growth is still continuing very strongly, global in
particular. Why not pay a dividend out? Why not buy back stock?
Schmidt: We love watching that cash sit in a well-managed bank and not
get lost.
Bartiromo: So you could categorically rule out, no dividend coming?
Schmidt: Well, first this: We never rule anything out. But right now
we're happy to let the cash accumulate. The cash represents a strategic
option for the future. As you know, we had the luxury of entering the
wireless auction. And we did not win the auction, but our financial resources
allowed us to credibly and seriously enter an auction for 4.65 billion.
Couldn't have done that without the cash.
Bartiromo: What did you get out of that, though, Eric?
Schmidt: Well, from a corporate perspective, we participated in
something important. From a consumer perspective, we know that our
participation helped in making sure that the networks remained open. So
consumers get choices. What's better than that?
Mobility Is Where It's At
Bartiromo: Yeah, and the FCC was happy about that.
Mobile. A lot of people say mobility is where it's at. You've said,
actually, I've heard you on conference calls saying that this is one of the
big priorities for the company. How do you envision this? Tell me what
you're looking for.
Schmidt: First place, everyone I know, everyone you know carries a
mobile phone. And it's true in every country.
Bartiromo: And I'm not carrying my PC, by the way.
Schmidt: And most people in most developed countries have a roughly 100
percent coverage of mobile phones. So it really is a tremendous phenomenon.
Over the next three or four years, there'll be more than another billion or so
mobile phones added. Eventually our numbers indicate that there'll be five or
so billion mobile phones in a world of six billion or so. People, this is a
phenomenon. It's an unprecedented reach, even greater than, for example,
television, or even electricity in some cases. So that's a platform that we
can exploit. Our mobile phone, both search traffic as well as advertising is
growing very rapidly, and we think people will do more and more interesting
things in mobile phones. And, I mean, small phones, big phones, big screens,
things that don't look like a phone, things which are mobile.
Furthermore, the telecommunications industry is helping because they're
deploying billions of dollars of literally excess data capacity so these
things will have fast networks wherever I go. One of the greatest things for
me is whenever I fly somewhere, I open up and I open up my iPhone or my
BlackBerry, and, boom, there's everything in my world as I've landed in a
country I've never been in. It's a remarkable achievement.
Bartiromo: Yeah. What needs to happen before we actually get to that world
that you're talking about? In other words, do we need to see the providers
create different screens? I mean, do you need a larger screen to access some
of this data? How do we get there?
Schmidt: Well, one of the problems is we haven't figured out a way to
change finger sizes. We just haven't...
Bartiromo: Right.
Schmidt: There's no solution to that.
Bartiromo: Right.
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?
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.
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?
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 I check in my code?'
Those sorts of things.
Managing Employee Growth
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?
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.
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.
Schmidt: Which is...
Bartiromo: Would you agree with that?
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?
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).
The Most Innovative Thing Out There Today
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?
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?
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?
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...
Schmidt: It's a pretty good model.
Bartiromo: Yeah.
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?
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?
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?
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?
Schmidt: No, I'm fine. Thank you very much.
Bartiromo: Thanks so much for joining us.
