Eric Schmidt at American Association of Advertising Agencies

Uploaded by Google on 30.04.2008


FEMALE SPEAKER: As a student of technology, I have the
great honor and privilege of introducing one of my heroes.
And that would be Dr. Eric Schmidt.
Eric Schmidt is the chairman and CEO of Google.
He came to Google to help a promising young company learn
the basic business infrastructure and gain some
chops to really become the biggest company in the world.
Dr. Schmidt has the kind of brain that I describe as
"scary smart."
He's a PhD from Berkeley who then went on to
work at Bell Labs.
He was on the research staff at the Computer Science Lab at
Xerox Palo Alto Research Center, the CTO at Sun
Microsystems, the chairman of Novell, and now at Google.
He's going to give us brief comments, and then we'll have
some questions.
Thank you.
Doctor Schmidt?

ERIC SCHMIDT: That was much, much too generous.
I wanted you all to know--
and thank you for having me-- that the room that we're in is
actually quite historic.
Because between the years 1990 and 195, literally this
ballroom was the scene of the conferences where much of the
personal computer industry and the internet was planned.
So it's only fitting now, from my perspective--
literally, they've repainted the rooms, and aside from that
it's pretty much the same.
15 years later, we're looking at the consequences--
good and bad, by the way--
for what's happened with the explosion of information, the
creation of whole new industries, and the way I
would like to think of it is as Google bringing some
science to advertising, because we believe advertising
has great value.
Let me talk first and foremost about
information and the world.
I think the role of information is
underappreciated in politics and business.
Global phenomena, culture, and so forth.
And the rate of innovation is actually increasing in the
internet, which is sort of a little frightening.
And there are these very, very large, new opportunities and
platforms before us that all of us together are going to be
exploiting, using, being creative on,
or being upset about.
This is happening.
It's happening globally, and it's happening right now.
There are four sort of major experiments, I think,
globally, in how information is being used.
Think of them stereotypically as follows: Europe--
educated, thoughtful, rule of law, empowering.
The United States--
innovative, creative, surprising, individualist.
China-- monocultural, chaotic, controlling, confronting the
individual truths of their structure.
India-- following, accelerating, the merging of
their cultures.
These four major, major social phenomena that comprise 80% of
population and 99% of economics will be defined by
the role of information and the power of individuals using
that information.
That is the story of the next five to 10 years.
There are lots of examples of this.
Rice is in short supply.
One of the reasons it's in short supply is that the
people who make rice are using their cellphones to discover
that the intermediaries are screwing them with respect to
pricing, and so they're withholding rice to get the
prices set correctly.
Who would have thought?
People on boats who are doing tuna fishing are choosing
which port to go using their mobile phones or internet
connections-- satellite connections--
to determine where they get the price for their fish.
You don't need to think about the internet without thinking
about the three presidential candidates we seem to have
today, each of whom have had their troubles with YouTube,
stories on the internet, and perhaps some issues with the
things that they said or did.
Each of the these are illustrative of the fact that
there is a next universe that's coming.
And at Google, we're trying to build some of the atoms that
people can build these things out of.
And it's very important to also understand that these are
not zero-sum games.
There's a logic in business where everybody says, well, if
I take from here, I lose from there.
This is positive.
It's plus positive that these new platforms, new innovation,
and new services in fact create new opportunities for
advertisers, new opportunities for information, and new
opportunities for people to have great lives.
I mean, as an example, there are 5,000 photos uploaded per
minute to Google's Picasa website.
I have no idea what's on those photos.
I just can't imagine even trying to look.
Even scarier is there's 10 hours of video in YouTube
uploaded every minute.
Now, the technology has all sorts of interesting problems.
We did some math, and in 2019, you'll be able to have an
iPod-like device that has 85 years of video on it.
So in your entire life, you cannot watch
all the video, right?
You'll never do it.
I guess you could fast watch it.
We'll watch a frame here and a frame here and a frame here.
And by the way, that includes sleeping time, which is
another problem we haven't fixed yet.
So the scale of this, I think, is underappreciated, and the
societal impacts are very, very significant, as well.
As Ben, who's one of my heroes, talked about, the
shift in audience is causing content to really be
Network prime time audience is now around 45% down from 80%.
These new industries, whether it's print campaigns, search
advertising, are now these very large industries that
didn't exist 10 years ago.
The average American internet user is spending 13% more time
on the internet every year, which means, basically,
they're ruining their lives, right?
They're giving up everything else because they're so
addicted to this phenomenon.
This very, very real, and very powerful.
And it's of course demographically shifted toward
the next generation of consumers, which is very
important for all of us.
We're seeing people do interesting experiments.
A typical example is CBS--
did something called the CBS Channel, and they promote
clips of their shows on YouTube.
And we've measured it, and it drives more viewership.
So even simple stuff like that is easy to do, it's stuff that
we can work together with you all to make sure
that they're doing.
It's a no-brainer.
They have the content anyway.
It's promotional.
And each and every person should be thinking about how
to do those sorts of things.
And I consider those sort of necessary, right?
That we have to do those.
And obvious, but not sufficient.
But the real opportunity is in develop new forms of
new forms of narratives.
And some of these are unusual.
An example is that there's a show called 21 Steps, which is
based on an adventure novel called 39 Steps.
I don't know why it's 21.
And it's an online novel where each chapter unfolds as a
backdrop of Google Maps.
Google Maps is an amazing, amazing growth
property for us.
And of course, the story is around a location.
It's a narrative.
It's a story.
There are things going on.
If you think of it from an advertising perspective,
there's lots of advertising that you can do which will be
It makes perfect sense.
There are lots of people working on new formats--
new short episodes.
There's a comedy skit called Smosh, which is done by these
two guys who are very unusual.
And they're done 45 videos, three to six minutes long.
And they're the number one most subscribed channel.
They have as many viewers as the major networks do now.
So again, this is happening, and it's happening right now.
But even scarier is the fact that in 2007 in Japan, the top
three books over the year were first delivered on mobile
forms and read on people's mobile devices.
And only after they were hugely successful were they
turned into print books.
So there is an example of the inflection point.
There is the example where in fact the popularity was done
in a different format and ultimately moved into a more
traditional monetization strategy.
Of course, it makes sense if you spend some time in Japan.
Why are they are doing it on mobile phones?
Because they spend all their time in the subway, and they
have to read something.
But it makes sense that that's a model that we can exploit.

If you think about what you can now do with this, you have
a great deal of analytics and tools and so forth that we've
never had before.
And you can obviously mine this for many,
many different reasons.
We have things like Google Trends, and people can watch
contests and so forth, and watch what happens.
You can see the popularity of things.
And advertising agencies work with people to understand
what's popular and what's not.
We're also beginning to look at this as
a television problem.
And of course, all of us understand the importance of
It's one of the great sources of information and
entertainment for people worldwide.
It's still the most important in many, many ways.
And the advertising part of it can also be measured.
As we were talking earlier--
the inevitability of this.
Because the set-top boxes are computers, and those computers
are connected to the internet, all of a sudden it's a
programming --
my kind of programming.
And we can actually measure what's going on.
So we've been doing experiments.
We have some partners, including EchoStar.
And according to our research, most people seem to watch TV
pretty passively.
40% of the viewers almost never tune away from the
commercials, and 20% of the viewers almost do, and usually
within five seconds of the commercial starting.
Now, maybe you already knew that, but I didn't.
But that's an example of the kind of data that when
properly analyzed can be used to really do
much better ad targeting.
And there are many other examples.
And because our computers, serving as ad insertion
engines, if you will-- sort of the underlying technology--
can talk to these set-top boxes, there are many, many
interesting things that we can do.
We can obviously also use it to broaden the reach of the
show and how it works with respect to the internet and
other modalities--
mobile phones, texting, and that sort of thing.
So my thesis now is that we're going to see a shift in our
joint industry--
'cause we're in the advertising
industry, all of us--
in a way that is similar to what happened in finance in
New York in the 1970s.
A set of scientists and mathematicians, in finance's
case, developed new metrics.
And all of a sudden, a whole generation of analytical
people joined those firms, and they were able to maximize
efficiency, profit, and so forth-- and in my view,
probably to excess, looking at what's going on this year.
And there's every reason to believe that marketing will
now go through a similar transaction--
that the principles of marketing, which are around
entertainment, storytelling, targeting, selling--
all the things that we do so very well in our industry.
In particular, you do, because I don't do it.
We're sort of an enabler for this.
That they'll be augmented by very, very significant
analytical tools which will allow this kind of targeting.
Google has a product called Google Analytics, and the
simple rule is anybody using Google
Analytics is much happier.
Sort of how I operate every day.
Because they know what's happening on their website.
They know who's using their services.
They can track their advertising.
And we've, of course, seen a direct and 100% correlation
between the adoption of Google Analytics and more revenue to
Google, and what's wrong with that?
So you get the idea.
So along the way--
and I'll put this into context and then finish up--
we looked at this not just as a text ads problem, which has
been our historic business, but as a much broader
opportunity to serve global advertisers with all of the
tools necessary to target all of these different industries.
And we eventually saw that the correct thing to do was to
acquire DoubleClick, which indeed we've done.
We're very proud of that.
And of course, what happens by virtue of acquiring
DoubleClick is we can make more inventory available to
DoubleClick advertisers, many of whom are your customers.
We can make more ads available to DoubleClick publishers, and
we can basically get the integration of all of these
tools and services to really take them to the next level.
So if you think about it, our goal here is to deliver
actionable metrics that make it easier for people to
optimize their campaigns, and that's true across every media
type and every single platform that we're doing.
Give you some examples of some of the things going on.
Cadillac did click-to-play video ads.
They did 13 different versions, and they tried them
in 78 different markets.
And they proved the correlation between demand--
in fact, dealer demand--
with viewing the ads.
And click-to-pay video ads--
this is a brand new advertising format.
Now how much is that going to scale?
We don't know.
We're busy measuring it and doing trials there.
YouTube is doing some interesting things.
And example is that Chrysler-- again, using cars as an
example because it's an obvious one for all of us to
you could customize your Chrysler 300.
But they did it as a contest. Again, drawing viewer
engagement, drawing a story, so forth and so on.
So all of a sudden, it all makes sense.
Honda sponsored a concert--
a series last year with a band called Fallout Boy, which I'm
not familiar with, thank goodness.
And we built a gadget--
one of these sort of atoms in the next universe--
and this gadget included the ability to ask the band
again, sponsored in this case by Honda--
and then the band did video responses and interacted and
so forth with their fan base.
Again, this is the kind of stuff that you can do in this
new paradigm that was just not possible in any of the earlier
And I think these models are going to be the ones that will
really evolve to be the defining models for
advertising over the next 10 or 20 years.
Now the good news is that the application of analytics and
the application of tools is exactly what the customers
that I've talked with, that you serve, really want you all
to do with them.
They want the creative, they want the analytics, and they
want the tools.
Our job is to do a piece of that.
We're not creative.
We're sort of boring, which is perfectly fine with us.
We need to provide those tools.
We need to figure out a way to get them into your systems and
so that people can really get the benefit of the analytics
to go along with the storytelling and the
To give you a sense that we're not done--
and my initial thesis was that the internet rate is
we're investing tremendous resources in information and
scale and opportunities around search and all the things
mobile and so forth that you know about.
But there was a study done.
And the study done was sort of, what is the next
And 11% of the US survey respondents actually were
asked, would they be willing to safely implant a device
that enabled them to use their mind to access the internet?

And I was very pleased to see that of that split,
demographics were different.
17% of the men were willing.
But showing once again that women are smarter than men,
the women-- only 7% were willing to have this done.
I am not in the 17%.
I think the internet should stay right there, and my mind
will stay right here.
Thank you very, very much.

FEMALE SPEAKER: So this is a really rare opportunity.
We have time for a couple of questions.
I'm going to turn it over to the audience in a second, but
we actually sent out an email asking for people to ask
questions ahead of time.
So let me just ask one of them, and then we'll turn it
over to the audience.
Notwithstanding your current efforts to work in peace with
advertising agencies, when you look into a crystal ball, what
does the advertising industry look like 10 years from now?
What value and services can agencies provide in order to
survive an advertising industry that is
increasingly automated?
ERIC SCHMIDT: A very good question.
I think it's obvious when you talk to the customers that
advertising agencies will be growing very dramatically,
because customers are confused.
This whole conference is about confusion.
You have this choice, this choice, this
choice, this choice.
How do I do this?
How do I do that?
And so on.
The customers are not going to get there.
They need the agencies to tell them.
I mean, this is so obvious.
And so we can provide the analytical tools and basically
give you a framework by which you can
talk about the choices.
But ultimately, these are decisions that are incredibly
mission-critical for the advertising industry.
We love advertising.
Advertising has value.
People actually enjoy the ads, especially when
they're highly targeted.
There's every reason to believe that this new
narrative form that I'm talking about, and targeted
ads-- whether they're video ads and other kinds of ads,
especially if they're user-generated--
is going to provide a whole new set of complexity and
opportunities for advertisers.
Especially the viewer engagement stuff, and
embedding things and so forth in videos.
So I think the opportunity is very, very strong.
And it's fundamentally because there's more choices.
We're not taking a static industry and automating it
We're taking a exploding industry of choices and
providing a framework.
And then people will need help, and they'll have help
from you, which is why this is so important.
Open it up to the audience.
AUDIENCE: First of all, Eric, congratulations on a stunning
last quarter.
I understand you beat all the estimates out there.
My question is, Google has--
its base for revenue generation is advertising.
Down the road-- and you're giving away many of your
applications and products--
do you see that changing down the road?
ERIC SCHMIDT: I think the short answer to
your question is no.

Most of the people who've tried to use the internet to
sell things with subscriptions and so forth have run into
real user adoption problems. There are some
counter-examples, but for digital goods, the
best price is free.
And if you have a free business, by far the best way
to monetize it is through advertising.
So we like the notion of free information with highly
valuable, highly targeted advertising.
One way to think about it is, what's our long-term goal?
And what I'd like you to do is when you search, I'd like you
to enter a query and have us give you exactly the right
answer with exactly one correctly targeted ad.
And I know this seems strange--
wouldn't you want to show more ads?
But the best advertising experience is the perfectly
targeted ad exactly once, which is so compelling people
have to watch it, have to read it, have to study it, have to
buy the product.
And that's what we're trying to get to.
Eventually, maybe what we can do is we can have a situation
where I'll guarantee--
this is my fantasy.
I'll guarantee you as an advertiser--
if you just pay us some money, we'll guarantee the sale.
And by the way, we'll immediately go to Lloyd's of
London to get the insurance program to make sure in case
we make a mistake.
But if we can get to that level of specificity, what
will happen is advertising will no longer
be a marketing expense.
It'll just be a sales expense, and it can be judged that way.
And by the way, that's great for all of us, because that
money was just all going to come in our direction.
AUDIENCE: You mentioned the US presidential candidates.
I'm curious, in your view, who you think is the most
digitally savvy and why?
ERIC SCHMIDT: I'm not going to get anywhere
close to that question.
FEMALE SPEAKER: Great question.
ERIC SCHMIDT: Each of them have made at least strategic
errors with respect to the internet or their associates
have. For many years, I've thought that the internet
would affect American politics.
And in 2006, George Allen, who was at the time the senator of
Virginia, uttered an inappropriate word that was
captured on YouTube.
And in a very tight race, his misbehavior, from my
perspective, cost him the Senate.
Well, that switched the Senate from Republican to Democratic.
A month later, Speaker Pelosi wanted her colleague, who had
been involved the Abscam scandal, to be the number two.
And because of the videos resurfacing of what was a bad
time and bad choices that he made 30 years before, he was
ultimately not put in the position that he'd worked so
hard to get to.
So the reality is that if you're a political leader, you
pay attention a lot to these.
And some of them will pay attention
literally out of fear--
fear that they'll be caught, fear that they'll make a
mistake, or fear that somebody will do something bad to them.
All of the candidates--
and the three major candidates I've spent a fair amount of
time with--
all of them have a good understanding of technology
and the role of it, and they all see it as a way of
ultimately providing growth for America.
AUDIENCE: One of the great strengths about YouTube as a
distribution platform is its ability to get content seen by
millions, obviously.
One of the great weakness of YouTube as a content
distribution platform as we're seeing is it's inability to
sufficiently make enough money to sustain content production,
especially online-only content production from online-only
content producers.
What challenges are you guys facing or what answers are you
finding for ways to adequately compensate the producers of
content that you are placing the advertising around?
ERIC SCHMIDT: So from our perspective, there are two big
challenges ahead for YouTube.
YouTube, by the way, is growing at
this phenomenal rate.
It's a global brand.
It's growing very, very, very quickly.
And essentially everything interesting in video online
seems to end up on YouTube, for better or worse.
The first is a discovery problem.
It's difficult with YouTube to actually find the content
unless you know what you're looking for, because there's
so much of it.
And this is essentially a problem that can be where user
interface techniques, knowledge of what people are
looking for--
the sort of search problem can merge with
the browsing problem.
The second problem is that if you measure minutes, if you
will-- simple way.
We measure minutes of monetization on television
versus minutes of monetization online, the minutes of
monetization on television is higher.
So in other words, if you have somebody who switches one
minute from television to one minute from YouTube, the
amount of money that we can now make from that
one minute is lower.
This is a challenge, but it's not an insurmountable one.
And the solution is to come up with more compelling and more
targeted advertising that commands higher ad rate.
It's not to somehow subsidize it.
We'd love to do that, but that doesn't scale.
So our fundamental solution is first to say, there is a
problem that the online advertising in general when
you're going from a traditional media to a new
media does not monetize as well, with some exceptions.
And that the way you get the monetization is by having
better and more targeted and more clever ads--
clever in the technology sense-- that then command a
high enough ad rate that they're roughly equal.
And then you do rev shares.
And in our model, the vast majority of the revenue goes
to the creative people and the distribution partners.
And that problem we hope to get fixed very, very soon.
In some number of months, literally.
Thank you so much.
ERIC SCHMIDT: Thank you.
Thank you guys very much.