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female speaker: as a studentof technology, i have the great honor and privilege ofintroducing one of my heroes. and that would be dr.eric schmidt. eric schmidt is the chairmanand ceo of google. he came to google to help apromising young company learn the basic businessinfrastructure and gain some chops to really become thebiggest company in the world. dr. schmidt has the kind ofbrain that i describe as "scary smart."
he's a phd from berkeleywho then went on to work at bell labs. he was on the research staff atthe computer science lab at xerox palo alto researchcenter, the cto at sun microsystems, the chairman ofnovell, and now at google. he's going to give us briefcomments, 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 1990and 195, literally this ballroom was the scene of theconferences where much of the personal computer industry andthe internet was planned. so it's only fitting now,from my perspective-- literally, they've repainted therooms, and aside from that
it's pretty much the same. 15 years later, we're lookingat the consequences-- good and bad, by the way-- for what's happened with theexplosion of information, the creation of whole newindustries, and the way i would like to think of it isas google bringing some science to advertising, becausewe believe advertising has great value. let me talk first andforemost about
information and the world. i think the role ofinformation is underappreciated in politicsand business. global phenomena, culture,and so forth. and the rate of innovation isactually increasing in the internet, which is sort ofa little frightening. and there are these very, verylarge, new opportunities and platforms before us that all ofus together are going to be exploiting, using, beingcreative on,
or being upset about. this is happening. it's happening globally, andit's happening right now. there are four sort of majorexperiments, i think, globally, in how informationis being used. think of them stereotypicallyas follows: europe-- educated, thoughtful, ruleof law, empowering. the united states-- innovative, creative,surprising, individualist.
china-- monocultural, chaotic,controlling, confronting the individual truths oftheir structure. india-- following, accelerating,the merging of their cultures. these four major, major socialphenomena that comprise 80% of population and 99% of economicswill be defined by the role of information and thepower of individuals using that information. that is the story of thenext five to 10 years.
there are lots of examplesof this. rice is in short supply. one of the reasons it's inshort supply is that the people who make rice are usingtheir cellphones to discover that the intermediaries arescrewing them with respect to pricing, and so they'rewithholding rice to get the prices set correctly. who would have thought? people on boats who are doingtuna fishing are choosing
which port to go using theirmobile phones or internet connections-- satelliteconnections-- to determine where they getthe price for their fish. you don't need to think aboutthe internet without thinking about the three presidentialcandidates we seem to have today, each of whom have hadtheir troubles with youtube, stories on the internet, andperhaps some issues with the things that they said or did. each of the these areillustrative of the fact that
there is a next universethat's coming. and at google, we're trying tobuild some of the atoms that people can build thesethings out of. and it's very important to alsounderstand that these are not zero-sum games. there's a logic in businesswhere everybody says, well, if i take from here, ilose from there. this is positive. it's plus positive that thesenew platforms, new innovation,
and new services in fact createnew opportunities for advertisers, new opportunitiesfor information, and new opportunities for peopleto have great lives. i mean, as an example, there are5,000 photos uploaded per minute to google'spicasa website. i have no idea what'son those photos. i just can't imagine eventrying to look. even scarier is there's 10hours of video in youtube uploaded every minute.
now, the technology has allsorts of interesting problems. we did some math, and in 2019,you'll be able to have an ipod-like device that has85 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 couldfast watch it. we'll watch a frame here and aframe here and a frame here. and by the way, that includessleeping time, which is
another problem we haven'tfixed yet. so the scale of this, i think,is underappreciated, and the societal impacts are very, verysignificant, as well. as ben, who's one of my heroes,talked about, the shift in audience is causingcontent to really be multi-platform. network prime time audience isnow around 45% down from 80%. these new industries, whetherit's print campaigns, search advertising, are now these verylarge industries that
didn't exist 10 years ago. the average american internetuser is spending 13% more time on the internet every year,which means, basically, they're ruining theirlives, right? they're giving up everythingelse because they're so addicted to this phenomenon. this very, very real,and very powerful. and it's of coursedemographically shifted toward the next generation ofconsumers, which is very
important for all of us. we're seeing people dointeresting experiments. a typical example is cbs-- did something called the cbschannel, and they promote clips of their showson youtube. and we've measured it, and itdrives more viewership. so even simple stuff like thatis easy to do, it's stuff that we can work together withyou 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 shouldbe thinking about how to do those sorts of things. and i consider those sortof necessary, right? that we have to do those. and obvious, butnot sufficient. but the real opportunity isin develop new forms of
storytelling-- new forms of narratives. and some of these are unusual. an example is that there's ashow called 21 steps, which is based on an adventure novelcalled 39 steps. i don't know why it's 21. and it's an online novel whereeach chapter unfolds as a backdrop of google maps. google maps is an amazing,amazing growth
property for us. and of course, the storyis around a location. it's a narrative. it's a story. there are things going on. if you think of it from anadvertising perspective, there's lots of advertising thatyou can do which will be g-o-centric. it makes perfect sense.
there are lots of people workingon new formats-- new short episodes. there's a comedy skit calledsmosh, 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 onemost subscribed channel. they have as many viewers asthe major networks do now. so again, this is happening, andit's happening right now. but even scarier is the factthat in 2007 in japan, the top
three books over the year werefirst delivered on mobile forms and read on people'smobile devices. and only after they were hugelysuccessful were they turned into print books. so there is an example ofthe inflection point. there is the example where infact the popularity was done in a different format andultimately moved into a more traditional monetizationstrategy. of course, it makes sense if youspend some time in japan.
why are they are doingit on mobile phones? because they spend all theirtime in the subway, and they have to read something. but it makes sense that that'sa model that we can exploit. if you think about what you cannow do with this, you have a great deal of analytics andtools and so forth that we've never had before. and you can obviouslymine this for many, many different reasons.
we have things like googletrends, and people can watch contests and so forth, andwatch what happens. you can see the popularityof things. and advertising agencies workwith people to understand what's popular and what's not. we're also beginningto look at this as a television problem. and of course, all of usunderstand the importance of television.
it's one of the great sourcesof information and entertainment for peopleworldwide. it's still the most importantin many, many ways. and the advertising part ofit can also be measured. as we were talking earlier-- the inevitability of this. because the set-top boxes arecomputers, and those computers are connected to the internet,all of a sudden it's a programming --
my kind of programming. and we can actually measurewhat's going on. so we've been doingexperiments. we have some partners,including echostar. and according to our research,most people seem to watch tv pretty passively. 40% of the viewers almostnever tune away from the commercials, and 20% of theviewers almost do, and usually within five seconds of thecommercial starting.
now, maybe you already knewthat, but i didn't. but that's an example of thekind of data that when properly analyzed canbe used to really do much better ad targeting. and there are manyother examples. and because our computers,serving as ad insertion engines, if you will-- sort ofthe underlying technology-- can talk to these set-top boxes,there are many, many interesting thingsthat we can do.
we can obviously also use itto broaden the reach of the show and how it works withrespect to the internet and other modalities-- mobile phones, texting, andthat sort of thing. so my thesis now is that we'regoing 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 whathappened in finance in
new york in the 1970s. a set of scientists andmathematicians, in finance's case, developed new metrics. and all of a sudden, a wholegeneration of analytical people joined those firms, andthey were able to maximize efficiency, profit, and soforth-- and in my view, probably to excess, looking atwhat's going on this year. and there's every reason tobelieve that marketing will now go through a similartransaction--
that the principles ofmarketing, which are around entertainment, storytelling,targeting, selling-- all the things that we do sovery well in our industry. in particular, you do, becausei don't do it. we're sort of an enablerfor this. that they'll be augmented byvery, very significant analytical tools which willallow this kind of targeting. google has a product calledgoogle analytics, and the simple rule is anybodyusing google
analytics is much happier. sort of how i operateevery day. because they know what'shappening on their website. they know who's usingtheir services. they can track theiradvertising. and we've, of course, seen adirect and 100% correlation between the adoption of googleanalytics and more revenue to google, and what'swrong with that? so you get the idea.
so along the way-- and i'll put this into contextand then finish up-- we looked at this not just as atext ads problem, which has been our historic business,but as a much broader opportunity to serve globaladvertisers with all of the tools necessary to target all ofthese different industries. and we eventually saw that thecorrect thing to do was to acquire doubleclick, whichindeed we've done. we're very proud of that.
and of course, what happensby virtue of acquiring doubleclick is we can make moreinventory available to doubleclick advertisers, manyof whom are your customers. we can make more ads availableto doubleclick publishers, and we can basically get theintegration of all of these tools and services to reallytake them to the next level. so if you think about it, ourgoal here is to deliver actionable metrics that makeit easier for people to optimize their campaigns, andthat's true across every media
type and every single platformthat we're doing. give you some examples of someof the things going on. cadillac did click-to-playvideo ads. they did 13 different versions,and they tried them in 78 different markets. and they proved the correlationbetween demand-- in fact, dealer demand-- with viewing the ads. and click-to-pay video ads--
this is a brand new advertisingformat. now how much is thatgoing to scale? we don't know. we're busy measuring it anddoing trials there. youtube is doing someinteresting things. and example is that chrysler--again, using cars as an example because it's an obviousone for all of us to understand-- you could customizeyour 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, itall makes sense. honda sponsored a concert-- a series last year with a bandcalled fallout boy, which i'm not familiar with,thank goodness. and we built a gadget-- one of these sort of atomsin the next universe-- and this gadget included theability to ask the band
questions-- again, sponsored in thiscase by honda-- and then the band did videoresponses and interacted and so forth with their fan base. again, this is the kind of stuffthat you can do in this new paradigm that was just notpossible in any of the earlier technologies. and i think these models aregoing to be the ones that will really evolve to be thedefining models for
advertising over the next10 or 20 years. now the good news is that theapplication of analytics and the application of tools isexactly what the customers that i've talked with, that youserve, really want you all to do with them. they want the creative, theywant the analytics, and they want the tools. our job is to do apiece of that. we're not creative.
we're sort of boring, whichis perfectly fine with us. we need to providethose tools. we need to figure out a way toget them into your systems and so that people can really getthe benefit of the analytics to go along with thestorytelling and the creativity. to give you a sense thatwe're not done-- and my initial thesis was thatthe internet rate is accelerating--
we're investing tremendousresources in information and scale and opportunities aroundsearch and all the things mobile and so forth thatyou know about. but there was a study done. and the study done was sortof, what is the next opportunity. and 11% of the us surveyrespondents actually were asked, would they be willingto safely implant a device that enabled them to use theirmind to access the internet?
and i was very pleased tosee that of that split, demographics were different. 17% of the men were willing. but showing once again thatwomen are smarter than men, the women-- only 7% were willingto have this done. i am not in the 17%. i think the internet should stayright there, and my mind will stay right here. thank you very, very much.
female speaker: so this is areally rare opportunity. we have time for a coupleof questions. i'm going to turn it over to theaudience in a second, but we actually sent out an emailasking 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 currentefforts to work in peace with advertising agencies, when youlook into a crystal ball, what
does the advertising industrylook like 10 years from now? what value and services canagencies provide in order to survive an advertisingindustry that is increasingly automated? eric schmidt: a verygood question. i think it's obvious when youtalk to the customers that advertising agencies will begrowing very dramatically, because customersare confused. this whole conferenceis 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 notgoing to get there. they need the agenciesto tell them. i mean, this is so obvious. and so we can provide theanalytical tools and basically
give you a frameworkby which you can talk about the choices. but ultimately, these aredecisions that are incredibly mission-critical for theadvertising industry. we love advertising. advertising has value. people actually enjoy theads, especially when they're highly targeted. there's every reason tobelieve that this new
narrative form that i'm talkingabout, and targeted ads-- whether they're video adsand other kinds of ads, especially if they'reuser-generated-- is going to provide a wholenew set of complexity and opportunities for advertisers. especially the viewer engagementstuff, and embedding things andso forth in videos. so i think the opportunityis very, very strong. and it's fundamentally becausethere's more choices.
we're not taking a staticindustry and automating it analytically. we're taking a explodingindustry of choices and providing a framework. and then people will need help,and they'll have help from you, which is whythis is so important. female speaker: thank you. open it up to the audience. audience: first of all, eric,congratulations on a stunning
last quarter. i understand you beat allthe estimates out there. my question is, google has-- its base for revenue generationis advertising. down the road-- and you'regiving away many of your applications and products-- do you see that changingdown the road? eric schmidt: i thinkthe short answer to your question is no.
most of the people who've triedto use the internet to sell things with subscriptionsand so forth have run into real user adoption problems.there are some counter-examples, but fordigital goods, the best price is free. and if you have a free business,by far the best way to monetize it is throughadvertising. so we like the notion of freeinformation with highly valuable, highly targetedadvertising.
one way to think about it is,what's our long-term goal? and what i'd like you to do iswhen you search, i'd like you to enter a query and have usgive you exactly the right answer with exactly onecorrectly targeted ad. and i know this seemsstrange-- wouldn't you want toshow more ads? but the best advertisingexperience is the perfectly targeted ad exactly once, whichis so compelling people have to watch it, have to readit, have to study it, have to
buy the product. and that's what we'retrying to get to. eventually, maybe what we can dois we can have a situation where i'll guarantee-- this is my fantasy. i'll guarantee you asan advertiser-- if you just pay us some money,we'll guarantee the sale. and by the way, we'llimmediately go to lloyd's of london to get the insuranceprogram to make sure in case
we make a mistake. but if we can get to that levelof specificity, what will happen is advertisingwill 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 greatfor all of us, because that money was just all going tocome in our direction. audience: you mentioned the uspresidential candidates. i'm curious, in your view,who you think is the most
digitally savvy and why? eric schmidt: i'm not goingto get anywhere close to that question. female speaker: greatquestion. eric schmidt: each of them havemade at least strategic errors with respect to theinternet or their associates have. for many years, i'vethought that the internet would affect americanpolitics. and in 2006, george allen, whowas at the time the senator of
virginia, uttered aninappropriate word that was captured on youtube. and in a very tight race,his misbehavior, from my perspective, costhim the senate. well, that switched the senatefrom republican to democratic. a month later, speaker pelosiwanted her colleague, who had been involved the abscamscandal, to be the number two. and because of the videosresurfacing of what was a bad time and bad choices that hemade 30 years before, he was
ultimately not put in theposition that he'd worked so hard to get to. so the reality is that if you'rea political leader, you pay attention a lot to these. and some of them willpay attention literally out of fear-- fear that they'll be caught,fear that they'll make a mistake, or fear that somebodywill do something bad to them. all of the candidates--
and the three major candidatesi've spent a fair amount of time with-- all of them have a goodunderstanding of technology and the role of it, and theyall see it as a way of ultimately providinggrowth for america. audience: one of the greatstrengths about youtube as a distribution platform is itsability to get content seen by millions, obviously. one of the great weaknessof youtube as a content
distribution platform as we'reseeing is it's inability to sufficiently make enough moneyto sustain content production, especially online-only contentproduction from online-only content producers. what challenges are you guysfacing or what answers are you finding for ways to adequatelycompensate the producers of content that you are placingthe advertising around? eric schmidt: so from ourperspective, 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 everythinginteresting in video online seems to end up on youtube,for better or worse. the first is a discoveryproblem. it's difficult with youtube toactually find the content unless you know what you'relooking for, because there's
so much of it. and this is essentially aproblem that can be where user interface techniques, knowledgeof what people are looking for-- the sort of search problemcan merge with the browsing problem. the second problem is that ifyou measure minutes, if you will-- simple way. we measure minutes ofmonetization on television
versus minutes of monetizationonline, the minutes of monetization on televisionis higher. so in other words, if you havesomebody who switches one minute from television to oneminute from youtube, the amount of money that wecan now make from that one minute is lower. this is a challenge, but it'snot an insurmountable one. and the solution is to come upwith more compelling and more targeted advertising thatcommands higher ad rate.
it's not to somehowsubsidize it. we'd love to do that, butthat doesn't scale. so our fundamental solution isfirst to say, there is a problem that the onlineadvertising in general when you're going from a traditionalmedia to a new media does not monetize as well,with some exceptions. and that the way you get themonetization is by having better and more targetedand more clever ads-- clever in the technology sense--that then command a
high enough ad rate thatthey're roughly equal. and then you do rev shares. and in our model, the vastmajority of the revenue goes to the creative people and thedistribution partners. and that problem we hope toget fixed very, very soon. in some number of months,literally. female speaker: all right. thank you so much. eric schmidt: thank you.
thank you guys very much.
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