Google (GOOG ) chief executive officer Eric E. Schmidt knows a little something about powerful companies. As chief technology officer of Sun Microsystems (SUNW ), Schmidt was close to the battles the computer maker had with Microsoft (MSFT ). When he left Sun to become CEO of Novell (NOVL ), he again was pitted against the software giant. So when many people suggest the possibility that the leader in Internet search might be getting too powerful, he's in a good position to dissect their arguments.
Schmidt, who joined Google as CEO in 2001, strongly disagrees with the notion that Google is too powerful. He particularly bristles at the idea that Google is coming to resemble Microsoft in its increasingly central role on the Internet. He says much of the criticism comes from competitors in the midst of negotiations with Google over copyright or other issues. At the same time, he acknowledges that Google's size and lofty ambitions to organize the world's information worries some people. The company, he says, is trying to forge more partnerships.
In a recent interview with Silicon Valley bureau chief Robert D. Hof, Schmidt was feisty and resolute in his contention that Google is fulfilling a worthy mission. Here are edited excerpts from the conversation:
Is Google too powerful?
Too powerful relative to what? I mean that as a question, not as a statement.
Some people feel that Google is now or potentially could become too powerful in that it has such sway over where people go online. People worry that Google could become the gateway, and by extension the toll gate, by which people reach the Internet.
I disagree with essentially every half-sentence here. Here's why: This is all about user choice. And the studies that I've seen indicate that a majority of users are choosing Google to get information. That's great. We could lose that in a nanosecond.
Could you really?
Yeah. Were a better choice to come along, we are literally one search away. This is not like proprietary lock-in models, where users are forced to use Google.
To put a face on that, you're referring to the Microsoft model?
On the record, I don't want to talk about Microsoft. I have a long history there. But my point is that to say Google is too powerful implies that users are somehow making a wrong choice.
Now, maybe I could suggest there's a different criticism…which is that because a majority of people use Google, if Google makes a ranking algorithm change (which changes the order of search results), it can have unintended consequences. And if you're on the losing end of that unintended consequence, that's very real. It really does cause pain. And we're aware of that.
Another way of looking at this with less of a value judgment is: Why is there so much fear of Google?
I don't see the fear. What I see is people partnering with us. And there are an awful lot of partners who are busy making a lot of money by virtue of the strategy we adopted. And about four years ago, we decided it would be better for all concerned if we took the then-nascent advertising model and allowed people to use our search and use our advertising and share the majority of the revenues. That worked very, very well.
Last year, we decided to be even more partnership-focused, and we started doing deals like the Dell deal, where a tremendous amount of revenue is being shared with Dell. And the benefit to the end-user is they're more likely to see Google as a choice on the new Dell hardware shipments.
Why do you think some people are complaining about Google's power?
Try to understand the motivations of the complainers. Google is one of the companies where advertising is moving to us and from other forms of media. The fact of the matter is, that's about the Internet, not about Google. We are one of the companies, but we are certainly by no means the only one.
People increasingly compare Google to Microsoft in the mid-1990s—at the height of its power, arrogant at times. Is that a fair comparison?
The comparison is absolutely false. And the reason it's false is that people do not understand the strength of the Microsoft monopoly. Microsoft had 90%-plus market share in a market where it was impossible to switch. And Google has neither. It certainly does not have that market as best we can tell, and it's trivial to switch. Microsoft hid behind the user-choice argument.
Of course, some people did make that choice, whoever those customers were.
Yeah—2% using the Mac. I mean, c'mon. Let's just use absolute facts here. Microsoft was at the height of its power because people didn't have a choice. Google may or may not be at the height of its power, but it's certainly the case that people have a choice. The comparison is just wrong. It's not correct.
We do understand that we're seen as big and we also have a goal of not being evil. There's a natural discomfort with bigness in societies. I understand that. So we decided there was a set of things that we would never do. Probably the most important one is that we would never try to violate people's trust and users' trust, and we would also try not to trap them. So if you entrust your personal information with Google, we will always make it possible for you to take it out of Google if you become dissatisfied with Google.
As Google passes 50% and rising of search market share, will that dominance change the way Google operates?
I'm not sure I agree with the word dominance. Dominance is defined not by majority market share but by what you do with it.
From an antitrust standpoint, you mean?
Because people do mention the word antitrust in relation to Google these days.
The word dominance is an antitrust word. I'm trying to be very precise.
What do you think of people bringing up the antitrust issue with respect to Google?
I don't think they have their facts right. Microsoft was accused of monopoly maintenance in many, many ways. It had to do with their tactics, their market share, the fact that they locked their users in. None of those are present in Google. Nor will they be.
Do you feel that the perception of Google's strength will require the company to operate any differently? Last year, you mentioned an increased emphasis on partnerships.
That's not why we do these things. It's not like you're calling, and then I'm calling an emergency meeting to change our strategy.
It became obvious that we needed to expand our partnership strategy a year ago because it was the right thing. It did have a defensive property. But the reason you do it is because you want to serve end-user needs. One of the ways in which I know we're doing well is that we spend our time focusing on what we're doing and what we can do that's new rather than obsessing about competition.
Are there other reasons for trepidation about Google?
Google is unusual in that we really are the systematic innovator at scale. And I think that the resentment—and what I think you're really describing is resentment—may come from the fact that we have been fortunate in that our model allows us to innovate more quickly and solve problems more quickly.
And we're not perfect, by the way. We make mistakes. I'm not suggesting we're 100% perfect. But I think on average, we're executing quicker. I think that's what's at the root of this.
I think that gets at some of the fear and anxiety—people are uncertain where Google goes next.
It used to be much worse. Let me give you an example. They had an auction for spectrum, which ultimately did not go through. The media became obsessed that Google was going to become a bidder in the auction. It actually affected our stock price because people decided we were going to take $6 billion and waste it buying useless auctions. That was completely false.
I'll give you another example. We needed to hire an engineer who was a wavelength division multiplexer engineer—WDM is the technology that's used in the high-speed fiber networks. So based on this, it was reported that we were going to compete with all the long-distance carriers and become a telephone company, which then caused the CEO of Verizon and AT&T to announce that we were their No. 1 competitor. So it just shows you how crazy it is.
Why do people assume Google is going to compete in so many areas?
It's part of a mystique. The mystique serves us in recruiting but does not serve us in partnerships. So it's better if we moderate it, and we tell people the areas where our innovation is. That may be part of what you're hearing.
So we're not competing with newspapers, we're not competing with television stations, we're not competing with the Viacoms of the world. We're trying to partner with them.
But aren't you competing at least as a distribution channel?
Only in the distribution channel sense. There's always this assumption that somehow Google will now take over all of advertising. It's clearly false, because advertising chooses all of the channels that people do, not just one. So for example, if you're an advertiser, you will advertise on YouTube and you will also advertise on all of YouTube's competitors. Why would you not?
The competitors are not as big. You put your money where the people are.
OK, so you put all your money on YouTube, and then it works. So then you go to the No. 2 site, you'll spend money on them too, you know why? It'll work there too. There are no examples in the advertising market of winners where they got all the money and the No. 2 got none.
How should we look at Google beyond the mission statement of organizing the world's information and making it universally accessible and useful?
The first answer is that Google is technologically a large supercomputer. It's a distributed supercomputer among many data centers doing all sorts of interesting things over fiber optic network that eventually are services available to end-users. Another way to look at Google is solving end-user problems that really matter to large numbers of people. So the criteria we use is: Is there a problem that is important about information that we can really provide [a solution for] using our technology?
The third is advertising. There is a shift from untargeted to targeted advertising. We have said publicly that we would like to apply targeted advertising to as many advertising models as possible. We've also said that we want to offer integrated solutions to advertisers that will span those categories.
The sum of those three would allow you to predict what happens next.
Does the backlash that we're seeing, if you can call it that, make it more difficult for the company to press forward on these goals?
In each case, the answer may differ. In Viacom's case, it's a business negotiation where Viacom has a history of litigation. I think it's being used in the media as some overarching statement of everything. And it's an important set of issues. But we're very, very clear that what we're doing is correct legally under the DMCA [Digital Millennium Copyright Act].
Copiepress (a copyright organization for Belgian and German newspapers) was very interesting because we had already addressed the thing that they filed the lawsuit on. Sometimes people do stuff with respect to Google for their own interests. You probably didn't know much about Copiepress until after you read about the lawsuit, for example.
A third one is book publishers and authors against Google Book Search (to which BusinessWeek publisher McGraw-Hill Cos. is a party).
Similar answer as to Viacom. We were in detailed negotiations with them, and all of a sudden, they decided to sue us, in which case we told them that we don't like being sued. And we've taken a pretty aggressive position.
The legal argument is pretty simple. We're not reproducing for any kind of commercial use any of those books. They argue that the mere act of scanning is a violation of fair use. We argue that it is OK, that we're constructing a digital library.
In a number of these cases, Google has been seen as being somewhat arrogant in its views, as you acknowledged at a recent Bear, Stearns conference when you said, "I'm sure we're arrogant." What do you think of the idea that Google is too arrogant?
Google is not perfect. We do make mistakes. We have to be even more careful about the perception of what we're doing because of the concerns that you're referring to. I think virtually all of the specifics that you've asked [about] can be understood as in the context of a business negotiation or over a new and imprecise problem in either the law or in how businesses are structured.
If you walk around the campus, you'll find almost anyone working on anything, because we encourage it. That doesn't mean we're going to do it. That tends to lead and drive a lot of these behaviors. We're talking to everybody. That doesn't mean that talking with everyone will generate a proper business deal.
Some people think Google is not as transparent as it should be in areas such as click fraud, use of data, and its intentions in various markets. Given that Google depends on other Web sites and content providers opening up to its search engine, do you think Google needs to be more open?
My guess is that the criticism you're voicing, that Google needs to be more open, will always be there. The reason is that because Google is in the middle of so many information choices, people want to know how those choices are made. There's a real tradeoff between the sort of secret sauce, the special knowledge that Google has, and our business policies.
Some smaller advertisers feel they're getting left behind as big brand marketers move into search marketing and price them out. Is that something Google needs to address, given that so many of its advertisers are small businesses?
It's funny because I hear the inverse. What I hear from the large advertisers is that they're used to having their way. They're not used to having to deal with those smaller advertisers, who at least have the potential in an auction [of] having an equal shot.
Is there some point at which Google becomes subject to the cyclicality of the ad industry?
I'm sure that we will eventually be subject to the cyclicality. But we are not now. And "eventually"—I have no idea how many years that is.
Is Google creating a real artificial intelligence?
A lot of people have speculated that. If we're doing AI, we're not doing it the way AI researchers do it, because they do real cognition. Our spelling correction (on misspelled search queries) is an example of AI. But if you talk of that in an AI class in computer science, they'll say, Oh yeah, yeah, no big deal. On the other hand, spelling correction applies to millions of people every day.
But Larry and Sergey talk about doing a real AI, and there's the idea that you're scanning all this stuff on the Web to be read and understood by an AI. That gives a lot of people the willies, because there's any number of movies such as The Terminator that show the negative aspect.
Yeah, but again that's because they're using broad and imprecise terms. It's true that we read the stuff, but in the next few years, cognition, or real understanding, remains a research dream.