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Eric Schmidt at American Association of Advertising Agencies

Eric Schmidt at American Association of Advertising Agencies

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 multi-platform. 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 storytelling– 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 G-O-centric. 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 television. 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 understand– 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 questions– 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 technologies. 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 creativity. To give you a sense that
we’re not done– and my initial thesis was that
the internet rate is accelerating– 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 opportunity. 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 analytically. 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. 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 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. FEMALE SPEAKER: All right. Thank you so much. ERIC SCHMIDT: Thank you. Thank you guys very much.

6 thoughts on “Eric Schmidt at American Association of Advertising Agencies

  1. Thx Dr. Schmidt, we tune away in 5 sec. if it's not a current interest. 8 to 10 if its not reinforced. at 12 secounds on then a larger association is enabled.
    YouTube-Why is there a double Standard 10:30 time load limit V's unlimited IE. 24:10 on this show, and on some accounts not associoted with YouTube/google website ownership?
    Longer loads would entice producers to switch there models over to Youtube from Television.

  2. Always love listening to Eric. I just finished watching an interview Maria Bartiromo conducted with Eric Schmidt on the Closing Bell on CNBC about 3 hours ago. I love listening to his talks. Good stuff.

  3. This is a the minds of people who try to get in your head to figure out what you want.

    Very very very interesting.

    makes me more anti establishment

  4. If you're an advertising agency and in need of music we're a one stop solution. We've got classical, jazz, rock, electronica, as well as world musics such as Japan, India, Caribbean, Middle East etc…

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