Here's what Eric said recently,
View from the top: Eric Schmidt, Google CEO
Published: October 12 2006 22:47 | Last updated: October 13 2006 01:25
CEOs review the news on video on FT.com
This week: Eric Schmidt, CEO of Google.
ADVERTISEMENT
FINANCIAL TIMES: Clearly, the dominant business news event this week is your own acquisition of YouTube. Why is user-generated video worth $1.65bn to Google?
ERIC SCHMIDT: Well, on the money side, it’s easy because we have what we think is the world’s best advertising system and we can take that advertising and use that over time to build quite a business off all of the things the users are doing on YouTube. The real reason, however, was not the money, and not even the advertising, it was because we believe that video is going to be, and is sort of already, one of the most important new media types on the internet.
More and more people are going to be doing videos of one kind or another to communicate ideas, sell their product, record their memories, and ultimately a lot of the existing broadcast world that we’re so used to will become available on the internet.
FT: Since doing that deal, you’ve been quite assiduous in going and visiting some of your other big media partners and talked to them about the significance. Has it made them again ask this question that we’ve heard a lot about Google ‘friend or foe?’ and worry about Google moving into content creation.
SCHMIDT: We, of course, want to be their friend. We don’t want it to be Google foe. We see ourselves as a technology provider and a distribution network. We’re not in the content business. And the partnerships that we’ve constructed over the last few years, and especially the ones over the summer, really show the application of our advertising network to the content and media capabilities of our partners. So we want those media partners to put their media content, literally their content, into this emergent new and much larger system as a result of the YouTube acquisition.
FT: You’ve met with some of them already. You’ve met with News Corp executives, you’re in New York, meeting maybe with people maybe from Time Warner. Are they comfortable with that explanation?
SCHMIDT: All of the media companies are dealing with dramatic changes in their business. All of them are looking for a partner. All of them are looking for a way to make money. One of the great news, from our perspective, is people are using this content on the internet. The bad news is it doesn’t make as much money for the businesses. And ultimately the businesses need to make money in order to produce the new content. So what we’re trying to do with all of these partners is to say, ‘if you work with us we can combine our advertising platform and your content with a much larger audience.’ So far people like that message, they are now trying to figure out what to do about it – should they, should they not, under what terms, and those sort of things.
FT: Another new generation internet property which has generated a lot of interest recently is Facebook. Are you thinking about acquiring Facebook? Do you think Yahoo might acquire them?
SCHMIDT: I shouldn’t speculate on mergers and acquisitions either our own possibilities, or competitors’. It’s clear to me that social networks are going to grow and grow quickly. We did a very, very significant deal with MySpace, which we’re very proud of. We think it’s the defining economic deal in that space.
FT: Your acquisition speaks to the tremendous technological change which we’re still really at the beginning of. Are there going to be victims? And which companies might be those victims.
SCHMIDT: You know, every technology dislocation has winners and losers. And the winners are the companies that can adopt these technologies more quickly and the losers are the ones that are stuck, unable to make the transition, unable to take advantage of new technologies. It is clear that the internet and the web and what is generally known as a marketing term of web 2.0 are the defining new technologies. I think that race is underfoot. It’s too early to say who the losers will be. Clearly the winners will include companies like Google and all the other companies that have made their bets on web 2.0.
FT: More broadly, Silicon Valley has been roiled by corporate governance controversies recently. There have been the pre-texting issues at Hewlett-Packard, the backdated stock options issues which have claimed some very senior, long-standing leaders in the technology industry. What kind of an impact is that having on innovation, on people running public companies like yourselves now?
SCHMIDT: It makes people be more careful and I don’t think that’s necessarily a bad thing. Certainly, some of the standards in the past may not have been as tight. Some of this may be revisionist looking back. Certainly the pre-texting was not appropriate because it was a violation of privacy. I think all of that is a sideshow relative to the innovation in the Valley, which is fundamentally created by small teams of people who see the world in a different way. And I don’t see these crisises, these scandals and so forth, as fundamentally changing that.
The story of the Valley is still the same. It’s about small teams doing amazing things with limited resources, often with venture capitalists, creating great companies.
FT: You talk about the innovative tradition of the Valley. More generally there has been a lot of questioning in America right now, about this country’s ability to maintain its competitive advantage in a globalised world with lots of cheap programming talent in other developing countries. Is the Valley still competitive?
SCHMIDT: The Valley is certainly competitive. It would be a lot more competitive if our government would start doing rational things like letting the smartest people in the world come into the United States on H1 visas rather than preventing them from doing so. So a small number of changes from the government, including increasing the funding in basic research and development around computer science and science in general and also trying to make sure the United States remains an attractive place for the best and the brightest. The compound value of that, the innovations and the companies that these, essentially, immigrants create, is a part of the American story.
FT: You made a big impact in Europe recently addressing the Tory party conference. Why did you choose to do that and what kind of a message do you think an innovative American company, like Google, has for Europe? For Britain?
SCHMIDT: It’s interesting that in Britain, of all the European countries, the United Kingdom is one of the best examples of innovation. If you look at the creation of the Cambridge technology centres, all around the research centres that were formed there, the transformation that’s gone on in British society over the last 10-15 years, encouraging innovation, encouraging new capital formation, it’s really an icon for the rest of Europe. And I think that’s wonderful.
My message was a message of optimism. My message was that technology, we’re just at the beginning, and I was not particularly trying to make a partisan comment. Google is certainly not political. And the messages that I gave, and I happened to be invited to [I guess] the conservatives’ party, but I would have given the same speech to any of the other parties and, in fact in any of the other European countries.
The important message is a message of innovation - that if you unleash the human capital that is present in Europe you will get tremendous economic returns for those countries. And that’s the story of America. It’s a story that’s well replicable in Europe.
FT: Thank you very much.
SCHMIDT: Thanks.
FT: And now the prediction.
SCHMIDT: You know there’s a whole new phenomenon. Young people online all the time, communicating in new ways and building new social environments. New enviroments, new friends, new ways in which they interact. All of us will be affected by this in ways I could not possibly predict. Political. Social. Community. New businesses. It’s amazing to watch this next generation spend their time online and change the world.
John Edwards, Democratic vice-presidential candidate in 2004, was in Pittsburgh this month doing his bit for the party ahead of November’s midterm elections to the US Congress. His agenda included addressing a rally against the shortcomings not of the Bush administration but of Wal-Mart, the country’s biggest retailer and largest private-sector employer.
“Wal-Mart needs to be a more responsible employer, by offering decent wages,” Mr Edwards told a crowd who had turned out to support Wake Up Wal-Mart, a campaigning group funded by the UFCW grocery workers’ union that, along with others, the company staunchly refuses to recognise. Mr Edwards also attacked the company’s record on health benefits, arguing that the dependence of some Wal-Mart employees on state-funded Medicare programmes meant the chain was being unfairly subsidised.
ADVERTISEMENT
“Every consumer should know when they walk into Wal-Mart their tax dollars are going to provide healthcare for Wal-Mart workers...while the people who own Wal-Mart are making billions of dollars,” he proclaimed. The retailer struck back immediately. A Wal-Mart official denounced the Pittsburgh event as part of “a union-funded publicity stunt that’s more about politics than anything else”.
Then Working Families for Wal-Mart, officially a non-profit lobbying group, hit even harder, pointing out that the former senator’s family had previously held Wal-Mart shares. “Now he and other political candidates are telling working men and women that they can’t save money or take jobs at Wal-Mart? This is all about special-interest politics. And that’s sad,” said a spokeswoman for Working Families.
This is the world of Wal-Mart, the political retailer.
Under Lee Scott, chief executive, the company has in the past year expanded beyond the usual realm of corporate lobbying to wage a fully-fledged campaign in the mainstream of American politics. “When a company is as large as ours, we’re certainly going to have a lot of interaction with both politics and government,” says Bob McAdam, vice-president of corporate affairs.
On Tuesday it sent 18,000 “voter education” letters to its employees in Iowa, pointing out what it said were factual errors made by politicians who had attacked the company. The group is to despatch similar letters to its staff in other states.
But Wal-Mart’s embrace of some of the darker arts of US politics – it has set up a campaign-style “war room” at its Bentonville, Arkansas headquarters – also attests to the success its critics have had in turning the “big-box” retailer into a political issue at local, state and, increasingly, national level.
In January, Maryland passed a law aimed at making Wal-Mart increase the amount it spends on its workers’ health benefits – a move that has led to similar legislation being proposed elsewhere. In July, in an initiative aimed at large national retailers including Wal-Mart, Chicago’s city council passed an ordinance intended to raise the minimum wage for retail workers.
John Kerry, to whom Mr Edwards was running-mate, cited Wal-Mart and the family of founder Sam Walton in a speech this month on the failings of the US healthcare system. “It’s unconscionable and it is unacceptable that five of the 10 richest people in America are Wal-Mart stockholders from the same family – worth double-digit billions each – but they can’t find the money to secure health coverage for their own workers and their families,” he complained.
Senator Byron Dorgan in his new book, Take This Job and Ship It , uses the company to illustrate what he sees as bad consequences of globalisation. He devotes a chapter to Wal-Mart’s business practices in China, which he calls “the most obvious example of what has gone terribly amiss on the way to a healthy and truly free market”.
For Wal-Mart, all this raises an unwelcome possibility – that it will become a focus of debate during the 2008 presidential election campaign as well, something that its union critics are eager to bring about. “It’s going to be so important in the presidential cycle,” says Chris Kofinis, of the Wake Up Wal-Mart campaign. “Everyone is going to talk about this issue . . . about where you stand on corporations that make $11bn a year in profits and say they can’t afford to pay for healthcare for their workers.”
Wal-Mart’s evolving political strategy, shaped with advice and support from Edelman, the public relations consultancy, has been twofold. First, it has attacked its critics – arguing that it is the victim of an unholy alliance between Democrat lawmakers and the unions they rely on to deliver votes and campaign financing. Second, it is seeking to make the argument that the company is good for America.
It is doing this by mobilising its own political constituency, seeking alliances with local community leaders and businesses – in particular, black and Hispanic groups – that accept Wal-Mart’s argument that the company helps low-income Americans by offering low prices and jobs with the prospect of advancement.
Working Families for Wal-Mart, funded mainly by the retailer, is part of both strategies. Operating with more personal animosity than might be appropriate from the company itself, it is attacking the store chain’s critics. For instance, it has just launched a website called PaidCritics.com, aimed at exposing what it says are special-interest links between the anti-Wal-Mart campaign, the unions and politicians in the Democratic party (Wake Up Wal-Mart struck back with its own site – Abunchofgreedyrightwingliarswhoworkforwalmart.com).
Working Families has also set out to mobilise support. It is chaired by Andrew Young, the pro-business former mayor of Atlanta who served as the first black US ambassador to the United Nations. Its board includes Hispanic business figures, while its recently created state organising groups include leading black clergy.
“There’s a large majority of people out there who support Wal-Mart and who have had no vehicle to voice their opinions on what they see as Wal-Mart’s positive impact on their lives and on the economy,” says Kevin Sheridan, Working Families campaign director and a former spokesman for the Republican National Committee.
At the same time, Wal-Mart has reorganised its own community relations operations and has announced plans for “Wal-Mart jobs and opportunity zones” in inner-city areas, aimed in part at encouraging businesses owned by people from ethnic minorities.
In an indication of the strategy’s potential, the black caucus on Chicago’s city council was evenly split on the move to set a minimum wage for workers in the city’s big stores – with opponents saying depressed inner-city areas needed Wal-Mart’s investment and tax revenues.
The vote in Chicago also highlights the risk to the Democrats of trying to use Wal-Mart’s record to galvanise support in the run-up to 2008. While Mr Kerry and Mr Edwards might see Wal-Mart’s low-paying jobs and healthcare record as a rallying point for voters who feel left out of the American dream, other elements of the party will take a different view – including New York’s Senator Hillary Clinton, who in 1986-92 served on the board of the retailer based in Arkansas, her home state.
John Zogby, the pollster, argues that focusing too much on Wal-Mart “means no net gain”, because union voters already favour the Democrats and the party must seek other support if it is to recapture the White House in 2008. “When are the Democrats going to talk to Wal-Mart shoppers?” he asks (see below left). Mr Zogby, who has done some polling work for Wake Up Wal-Mart, says Democrats still lack “a strategy that deals with Joe and Mary Middle America – and Joe and Mary Middle America are at Wal-Mart”.
Polling shows that people who shop at Wal-Mart do care about human rights and worker healthcare, he adds. Democrats therefore need a more subtle message “about trouble in paradise, without carpet-bombing paradise. There are too many people who shop there”.
Mr McAdam counters that the recent criticisms from the Democrats are instead tied to the party’s own battles in the primaries. To win union support, candidates are prepared to deliver an anti-Wal-Mart message that will often not be carried through in the coming midterm campaign.
“There’s abundant survey data that says that attacking Wal-Mart for the population as a whole is detrimental,” he argues. “So if they persist in doing this as the general election approaches, they may find themselves doing more harm than good.”
Wal-Mart is meanwhile taking no chances. It is pursuing a broad effort to enhance its public image, including its record on environmental sustainability. That might drive a wedge in an alliance between its union critics and environmental groups such as the Sierra Club, which have faulted the company on issues ranging from waste water management to its stores’ impact on urban sprawl.
In a sign that political Wal-Mart is here to stay, Leslie Dach, a former political adviser to Al Gore’s failed 2000 presidential campaign, this month becomes head of its government relations and corporate communications. Mr Dach, who will serve on the company’s powerful executive committee, joins Wal-Mart from Edelman, where he became the retailer’s top politics tutor.
His appointment shows just how far the chain has come, with its small army of consultants and political advisers, from the days when Sam Walton argued that if you gave the customers low prices and good service, everything else would look after itself.
Mr McAdam, who will work for Mr Dach, argues that the retailer had no choice. “I think any company that is faced by the kind of campaign-style attacks would be naive not to respond in kind. It became clear to us that, to maintain our ability to do our business, we needed to have a similar style of response.”