CEO Eric Schmidt discusses how Google is handling challenges from Microsoft and upstarts Twitter and Facebook—and why search remains its priority
For all the many projects Google (GOOG) has cooking, from the video site YouTube to a new computer operating system, Internet search remains far and away its most important product. Search advertising, along with related ads that it runs on thousands of partner Web sites, still accounted for nearly all of its $22 billion in revenues last year.
That gold mine utterly depends on how well Google's search engine can maintain its lead. In a close look at the company's search quality group, BusinessWeek found that search remains Google's overriding focus. Several hundred engineers in the group continue to tweak the algorithms that instantly match queries with relevant results, making as many as 500 changes a year to these mysterious mathematical formulas.
But today, Google arguably faces more potent competition than ever, from Microsoft's (MSFT) relaunched search engine, Bing, to upstarts such as Twitter and Facebook that could change the balance of power in the Internet economy. In an interview with Silicon Valley bureau chief Robert Hof, Google Chief Executive Eric Schmidt explained how Google plans to stay ahead in search, and he defended Google against concerns by some investors that its many nonsearch projects could be distracting.
What is Google's biggest strength in search?
Scale is the key. We just have so much scale in terms of the data we can bring to bear.
Are disruptive innovations in search a thing of the past?
The days when you can come in with some new idea and change everything are gone. It's a much more sophisticated set of problems than can be done with a small team coming up with a new development.
There will be disruptive developments, but they will be inserted into the flow. We keep trying to come up with new ideas. One of the ways is you bring in a new viewpoint—some grad student who really has a different view—and we help them get that view implemented.
Is there a danger that Google is focusing too much on sustaining innovations vs. disruptive ones because it has a commanding lead and its system works well as it does? Is it facing the Innovator's Dilemma where it will have trouble disrupting itself?
I think applying the Innovator's Dilemma is too simplistic. You can't throw out the existing system. There's not a need to, because it works well.
That said, in our culture, there's a bias for coming up with new ideas. We know there are significant improvements ahead, so [we tell people to] go look for them.
How much of a challenge for Google are the new real-time and social activities such as on Twitter and Facebook, where the posts are either private or so recent it's tough for Google's algorithms to rank them?
If we can't get the data, it's very, very difficult for us to rank it. Facebook has chosen to keep much of its data behind a wall, that's what it has decided to do. We favor openness, because we think that works best for the users.
Twitter is a good example of something that is very hard to rank. With real-time, we should over time find a proper way to rank them. We implemented Universal Search a while back, even though people thought it would be difficult to include videos and images in the core results. We found a way to blend different kinds of results, and it has worked very, very well. I suspect we'll be able to do the same thing with real-time.
Twitter and Facebook aren't the last things we'll see. There will be something else after Twitter and Facebook, and we'll find ways to participate.
Does the fact that people are spending more time on Twitter, Facebook, and the like, especially to search for happening events or people, present a challenge for Google?
Google has always had the philosophy that we want to give people access to information and other things they want to do. Google is and always has been a large switch—we send a large amount of traffic to other sites. So these newer services are not that different from what we've seen all along and what we'll see going forward.
You said recently that you worry about where growth for a large company such as Google comes next. Where will that growth come from, and what does that say about what Google will be in five to 10 years?
We are first and foremost a search company. Of course, search changes. Location will become more important, for example. As long as we can be first to invent the new solutions to search, we'll be fine. We're still investing a lot in search and search quality. In our case, growth will come from businesses we're already in.
So you feel you've settled on what Google's markets and opportunities will be, and it's a matter of building those out?
Yes, for the most part. Now, there are [new but related] businesses like display advertising. We are clearly not the leader in display, but we would like to be.
Search has become and still is the most important business on the Internet, but does Google need to look beyond search for growth?
Search is not the only way to organize the world's information and make it accessible. That's why we're doing other things like applications, which help people organize and make sense of information. But companies that don't invest in their core businesses run into trouble. The investment priority always is search first.
Many of Google's customers, advertisers, say they want a strong No. 2 in search. Has Google's commanding position become a negative for the company?
No, I don't think so.
Despite all the antitrust challenges as well?
We realize this is how life works. In many ways, the attention is probably positive. Being in the press, being seen as a change agent, comes with a cost. But it's better than being in a position of having to catch up.
Given so many different businesses like YouTube and Apps, is Google trying to do too much?
I would take issue with the premise of the question. You can criticize our ambition. But if there's a good idea, someone will pursue it. If we have an idea and a way to move it forward, we'll try to do that. A company's purpose is to make a difference, so I don't see why we shouldn't pursue a lot of ideas. What are we supposed to do, do less? I don't know why a company would be expected to do that.
Are some of these other businesses essentially a way for Google to take chances and maybe catch the Next Big Thing without disrupting its core search business?
That's not how we think at Google. We just think these are good ideas that we can contribute to. Look at Google Wave (a recently introduced communications and collaboration service). That could be a new paradigm for communications, so we thought we should give it a try. We provided resources, and we'll see how it does.