Nikesh Arora on “The Future of Advertising”

Nikesh Arora on “The Future of Advertising”


JOSEP VALOR: [SPEAKING SPANISH] Welcome, Nikesh. Welcome to IESE. [SPEAKING SPANISH] Nikesh, thank you very
much for being here. And the floor is yours. NIKESH ARORA: Thank you. Now can you hear me? Well thank you once again
for having me here. It is a privilege and an honor
to come and speak to all of you people. And I also want to thank all of
you as representatives of Spain for the wonderful award
that you chose to give Google this morning. We’re very proud and very
privileged to have the honor. So thank you. I don’t have a speech because
I don’t know what you guys want to hear about. And I’m told you’re a very
varied audience. You come from very, very
different parts of the world, very, very different
professions. So highly unlikely I can talk
about stuff which will be of interest to everybody. So I’m going to try something
different and we shall see at the end of it if it
works or not. I’m going to ask you to ask me
what you want to hear about. So we’re going to start
with this room. And I’m told there
is another room? There are two other rooms
where there people. So they can see me
but they can’t, obviously, talk to me yet. But we’ll ask questions to them
later after you guys are done with your questions. So it’s up to you. What do you want
to hear about? Yes, sir? JOSEP VALOR: Can you
use the microphone? Do we have microphones
fro questions? NIKESH ARORA: Why don’t you ask,
I’ll repeat the question. JOSEP VALOR: OK, the microphone
is coming. AUDIENCE: I’m a big fan and
user of Google Earth. NIKESH ARORA: Thank you. AUDIENCE: And I’d like to know
what your plans are for the future in terms of adding
capability to that platform in terms of search with maps
and local and so on? NIKESH ARORA: OK, I’m going to
take about 8 or 10 questions first and then I’ll speak. AUDIENCE: Will you
remember them? NIKESH ARORA: Of course. If I don’t, you will
remind me. Who else? Anybody else? Yes, sir. Why don’t you ask me
and I’ll repeat it? Oh, wait, they don’t like this. Sorry. JOSEP VALOR: You need to
use the microphone. NIKESH ARORA: Oh, the other
people can’t hear. AUDIENCE: I’m really interested
in the Google’s position in the mobile
industry. NIKESH ARORA: OK, so we want to
hear about geo stuff, you want to hear about
mobile stuff. AUDIENCE: I’d like to
know a little bit about the new TV ads. NIKESH ARORA: TV ads, OK. AUDIENCE: And what are the plans
where you’re adding the real segmentation on TV and
providing to the customers unique spots based
on who they are. NIKESH ARORA: OK, we’ll talk
about television advertising, we’ll talk about advertising
as a whole. What else do you want
to hear about? Wait. The mic police, the mic police, wait for the mic police. Yes? AUDIENCE: My question maybe is
an indiscretion, I don’t know. What is the turnover in ads of
Google in Europe and the United States or global
for 2007. What is your projection
for 2008? Thank you. NIKESH ARORA: Anybody else? That’s easy, I can do that. AUDIENCE: I would like you to
mention in what form or what extent did you have to adjust
your HR policies while you were growing so fast. Hello. As a company that directly
serves advertisers, how do you see the future of agencies
in your business? I would like to know whether
you have any plans in the future to charge users for
services which are free today, like email for instance. I want to know how social
networks affect advertisement strategy. NIKESH ARORA: OK, social
networking. What else? AUDIENCE: Hi, I’d like to know
what Google specifically offers advertising agencies
and media departments. I would like to ask you what
do you think are the main reasons why you company has
been ranked number one in Forbes Magazine last week as
the most admired company in the United States in the
ranking provided by Reputation Institute. And number two in the world. NIKESH ARORA: Thank you very
much for asking that question. Yes, sir? AUDIENCE: Could you tell us what
is your position in the face of traditional
telco operators? NIKESH ARORA: A phone
rings after that. AUDIENCE: Hello, yes, it’s
pretty clear that search is your core product. But what do you regard as number
two and number three in your product group? You’re in different platforms
now, you’re probably already working towards getting all the
information you have from customers from different
parts. What are your plans
for the future? How are you going to cross
reference all that data to get to know your client better? NIKESH ARORA: Yes, sir? Wait. Can’t do that. Here you are. AUDIENCE: Regarding searching,
I would like to know what criteria do you use to show on
the screen some company or another company, why do you
put a company first, or second, or third when I enter
something in Google? NIKESH ARORA: It’s like can
you please tell me in what proportion you put things
to make Coke, right? I understand your question. Did you have a question? AUDIENCE: My question
is about China. I mean you have hard
times in China. And I’d like to know how do you
solve the problems and how is the situation now? I would like to know something
about Google has been launching a long series of new
services including the one regarding advertising. I would like to know something
about how you manage your innovation machine working
at such a pace. NIKESH ARORA: OK, why don’t
we start with these? This looks like a good set of
things to worry about, right? And I’ll try to speak for 15
or 20 minutes and try to answer these questions
in a story. And if I don’t answer somebody,
you can remind me I didn’t answer your question. I’ve tried to capture most of
them, so we should get to a lot of these. Let’s see. So from my perspective, I think
where we stand today as businesspeople, as all of you,
as all of us, we stand in the midst of what I deem to be the
fifth industrial revolution. And I say this not with ease,
I say this because I think what is happening right now in
the world of connectivity is actually going to transform
the way businesses conduct themselves over the course of
the next 5 to 10 years. And when you step back from 10
years from now and step back and say, that was blindingly
obvious that was going to happen. But when you’re in the middle
of it it’s very hard to make that assertion. It’s very hard to say when
you’re in the middle of that transition, oh my God,
I didn’t realize this was going to happen. And there are examples in the
US, there are examples in the UK, there are examples in other
parts of the world where some of these changes are
beginning to happen. So let’s explore what
are these changes. And when we set that context
it will allow me to answer some of those questions in
terms of the vision, the strategy, in terms of the
evolution of the advertising market, et cetera. As you just heard, I spent the
early parts of my career working in the financial
services industry in asset management. And I used to spend a lot of
time worrying about telecom technology and internet. In 1997 or 1999 when the last
internet boom was happening, a lot of businesses got very hyped
up about the internet, as we all remember, and then
they all forgot about it. Do you remember those times? In 1999 you could buy a .com
domain name and that was worth $10 million in itself. I think I remember that
stocks.com was selling for $10 million. Nobody knew how to make
money out of it. There’s one called
mydogeatscatfood.com. It’s a niche market definitely
worth a few million dollars. This was 1999. And people bought these domain
names, people got really excited about them. And then it sort of came
crashing burning down. What is fascinating is today
the top five internet companies in the world, the
total market cap of those five companies is greater than the
market cap for the entire internet boom in 1999. It’s fascinating. At that point in time, there
were 300 million people connected to the internet
and 30 million were connected by broadband. Today there are 1.3 billion
people in the world connected to the internet and about 400
million by the end of this year will be connected
by broadband. So there is a shift going
on, these 400 million people are connected. What is happening is it is
changing the way people interact, it is changing the way
people conduct business. So if you think about five
different ares of activity where people conduct business. The first area of activity
is information. The internet has become the
place where people go for information, whether you’re a
student, whether you’re a professor, whether
you’re a doctor. I went to my doctor the other
day and I don’t know whether I can trust my doctor anymore or
not because he says well let me search for something
and show you. I said, dude, didn’t you go to
medical school or something? But it’s fascinating, he says
now patients come to him with a lot more information. And actually sometimes he says
it’s a pain, sometimes it’s good because a patient says
maybe I have A, B, or C. He says, normally patients
have this tendency to pick the worst one. I have a little pain in my leg,
maybe I have DVT, I was in a plane two weeks ago. He says, no you’ve just
got a pain in the leg, you’re fine, go away. But the point I’m trying to make
is that the tendency is that people go search for information now on the internet. It impacts everything. It impacts how you
conduct business. I was talking to the CEO of an
electronic retailer sometime ago and he sells consumer
electronics in the UK. And he says, Nikesh,
we’re seeing a big impact from the internet. I said so what impact
are you seeing? Are you not able to sell those
plugs and those wires? Because, logically, it’s a
commodity purchase, I don’t have to see it, I can order it
off the internet, and buy it. That’s the logical
interpretation. It’s an easy thing, I need it,
I go to the internet, I buy it, like you buy books. He said, no I’m seeing the
biggest impact in the highest margin goods in my business. I said, why? He said, well because people
go search on the internet, they find the prices everywhere,
they find the cheapest price, and they want
to come to me and say that I can buy this for 200 pounds
cheaper or 400 pounds cheaper, why are you charging me 200
or 400 pounds more? That’s the first question. He says the next question is
when they talk to my sales guy, the traditional selling
model, if you remember, of any large goods is this TV is made
by Sony, this is made by LG, this is made by Panasonic, this
has this pixel ratio, this is really nice, this
has got good colors. And then the guy looks like he’s
going to buy, he says, and I love this one, this is
the one I have in my house. And the customers says, wow if
this guy who sells TVs every day has this one, that must
be a really good one. I’ve done that before
in my life. The sales guy this is the one I
have, bloody hell, that must be the one I need. When you buy a car he says, well
we have the top of the line, the middle of the line,
and the bottom line, but I like the middle one
because it’s the perfect value for money. Well, he must know what
he’s talking about. Well now what happens is when
somebody goes to buy something, he says they show
up like Japanese people. They bring three printouts
and they’re comparing specifications between the three
TVs. And the sales guy is scratching his head saying
what the hell did you get this from? So he’s sending all of his salespeople to internet training. You can’t work in the consumer
electronics business anymore until you get trained on how the
search for information on the internet, and until you can
print out the copies from the internet and compare
for a consumer what the differences are. This is still traditional
retailing. But now the consumers have
become so smart about searching for information that
people are searching for information on the Web. At Google, we crawl 97 million
domains every day every hour. That is billions and billions
of pages every hour. And every time we find that 25%
of the information on the Web is new every month,
which is fascinating. So all the information that is
being created today is being created in digital format. Even then, only about 13% of
the world’s information is digitally available right now. 87% of the world’s information
is still in archives, in libraries, in videotapes, in
audiotapes, in books, and lots of archives of publishing
companies and newspapers. So I think we have a long time
to go before the world’s information is going
to be digitized. The second thing people are
doing on the Web is communicating. There was a time 10 years ago
when I used to work for a financial services company and
you did not have email access to people outside the company. The biggest innovation 10 years
ago in my company where I worked was the IT department
said now you can send emails to people outside the company. Fascinating. But you remember that
was 10 years ago. And if you had asked people at
that point in time, do you have an email address the answer
is I have one at work. And many normally you have the
people who say I don’t have an email address. Today if you ask somebody what’s
your email address and they say I don’t have one, they
think there’s something wrong with you, right? You’re a social outcast. You
don’t have an email address? Do you live in a house? Now 10 years ago if I had said
everybody is going to need an email 10 years from
now you would have said you’re kidding. Now everybody has an
email address. Those guys sold hotmail for
$300 million to Microsoft seven years ago, eight
years ago. So the people using the internet
to communicate, there are 120 billion emails
sent every day. A lot of that is spam, teaching
you how to improve your health and telling you all
sorts of things you don’t need, but still. See, everybody has those
emails, right? Excluding those, there still
must be some sensible number of emails sent around
that happens. Again, that has social
impacts as well. This is not just a technological
event. The fact that I used to be able
to go away on a Friday evening when I didn’t have email
to my house, I used to live in India, I didn’t even
have a phone at home 18 years ago, so if you needed me, you
had to come drive to my house and find me. Now my boss can find me 30
seconds after I’ve left the office with an email. And more than likely I’ve
responded back in five minutes, and then he’s responded
back again, then I’ve sent it to seven other
people to find the information, Saturday morning
I’ve got seven emails back, by Monday morning it’s probably
resolved, and a new issue has come up. So there’s a whole social
consequence of this is as well. Our lives are getting faster,
and faster, and faster. We can talk about
that separately. The third thing which people are
doing on the internet is this whole phenomenon
of community. Now I know that people in this
room are probably not the right target group, but I mean
you have heard of Facebook, Myspace, Bebo? How many of you have a profile
on these things? Oh wow, I’m sorry, I
apologize, this is the right age group. How many of you have the profile
in your own name? Just kidding, just kidding. Some people do that to find
their kids, they don’t want their kids to know they
have a profile. So it’s OK. That’s fine as well. Spying on your kids is OK as
long as you’re keeping them out of trouble. But what is fascinating is that
are 250 million people on social networking sites. There are 200 million people
in Myspace I read the other day, which is more than the
population of Brazil. When you think about
it and say what connects people together? Well these 200 million people
associate with Myspace, they’re connected. They have a common sense
of what they’re going to do over there. What’s interesting is now if you
talk to these people who are on Myspace, Facebook, Bebo,
et cetera, they say I communicate with my friends
on this stuff. Writing an email is like
writing letters. I’m sure there are people in
this room who have written letters, right? You guys have written letters? Remember how that used to be? You had to write a letter, you
had to think about it, you had to mail it, it got to the other
end, somebody wrote you a letter back, and in about
eight days you had a communication. That’s what people
say is email now. Email is like writing letters. I have to think about it on
Myspace, Facebook, Twitter, I just sort of talk to my friends
back and forth. So people are spending a lot
of time where they’re in communities. I don’t know how this trend
is going to end up. But I almost like the Myspace,
Facebook, Twitter, et cetera, they are like the
Walmarts of the social networking business. Everybody is there, it’s not
quite clear what everybody wants, but when you go there
you’ll find what you need perhaps, like you can
find at Walmart. But I think over time what’s
going to happen is you’re going to have what I call these
flash groups which form and flash groups which
disintegrate. There will be some people who
will be interested in talking about an issue of today, they
will all get together, you’ll have 10,000 people talking about
the issue of today, and then they will go away because
these 10,000 people are not interested in the issue
of tomorrow. There will be a different 5,000
people who will collect for the issue of tomorrow. This will have a
whole different impact on market research. It’s going to have a whole
different impact on politics. This will a whole different
impact on how public opinion is formed about your product. I know there are companies out
there who are now trialing their products on the internet,
they put this out, these 10,000 people respond,
and you can’t ignore it. Otherwise the marketing guys
just show up in the office and say, yes, I put 10 customers
under white lights, I watched them from glass behind there,
and I watched their reactions to the product, they
really liked it, this is going to succeed. It doesn’t work anymore. You put it out on Myspace,
Facebook, they’ll tell you what they think about it. You’ll get the opinion
in a heartbeat. So people are spending time
doing that stuff. The fourth one, and somebody
asked what this is the trend that you’re most
excited about. The one trend which is
fascinating is the consumption of entertainment on
the internet. And that is a huge trend. You guys have all hopefully
downloaded music, legally of course, onto your iPods and
you have music, right? That’s happening now to
video programing. Does anybody work in the
broadcasting industry or the television industry? You do, apologies. But I’m going to make a remark
so I just want to apologize first. But I don’t know how they
decided that they have to show the most popular
programming at 9:00 PM on Friday night. You have to have no social life
to be able to watch it. All the good stuff happens in
the evening between the hours of 8:00 to 10:00, it’s
called prime time. That’s the time I
want to go out. At least when I grew up in India
are when I was in the US, if you didn’t watch it there
was no other way to find the programming until the gods
of broadcasting decide to show it again, right? And now my daughter or your kids
are going to watch it or you’re going to watch it on
YouTube, or going to watch it on MyVideo or Dailymotion,
whatever the right video space is. I think as of last week 10 hours
of video is uploaded every minute to YouTube. So almost every content that
is out there is getting uploaded to the Web. And people are consuming
entertainment over there. That is where people are looking
for entertainment. That is a huge trend. I don’t know how that is going
to shape life, but I will tell you this, that new music stars
are being found on YouTube. We had an event last month in
London and we had about 400 customers and we decided how do
we find entertainment for the evening. So rather than go to a
traditional music company to find a music star or somebody
what we did do was we went to YouTube, we found the 10 most
popular videos on YouTube from an entertainment perspective. We called all those people and
invited them to perform. We had 10 performers from
YouTube and it was the most successful evening event we
ever had because we found these people on YouTube and
they’re very successful. We had dancers, we
had musicians. And one musician, this girl, she
is Portuguese, she went to undergraduate in the UK, Mia
[? Anderson ?] is her name. She went home after university
and in Portugal, Lisbon, she started putting a video up every
day of herself singing some popular song. At the end of the month, she’s
been signed up by Columbia Records, she’s been flown to
New York and she has a $1 million recording contract. I don’t know if you work
in the music industry. In the old days, these guys the
US used to wear Stetson hats, drive to every bar in
Texas in their Cadillac, and try and find the next act. And [? before too long ?] it’s going to be a geek with
glasses in front of his computer, looking at the number
of people who find which artist popular. So it’s going to change the way
the music industry, and the whole artist discovery,
and the whole process of creating content. And that is one trend I think is
going to be a huge trend in our lifetime, in the
next 5 to 10 years. Entertainment will be consumed
when you want to consume it, not when somebody decides
you should consume it. And just that statement is going
to change the entire entertainment industry. The fifth trend we see is
the trend of commerce. 130 billion euros of commerce
will be done on the internet this year. That number will be doubled in
the next three years, 260 billion euros of ecommerce. That is 20% of the commerce
in Europe. So 20% of the commerce in Europe
will be conducted over the internet. Just people are spending
time buying stuff. I don’t think any business would
exist which will not need to have a store. Now this is an old example, but
I’m going to tell you the story anyway. I live in London and we bought a
house about three and a half years ago and we have one of
those washing machines, the washing machines which goes
under the nice cabinet. So one day it stopped working. So I was given the task by
my wife to get it fixed. I looked at it, it seemed very
old, it was about five or six years old. I said, sometimes it’s cheaper
to just take this out, throw it away, get a new one. And then get somebody to take
a look at it and he’ll tell you it’s broken and you need
to spend so much money. So I was very smart, I went to
Google and I searched for that particular brand name and
the model number. So I landed on this website
which belonged to that brand name. And when I landed on the website
it had a nice picture of the CEO. First page, big picture
of the CEO. Welcome to our website. Fantastic, this is very good,
this is personalized greetings from the CEO, wonderful. So I click around a little bit
and they talked about their newest plant which is in eastern
Germany, how they’ve built a new plant and it’s
a fantastic plant. I said, great, still can’t
find my washing machine. So then I sort of clicked on and
it said, please click on your country. I wasn’t quite sure which
country to click on, right? I live in the UK, I have an
American passport, I’m Indian. I said perhaps I should click
on the UK, this is where I want to buy the product. So I click on the UK. Another picture from the general
manager of the UK. Welcome to the website from
the GM of the UK. I said, fantastic, wonderful. The good thing was the brand
values were the same on the first page and this page,
so I didn’t have to read them again. They didn’t have a
plant in the UK. So anyway I find the product
search section and in the products search section I’m
looking for this dishwasher. I find it, I click on it, and
the site keeps trying to sell me a newer one. But I want that one. But anyway, I finally find a way
and then when I click it says, please click here to find
the nearest retailer. So I click and there’s three
retailers, they don’t have phone numbers, they
have addresses. And I just got irritated, I went
back to Google search, searched for this brand name,
there was something like appliancegiant.co.uk. And I bought my dishwasher from
appliancegiant.co.uk in the next five clicks. Why am I telling
you this story? The reason I’m telling you this
stories is that a lot of traditional businesses have
not understood how to deal with the consumer who’s looking
for their product because they’re traditionally
sold through third party channels. Because if you go sell it to a
retail company or you go sell it to a B2B business, you
actually are not selling directly to the consumer. But you have a brand which
is strong enough that the consumer recognizes. And that’s true across a whole
host of products, whether it’s consumer electronics, whether
it’s household goods. A lot of products have direct
consumer relations as a brand. Sometimes the brand relationship
is stronger than the relationship with
the retailer. But a lot of traditional
companies are stuck in this bind, if I go direct to consumer
my channel is going to get pissed off. So what you’re actually doing,
in a word, which is allowing for direct channel interaction,
you’re actually allowing the wholesaler or the
intermediary to come establish their business in the middle
because, oh my god, I’m not used to dealing with these
consumers directly. And it’s happening all
over the world. This is not just a
problem happening in Spain or in Germany. It’s happening consistently. There are now people whose pure
job is on the internet, they collect traffic, they find
the consumer, and they connect the consumer
back to you. So those are the five big tends
that are happening. In that context, what do we
see ourselves as Google? Our primary purpose, we see,
is to organize the world’s information and make it
accessible to people from wherever they are. In that, we try and crawl,
search, for information whichever form it is, whether
it’s in audio, video, books, in text, whatever it is, we’re
trying to find the digital information and allow
people to access it. We’re probably the only internet
business in the world whose sole purpose, our founder
sits in a meeting and he’s showing a product he says,
OK how quickly can you get a customer off
our website? If you step and think about,
whichever business you represent, you want the consumer
to come to your website and stay there, to
discover, to explore, to buy. We actually want to get that
person off that site as quickly as possible. We measure our success in how
quickly were you able to get him to enter a search term
and how quickly we you able to get him off. So we want to get people to
find their information as quickly as possible. We’re actually the antithesis
to every other website where every other website wants to get
the consumer to come spend time on their website. So that’s our primary purpose,
that’s what we believe we need to do. In that context, the way
we monetize that is by advertising. So we spent a lot of time
worrying about advertising and we’ll talk about advertising
in a second. The third thing we do in that
context is as we’ve gone ahead and built these large data
centers and large capability to host information, we’ve
decided to play in the world of cloud computing from a
technological perspective. Because we’re effectively
a technology company. So this is what we do, we
are great technologists. Talk to our founders and talk to
our CEO, the first thing we worry about is how do we take
this technology and make it really effective? So from an application
perspective, what we try and do is we try and allow users
services that they can use remotely from anywhere
in the world. We believe, for those of you who
are technologists in the room, there’s this whole concept
of software as a service as opposed to
buying software. So the idea is instead of you
having to spend $500 or $400, buy software, align it on your
PC and then you don’t know whether you’re going to
use everything on the software or not. The idea you can rent software
as a service and pay for it on a monthly basis or
an annual basis. It works out much cheaper for
companies, it works out much cheaper for users. We don’t charge users. Somebody asked a question
about do we anticipate charging customers for
premium services? So in software as
a service we do. So you can use Gmail, for
example, for free. You can use Google documents,
Google spreadsheets, and Google Presently, which
is a presentation software, for free. But when we sell it to
corporations, we actually charge them a per
month charge. So today a company can decide
to use all these Google applications with their own
brand name off the Web directly as opposed to having
to buy a whole host of software from somebody else. And we charge for
that service. Of course not at the scale
that you have to pay for desktop software. We charge a lot smaller
amount. But we do charge for it because
we have provide service and we have to make
sure we do recoup the costs of service. Those are the two big area, the
search area, the software as a service area, and to do
that we use advertising to monetize it. Somebody asked the question on
the future of advertising and the role of agencies. I think advertising is going to
go through its own upheaval as part of this revolution. So if you’re in marketing
and you’re a marketeer in the room. I used to be a marketeer for
five years at T-Mobile. My dream would be to be able
to find a consumer who was looking for me and then I
could present myself. That’s a marketeer’s dream. If I can find the consumer who’s
looking for me and show him the ad he’s going to buy. When I’m thirsty show me an ad
for something I want to drink, when I’m hungry show me and ad
for something I want to eat. Don’t show it me when I’ve
walked out of a restaurant or just had one full
bottle of water. We all know this is
marketing, right? So search marketing, whether
you like it or not has that position. So when I search for something, I’m looking for something. If I’m looking for something
if you advertise, there’s a higher probability I’m going to
use your advertising if I’m not looking for it. So search marketing has reached
that capability. The fact that the internet
allows trackability, you can actually measure the return on
investment on every search campaign that anybody does. So such marketing ends up being
an ROI you can measure. If you think about it 20% of an
average consumer’s time is now being spent on
the internet. About 20% in most developed
economies, whether it’s the UK, US, Germany, Spain is
probably about 10 to 15% but it’s getting there. If you believe that’s true and
if you’re a marketeer, you should also know that today, 2%
to 5% of advertising spent is spent on the internet,
globally. It doesn’t take a mathematical
genius to figure out if 15% of the consumer’s time is being
spent there, 2% to 5% of the money’s being spent there, that
those two numbers are going to trying to converge. And that 15% that’s actually
running away is going to become 25% to 30% because we are
now using the internet as a means for doing everything. We use it for entertainment, we
do it to buy groceries, you do it to buy goods, you use it
to search for information, you use it for communication. So consumer attention is
shifting to this medium. That means advertising dollars
have to follow. Advertising dollars
have to follow. And it’s not going to go to
Google, it’s going to go to Myspace, it’s going to go to
Facebook, it’s going to go to a video site, it’s going
to go somewhere else. But advertising dollars are
going to move to the internet. Now what happens to
the advertising industry as this happens? For the first time on the
internet you can actually target an individual. So when I search for mobile
phones you can show me one ad, when somebody else searches
for mobile phones in a different part of the
world, you can show him a different ad. You can go as specific
as you want. You know I’m searching from
here, you can advertise the store next to me over here. Or you know I’m searching from
Spain, you can advertise Vodafone to me. It all depends on how targeted
you want to get. So the internet is allowing for
personalization, allowing for targeting, and it’s allowing
for interactivity. You can actually interact
with the ad. So BMW Mini ran a campaign. You can design your own
car on the Web. So you can actually personalize
your car. And it ran as an ad campaign
on the Web. Which you can’t run on
television, you can’t click my television, I’ve tried. It doesn’t work yet. Only one button works
on the television. So what’s going to happen is
advertising is going to end up becoming more personalized,
more targeted, and more interactive. That’s happening in
the search world. And I’m not saying this is the
end of television, the end of newspapers and radio, all I’m
saying is there is a shift of share happening. Maybe in 10 years the
share shifts by 5%. Maybe in 10 years the
share shifts by 10%. I don’t know the answer. It will depend on country, it
will depend on broadband penetration, it will depend
on consumers. But there’s a shift. When that shift happens, even of
10%, on the Web the same ad you see in the middle of a
football match is not going to work on a video on the Web. Because on the Web you
will know who I am. Or you can do where I’m
searching from. You can know when
I’m watching it. I may not watch it when the
match is played, I may watch it tomorrow morning. I may watch it and Barcelona,
I may watch it in Madrid. You can actually personalize
the ad. But what it also does it allows
for small advertisers to come in. So let me give one
example in this. Let’s assume that an ad in the
middle of the match, football match, costs $1 million. And only one person can buy the
ad, because one company can advertise, whether
it’s McDonald’s or it’s Vodafone or whoever. You can pay $1 million
and buy the ad. Let’s assume that tomorrow
morning another million people are going to watch
same football match on the internet. I can choose to sell that one ad
as one ad for $1 million to Vodafone or I can choose to sell
that million viewers as each individual view
for $1.00. And if I choose to sell it as
each individual view, I can actually sell it for $1.50
because that I can actually target it to a consumer. And even Pepe’s Pizza can buy
10 of those ads in a small locality, while McDonald’s can
buy it, or a television guy can buy it. So actually I can take that $1
million ad which is in the middle of a broadcast program
and I can split it at $1.50 and sell it a million times
as each individual ad. And I’m not talking about mass personalizations, don’t get confused. I’m not asking for your mother’s
name, father’s name, date of birth, star sign. I just know your location
and I just know the time of the day. Just the location and time of
the day are enough for me to create enough variability in
the ad I can sell to you versus what I can sell
to Pepe’s Pizza. And I can make the
ad interactive. I can show you the ad in the
middle of a video on the Web, and you can click on it, and
you can order from the menu right there. You can click and you can submit
your order, you don’t have to call anybody either. Or you can initiate a phone
call over the Web. Now is that going to happen
tomorrow, is going it going to happen in five years, is it
going to happen in 10 years? I don’t know. But it’s going to happen. And when that happens, it
changes the role of what a creative agency needs to do. It changes the role of what a
media buying agency needs to. You guys asked about agencies. My view is that for the next
five to eight years, in are of video, in this area of new
creatives, actually you will see a convergence of buying
and creativity again. Because you will have
to tailor your ad to the media you buy. In the past you have been able
to create a split between the media buying and the creative
side, you’ll see a convergence over there. Now in terms of how we regard
agencies, we think they’re an important part was to facilitate
a customer’s adoption of this
kind of trend. But we believe there’s going
to be a big shift. And whenever there’s a shift,
in any industry, not every player makes it from one
end to the other. A lot of people will make it,
some people won’t make it. And the challenge will be how
many people adapt to the new technology, how many
people make it, how many don’t make it. OK, how am I doing so far
on answering questions. I don’t thing I’ve answered
any questions really. No, I have. In terms of
technological trends, some people ask about
geo, et cetera. So the three big trends I see
is one of the trend of cloud computing, which means people
will store more and more data in the cloud because they can
access it from anywhere. If I don’t have my laptop with
me I can borrow yours and access my data already. I don’t need my laptop
with me anymore. And if I don’t need, I can
access it from wherever I am, I don’t have to carry
it around. The other trend which we see
is a trend around geo, somebody asked about Google
Earth, and local, et cetera. People are beginning to
visualize information. So whenever you search, you look
for information, you find a formation. Another way, all of us we
think as individuals, we actually think visually when
we’re looking for, we always anchor information
to something. It’s very easy to remember. And as you start thinking about
information, whether I’m thinking about hotels, I’m
thinking about flights, I’m thinking about taking
vacations. I can go to Google and search. I can search for a vacation. But actually if I see it on the
map, I see it visually, it leaves much more of an
impact on me than if I see it in text. And the Web is [UNINTELLIGIBLE] for that. And actually, five or seven
years ago GPS systems weren’t as popular. Today, in most developed
countries, every car is coming out with a GPS, people are
walking out with these TomToms, your BlackBerry
now has a GPS. Now you can search for maps. I still remember many years ago
you had to pick up your phone and call you friend if
you had a mobile phone. If you didn’t have a mobile
phone, you were screwed. Do you remember those times when
you actually were invited to the party and you could
never find the place? Remember those days? You actually drove around for an
hour and you went back home saying I can’t find the house. He said, turn let on
the third red tree. Somebody decided to
cut the tree or I don’t know what happened. It was raining so hard you
couldn’t see the tree, right? You remember those days? And then mobile phone came
along and it was like, where are you? I’m right here. Where are you? Behind you. Where, I can’t see you? There you are, right? You remember those
days, right? So now we’re at a point
we actually visualize information. We look at information
on a map. We all are going to get
directions on a map. So what’s going to happen, as we
believe, if only 13% of the world’s information is online,
imagine if 100% of the world’s information comes online, we
might have over information. I struggle right now because
when I’m looking for something I actually find too
much information. I get stuck in information. I’m like can somebody please
distill this for me? So we already have too
much information. You’re going to have to start
visualizing information, you’re going to have to start
finding different ways of parsing through information
so you can get to it much quicker. So one of the trends
we see is the whole trend of geo and local. Does that mean I have
to shut up? Oh, you have the questions
from the other room? I have this habit,
I keep talking. So when I start people doing
one of those then I stop. So far you guys are doing well,
you’re not sleeping, which is good. Some people asked me some
questions about Google. I can’t tell you unfortunately
how we rank companies. But typically, I’ll tell you
this, any website which is good, any website which has
got good information, any website which is popular is
more than likely to rank higher than a bad website
with bad data, with bad information. So that’s generically
how it works. We don’t declare our revenues. We did declare in the last
quarter that 51% of our revenues come from
outside the US. And we made $5 billion something
in the first quarter of this year. So for those of you who are
mathematicians, you can multiply that number four
to tell you what the annual run rate is. For those who are not, you
can use your calculators. I can’t project revenue,
especially because we’re in our quiet period anyway,
so I will go to jail. And our CEO has reminded
me there is no broadband in jail yet. So I will not be able
to do my job. So I can’t talk about
revenues. What did I miss? People asked about China and
people asked about scaling. One of the reasons that I find
my job very exciting is because I joined the company in
2004 when there were about 500 people in Europe in nine
offices in Europe. Today we have 33 offices
and over 3,000 people. We have over 17,000 people
in the firm. Google started in 1995
in a dorm room. It was actually incorporated in
1998, which makes 2008 our 10th year anniversary. We had no revenues
until the first three years of operation. So we made all of our revenues
in the last seven years. I don’t know of any company in
the world which has done $5 billion in one quarter
which started making money seven years ago. So sometimes people forget that
it takes a lot of effort to scale a business
to this size. It’s very hard to scale it. There’s no other company in the
world which has gone from zero to $5 billion in a quarter
in seven years. So we don’t have book, we don’t
have a case study from your business school which I can
read and say ah, now I get it, this is how I
should scale. So you have to sort of
make it up as we go along at little bit. But the way we’ve been able to
make it up is we have stayed true to our principles. We have four or five
very simple principles we operate on. In no particular order, one of
those principles is try and built the best product
for the consumer and create a wow product. If you create a wow product you
won’t have any trouble. So all of our time we spend,
every meeting you go to with out founders, they will see the
product and they’ll ask you why is this cool
for the customer? And every time you tell them a
reason why you could shift it a bit and make more money,
they’ll say no, that’s not cool for the customer, let’s go
back to the version that is cool for the customer. And the way you can see it is we
don’t make money on Gmail, we don’t make money on Google
Local, Google maps, we don’t make money on a whole host
of products which we have launched, Google News, because
we want to make it cool for the consumer. And we believe if you start
bringing in commercial considerations too soon, there’s
a probability we will compromise the end user. Now you could say well you’re
lucky you’ve made so much money in search therefore you’re
allowed to do this. But we made no money
in search for the first three years either. For the first three years of our
existence, we are making no revenues, but we were
continuing to provide search and we were not monetizing it. So we’ve true to the concept. We want to make a cool
consumer product. Now for those of you who are in
marketing and who went to business school recently or who
are in business school, it actually changes the
whole Four P Model. Remember those Four P’s? Who was that guy,
Philip Kotler? I was in a conference in Dubai,
he was speaking before me, I spoke after him, and I
challenged the Four P’s. Don’t do that. He came back on stage after
that, had to talk about it. But if think about
the Four P’s– we talk price, promotion,
place and? AUDIENCE: Product. NIKESH ARORA: There we go. Now for those of you who are
economists, are there any economists in the room? Must be an unpopular
science, right? For those of you who are, in an
extreme condition, if you take one to P and drop it to
zero, what happens to the other three P’s? If you drop price to
zero, what happens? AUDIENCE: The demand grows. NIKESH ARORA: The demand grows,
but your whole concept of place, promotion, and
publicity changes. Because when you have a price
there is an expectation in the minds of the consumer. Do this test for yourself. You stop on the corner of the
street and the guy sells you a real Rolex or whatever
for $10,000. This is not a Rolex, but just
use my watch as an example. He sells it to you for
$10,000, you have a perception, you look at the
brand, you look at the value, and some people pay
$10,000 for Rolex. Now there’s a guy sitting in the
street corner and he says, I’ll sell you a Rolex
look-alike for $25. What do you do? Well most people
say no thanks. Some people who are value
hunters will look at it, turn it upside down, try to check
the quality, right? The guy is asking you for $25. It doesn’t matter if it’s
different than the $10,000 and it looks just like that. But you’re doing to do a value
judgment right there. Now imagine the price is
set to zero and he is handing it out. You take it home, you’d use it
for six months, if works you’d say that’s pretty cool. I got it for nothing, it
worked for six months. You paid $25 you’d say,
shit, I paid $25 it’s t after six months. So if you change the price to
zero it changes customer expectations. Totally. And when customer expectations
change, nobody’s figured out the science or the
marketing for it. So if you look at it in the
internet world, all these products are priced at zero,
whether it’s Myspace, Facebook, Skype. So customer expectation is? No more. And then customers are constantly positively surprised. And when customers are
constantly positively surprised, it actually
creates a tremendous amount of brand equity. Somebody asked the question why
are you number one brand? This is not an explicit policy,
create a crappy product and surprise
the customer. No, you actually trying to
create a good product. And if you layer on top of that,
you create a fantastic product, give it away for free,
you create fantastic brand equity, don’t you? And then that whole place
promotion thing goes away. Because you’re focusing on one
P. And if one P is fantastic, we don’t have to promote
it because it’s free. Why do you do promotion? You do promotion because you’re
trying to create a judgment of value, right? If you spend $5, look at this
beautiful television ad, these beautiful people want this
product, therefore you should want it too. We don’t have to do any
promotion anywhere. So we don’t spend money on
marketing, we spend money on building a product. So you’ve eliminated
the other P’s. I don’t even know
how I got here. This is what happens when
I keep talking. I was talking about the
principles of Google. The first own is on product
and consumers. The second one is the constant
innovation notion. We actually force our employees
to spend 70, 20, 10. 70% of the time has to be spent
on core activities, 20% percent on related to core, 10%
on anything you think you want to do. And we do it. Everybody is allowed to
do it, we force it. And there’s a positive
consequence and a negative consequence to it. The positive consequence is we
constantly get innovation. The negative consequence is
people moving from things we want them to do. So the way sometimes product
development is done, and I’m not joking, is a guy has a great
idea, comes to a room like this, presents an
idea to people, and people start leaving. They’re not interested. And then there are four of five
people left, they say OK, we’ll work with you on this. And if there’s nobody left,
you say, well if you can’t sell it to your colleagues,
how are you going to build a product? So we don’t force the guy and
say your idea is great, six of you are going to
work with him. And six of them say, I hate this
guy, I don’t want to work with him, his product sucks. It’s sort of natural selection,
like Darwin. You sit there, six people
like it, great. Six people help you
build a product. If it’s a great, then you
go sell it more people. So it’s a little bit of that
way in forcing 70, 20, 10. The third one which a
lot of people heard about is do no evil. One of our engineers, when there
were 25 employees in the company wrote on every white
board do no evil. Now it’s become part of
the company lexicon. Every time we’re building a
product people ask, is that evil, is that bad for the
customer, are you going to be doing evil? Whether it’s a discussion
on China. All right, so that’s one
of our principles. So we have these principles, we
live to these principles, and we then go out and try
to hire the best people. And people have asked me this
question many times, how do you decide who are
the best people? We have the benefit and the
luxury right now to go find somebody who’s very
intelligent. So there are normal metrics of
intelligence which you can look, whether they went to
school, they didn’t go to school, are they intelligent
or not? There’s a whole bunch
of ways to find out. But in addition to the concept
of intelligence, we check for two more things. The one thing that I constantly
check for is for somebody to achieved
something in life. So even if a 19-year-old or an
18-year-old comes to us, or 21-year-old comes to us to
work for us, we check. So I’ve got a guy who was an
Olympic figure skater, he won the gold medal. He works for us, didn’t
go to a great school. But the fact that he can go
sustain himself, he can go work through the discipline
required, make the trade-offs to go hit his goal of getting
a gold medal. I have two Olympic rowers
in our team. I have somebody who climbed
Mount Everest at the age of 23. These people show me that they
actually set a goal to themselves and they
can succeed. It doesn’t matter what
they succeeded in. They’re smart people because I
can check their school scores. But then on top of that I look
for people who have done something unique in life or
who have shown dedication. There is somebody who spent
three years with their grandmother and left school
because they wanted to be true to their grandmother. They have passion. So we always look for
something like that. You couple that with something
which you call googliness, do we think they understand
uncertainty? Do we think they will survive
in our environment? We run those tests, that’s
how we hire our people. And then we put these values
against those people. And it’s a constant sort of
battle to try to deliver results and at the same
time make it a wonderful place to work. Six weeks ago I was in one of
those events where they were giving awards for the
best place to work. And we never applied for this
award, but we were rate the second best place to work in
Europe and the best ways to work in Italy, UK, Netherlands,
Poland, Ireland, a whole bunch of others. But that’s because of this
reason, no other reason. OK, I think I’ve answered all
questions except China. China is a tough one. The reason China is a tough
is we had endless debates in our company. What do we do? I’m sure everybody knows
the issue in China. We used to serve China from
outside of China for a while. But when you used the service
in China you realized our latency was high, you couldn’t
access the servers quickly. The only solution technically
is to put the servers in China. The closer they are to
the customer, the faster the access is. So we decided to put servers
[UNINTELLIGIBLE] to hire employees. Once you start operating in the
country, have employees, and servers, if you don’t
follow the laws of the country, typically what
happens is those people go to jail. And that’s pretty much
how every country works and their laws. And that created a huge debate
for us, what do we do? Do we put our employees in the
country, do we follow the laws of the country or do we not? So we came up with an
innovative solution. And for those of you who don’t
know, the Chinese authorities block access to certain
things in the country for their users. Now two things had happened,
one is some people in the country are accustomed to not
trying to go look for those things because they feel that
somebody will tracked them down if they’re looking
for those things. The second thing that happens
is all that content sits outside of China. So what we did is anytime a
Chinese citizen searches for something which the government
does not allow them access for, we actually put a caption
saying this content has been blocked by the authorities. So people know what is being
blocked by their government. And we allow access to
everything else. Now what is interesting is 99%
of the information that is searched for is not
those things. So the challenge we had was do
we allow the citizens of those countries to access 99% of the
information that is available for them in the world or do we
block access to 99% because of the government is stopping
access to 1%. And we made a choice that we
will allow them access to information. It was a hard choice, it was
debated in our company, we had the employees in the country, we
didn’t to risk them, and we still debate it once
in a while. But that’s the answer
in China. OK, I think I answered
all the questions. Did I miss anybody’s question? What did I miss, sir? JOSEP VALOR: I have
the questions from some upstairs though. NIKESH ARORA: OK, let me make
sure I answered his question and then I’ll come over there. What did I miss? Ah, TV video ads. OK, so one of the things I did
not talk about in advertising is we run experiments because we
serve hundreds of thousands of advertisers globally. We run experiments to see how
we can bring access to other forms of advertising inventory
to those people. So we are running experiments. We bought a company which
does radio advertising. So we collect all the radio
slots in the US which are free and then we let our advertisers
buy those ads online so that you can digitally
submit a radio ad. We’ve tried that in the
newspaper industry, and we’re trying that in the television
industry. The television industry
is public. It is sort of like they way
I explained taking the $1 million ad in the middle
of a football match and selling it in parts. So what happens in the US is
people are using TiVo a lot. They record a lot, they don’t
watch it at the same time. And there’s a company called
EchoStar which has boxes which they sell, like set top
boxes, cable boxes. So what we’ve done is we’ve done
a deal where we are able to insert an ad digitally while
somebody’s watching something recorded. So it may not be the original ad
which was in the middle of a program, it may be different
ad streamed to you because you’re watching it
differently. It’s the same concept of being
able to personalize and target an ad. So that is working really
well for us. We’ve tried it out, it
seems to be working. The challenge is to scale it
globally you need to have set top boxes digitally with a
return path of ISDN, which is not there in every country
in the world yet. OK. Did I not answer
your question? What is the question? Ah, mobile. The question which I did
not answer is mobile. In mobile we have a project
called Android. And we struggled with the idea
of do we build a phone or do we not build a phone at some
other people have done. We figured there were enough
phone manufacturers in the world, we don’t have to be a
phone manufacturer just yet. We figured the real problem we
want to solve is we want people to access more internet
services on the phone. Our belief is that there is
going to be application convergence, as opposed
to device. Which means if I’m accessing
YouTune on my PC, I want to access it on my phone, I want
to access it on television. If I’m accessing my email on one
device I want to be able to access it on different
devices as opposed to finding that one ultimate device
that does everything. So we believe in application
conversions more so. And we figured out in the mobile
phone industry what we believe doesn’t exist is a
common platform for handsets. So today if you buy one handset,
it’s very hard to move data from one handset
to the other. They all work very differently
from a user interface perspective. Some work well on the internet,
most do not work well on the internet except
perhaps the iPhone. So we decided to build an
operating system called Android, which is an open
source operating system. We have now introduced it to
lots and lots of developers around the world. So they are writing
code for it. And I think we’ll have our
first phone by a handset manufacturers using that
operating system towards the end of this year. OK. JOSEP VALOR: We got two
questions that have to do with video on the phone. One was specifically do you plan
to have plans to insert advertising on video downloaded
to the phones? NIKESH ARORA: Somebody should
answer that phone. JOSEP VALOR: And then the other
one is specifically about Android and how you’re
using the power play between Android, Symbian, and
Windows model? NIKESH ARORA: OK, the first
question, do we have plans to insert ads in the middle
of videos on phones? Again, I didn’t say
we were planning to insert ads anywhere. What I said is conceptually that
is how video advertising would develop. Now it requires a whole bunch
of things to come into play. It may be us it may
be somebody else who figures it out. Having said that, as people
start watching more videos on different devices, I think the
same technological rules will apply in the ability of us or
agencies or advertising players to be able to insert
ads in the middle of video streams. As it relates to the question
of Android vis-a-vis other different operating systems
in the world, we just don’t think like that. The way we think is that if
you’ve build a cool product people will adopt it
and it will win. If people don’t adopt it then
you will have to build a cooler product. Which is a much better
way for us. People ask me the question,
who do you worry about as competition? And the answer is we don’t. We worry about the two guys in
a garage somewhere because we came out of a garage. If somebody had asked to
question 10 years ago, do you worry about Google? People would have laughed
you out of the room. Now I think there are a few
people who worry about us. But rather than us worry about
other big players in the market, we worry about those
two guys in a garage or one guy in a garage. But for some reason it’s always
two guys in a garage. Skype was two guys, Facebook was
two guys, Hewlett-Packard was two guys, Google
was two guys. What else? Apple was two guys. Yahoo! was two guys. I don’t know you better
start finding yourself a good guy friend. And find a garage. So we don’t worry about
competition that way, we worry about the two guys who are
coming out with new innovation. So it probably may not be
Symbian, or Android, or Windows Mobile, it may be a
fourth one which you just don’t know about. JOSEP VALOR: Another question
has to do with what is your view of the role of a telco
operator in the future? NIKESH ARORA: Somebody asked a
question about telco as well. I don’t know. I think they will do a good
job and keep providing services to us like
to do today. JOSEP VALOR: For how is
the question, I guess. Do you see them profitable? NIKESH ARORA: Of course. I think any company that invests
in infrastructure allows us access to
infrastructure. Profitability depends on price
versus cost. Is the US airline industry profitable? Well why? Because they spend a lot of
money in capex and then their planes dive before they can
make all the money back in revenue, right? And then the oil price goes up
to make matters most exciting. I’m sure they’ll all be
profitable if they set the right equation between
infrastructure and investment. And they set the right
equation on revenue. I think there are a lot of
business school professors here who could teach them much
better than I could. JOSEP VALOR: Question, you said
that the 10% of total commerce will be ecommerce. In what timeframe, is this in
all categories, or do you see categories that will
be more prone? NIKESH ARORA: I’ll
be very careful. I wrote this statement after
reading all those things in the past when people said
there are only five supercomputers needed in the
world, or who needs a desktop PC when you can have
[UNINTELLIGIBLE]. So some very famous people have
made some very stupid statements. So I don’t want to go down
in that category. But I don’t intend to be famous,
so it will be OK. But what I said was
very precise. In the next five to eight years,
there’s my hedge, five to eight years, 20% to 40% of
the transactions, there’s my other hedge, will be
either conducted or influenced by the Web. But I do believe that. Sp if I buy a car by doing a lot
of research on the Web, is that influenced by
the Web or not? It is, in my book it is. And your car is not on the Web,
and if I can’t research it on the Web, there’s
a probability you might not make it. JOSEP VALOR: OK, I have
to seize the moment. What do you think will be the
role of traditional TV broadcasters? NIKESH ARORA: I think
traditional TV broadcaster will continue to broadcast TV. JOSEP VALOR: Traditionally. NIKESH ARORA: Traditionally,
yes. That’s not fair. I think that traditional TV broadcasters have a huge asset. And the asset they have
is distribution. They have distribution that
allows them to go back and buy programming which has been
produced at a high cost. So a traditional broadcaster says I
can generate so much money in advertising, give me your
programming, and I’ll help you compensate. It’s a very important role in
the whole creative cycle of getting people to invest
in content. I think what traditional
broadcasters need to do is to use their strength in the
marketplace, their ability to buy this content, and find
a way of creating more distribution in the
the online world. I think that’s where
the struggle is. Traditional broadcasters have
to shift and get more distribution in the new world. I think 10 years from now we’ll
still be watching TV. We might be just watching different
things, and we may not be watching it
for so long. So we’ll still be watching TV. The question is how do
you use your skills today and move it over. This is the example I
gave about Amazon. If you talk to any traditional
business and you say, the internet is going to
come change the way business is conducted. And the traditional response is
we have it under control. That’s what you would do. If I was a CEO, if you were a
CEO, you’d say I got it under control, don’t worry. We’ve got these guys who work
in the internet division. I have a guy who’s integrated
into my core business, he’s working on internet. Now I buy everything. But the part which I still don’t
get as if that was true, then why does Amazon exist? Because the booksellers had the
books, they knew how to buy them, they had to stores,
they had the logistics, they had the goods. But Amazon came from nowhere,
they had nothing, and they built everything from scratch
and they created a new business model. So something happened,
I don’t know. But that’s true about eBay. Walmart existed, eBay
should not. Walmart was buying every
product in the world, in every category. They buyers for everything,
now eBay has buyers. So there are businesses which
have been started which have come and challenged incumbents
in their own businesses with a new business model. Whether it’s Southwest Airlines
in the airline industry in the US. There are people who come up
with a new idea, they could challenge existing businesses. Existing businesses have a
need to adapt to the new conditions and sometimes they
are slower and sometimes they are fast enough. JOSEP VALOR: There is a
statement here that says that YouTube holds videos for which
the intellectual property belongs to somebody else. What is Google’s official
position on holding videos that you don’t own the IP for? NIKESH ARORA: Well we have over
500 content partners in Europe, all the way from
broadcasters to content producers who give
us their video legitimately to put up there. 50% of the content of the Web
is user generated content. And we have a mechanism where
if somebody’s video is uploaded you can identify it
and we’ll bring it down. There’s something called the
DMCA, Digital Millennium Copyright Act, which suggests
that if somebody tells you this is my content you have to
take it away right away, which is what we do, which
the law in the US. And more and more what’s
happening is more and more people are identifying their
content and saying keep it up there, I want to understand how
the user interacts with it, and I want to understand
should I be putting more content on the Web? The point is that if don’t
viewership you can’t monetize it. So everybody’s trying to make
sure that their content has viewership. Once you have viewership,
you figure out a way to make money. JOSEP VALOR: Which probably ties
to the last question that I have which is if so much money
goes into the internet as opposed to TV broadcasting,
which seems to be the switch of the big entertainment or
attention, who will produce those expensive TV
programs that are being produced currently? NIKESH ARORA: Two things
to clarify. First of all, I did not say it
was the death of broadcasting. I just said there will
be a share shift. And the share shift in 10
years could be 10%. So 90% percent of TV
broadcasting would stay, or maybe 80%, I don’t
know the answer. I do think there will
be a shift. The question is who’s going to
pay for all the content that needs to be produced for
television programming? I don’t know. But what I do know is that
perhaps the process of choosing what people will
watch will also change. So I’ll give you an
example there was this guy called Matt. And he put a video on YouTube
called Where the Hell is Matt? Where the Hell is Matt? Matt was a broker, 26-year-old,
he got disenchanted by his
job, happens to 26-year-olds sometimes. And he decided to
tour the world. And he went around the word
with his video camera. And the video camera, he used
to give it to any local and say can you record? And he was tap dancing
in every city. And he would post a video up
on YouTube saying Where the Hell is Matt? So he’s in Beijing, he’s dancing
in front of something in Beijing. Then he goes to Australia, he’s
dancing in front of the Sydney Opera house. So Matt did this in over 30
countries over the course of 8 to 10 months. This was Matt. So what happened is, I can’t
remember the brand, but one CPG brand which was selling
chewing gum decided to hire Matt to be their advertising. And this time Where the Hell is
Matt was chewing that gum in the campaign. So why do I tell
you this story? The reason I’m telling you this
story is that perhaps what will happen is you will
find five guys in a room who are coming out of production
school who have designed their own TV serial and set up
the first beta and out it up on YouTube. And then a million people will
watch it, and then a production company will say that
is a very cool idea, a million people found it really
cool, let me go invest in it and make it more successful. As opposed to them trialing 20
betas themselves and finding 15 will fail. So suddenly the cost of
production has gone down tremendously because the
amateurs are doing it. You have a wider range
of creative artists to choose from. I can’t believe that five years
from now if you work for a newspaper, newspapers are
around, that you would not hire a blogger who’s been
blogging for the last five years on the Web who
has a following. Would you rather hire a young
graduate from high school or school who has got a great
degree and say, ah perhaps you can write. Or would you go to the guy who’s
been writing on the Web for the last two years who’s
got 10,000 reading him. And you can go back to the last
two years and see how well he write. So the whole process
of selection of talent will change. Maybe the cross structure
will change as well. AUDIENCE: Which is the
percentage of the total investment in the internet
that goes to the pay per click. NIKESH ARORA: Well the worldwide
advertising industry is between $600 to
$800 billion. About 2% to 5% is being
spent on the Web. So somewhere between $12 to $40
billion is spent on the Web in digital advertising. I’d say search is probably 15%
percent of that or something. AUDIENCE: But that one, the
internet, that goes to the pay per click instead of just
displayed on the banner? NIKESH ARORA: Somewhere in the
range of $15 to $30 billion. AUDIENCE: And the trend,
do you expect the– NIKESH ARORA: The trend
is our friend. The trend depends on the ROI. It’s an auction business, if
people are not going to get an ROI out of it, they
won’t spend money. AUDIENCE: But the role that
Google is playing in the advertisement market in the
States for instance related with the classified ads,
do think that will come to Spain, to Europe? NIKESH ARORA: Well
I think it is. I think there is now country in
the world where we won’t to see the trends which are related
to the internet as time goes on. Because it’s the
same consumer. The 1.3 billion people
are not stuck in any particular border. Spain has and second
largest number of bloggers in the world. Actually, it’s France. France has the second amount of
bloggers, Spain is fourth. So people are interacting
with technology. It will take some time. I think the classified business
is definitely getting impacted in the US and the UK. Again, think about
it as a consumer. When is the last time you guys
opened the Yellow Pages? In the last one month, which
one of has opened a Yellow Pages in the last month? You did? Do you work in the Yellow
Page business? You are working in the Yellow
Pages business? You opened the Yellow Pages? Fantastic. I have it in front of my door. My door sometimes does it. I call 118 118 in the UK
and I get what I need. Or I go to Google and I search
for the information. So if nobody in this room is
opening a Yellow Pages book and you guys are of the same
generation, we’re not even talking about next generation,
what do you think the future of that business is? Now let me say, if you want to
look for a place to rent, or you want to buy a used car,
what would you rather do? Go to the internet and type the
specifications and search for the 10 cars that are
available or go and collect the last seven weeks of
newspapers from your neighbors, and go through
the pages, and circle them in the red pen? You pick. You tell me, is the trend going
to come here or not? AUDIENCE: Thanks, and the last
question, has the beta tag in the Google played any specific
role in the marketing plan? NIKESH ARORA: Sorry, what? I didn’t get your question. AUDIENCE: My English
is so poor. NIKESH ARORA: That’s
fine, my– AUDIENCE: The beta tag
[UNINTELLIGIBLE PHRASE]. NIKESH ARORA: The
beta tag, yes? AUDIENCE: Does it have
a specific role in the marketing plan? NIKESH ARORA: No, the beta tag
just means that we haven’t spent enough time to make it
an even better product. And until it becomes a really
good product, we’re not going to take the beta out of it. JOSEP VALOR: It’s managing
expectations, I guess. NIKESH ARORA: Managing
expectations for free products, yes. JOSEP VALOR: OK, I think we are
at the limit of our time. All we have to do is to thank
you very much for your time, your patience, and
your kindness. And thank you very much
for being here. NIKESH ARORA: Thank you very
much for having me.

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