Google’s CFO on YouTube, Street View and doing business in this recession

The Interview with Patrick Pichette

Patrick Pichette, a former executive at Bell Canada, became Google’s chief financial officer last year. While back in Canada this week, he spoke with about Google’s culture, its huge investment in YouTube, and how the company expects to navigate through the recession.

Q: How many people does Google have up here?
A: 100, but we have a lot of people in the U.S. working on a bunch of Canadian products and vice versa.

Q: Google is in the process of updating its Street View for Canada [using panoramic cameras to photograph every stretch of road and making the images available online]. How is that going?
A: They only started driving a couple of weeks ago. It’s probably better they started now than three months ago. They’d have been stuck in snowbanks and wouldn’t have seen anything.

Q: How long will it take to map Canada?
A: There’s no estimate.

Q: Canadians are inherently more protective of their privacy than Americans, as you’re finding out. How are you addressing concerns over privacy up here?
A: In general Google has been very open to all the privacy issues raised. We have software that masks every face. There are options for you to mask portions of your address. There are a lot of ways we can protect privacy, we’re very mindful of it. The flip side is, while it’s true Canadians care about privacy issues, they want this stuff, too.

Q: I’ve wondered about the business model for Street View. There are huge costs involved with driving around North America, something I assume you’ll have to do in the future to keep it from becoming stale, then storing it, processing it and making it all available. How does Street View make enough money to pay for that?
A: There are two sets of issues. One is, it’s an innovation play. We’re creating the next generation of data and mapping. Going forward, we’re not going to have to re-drive everywhere. We have tools to change and touch-up on an as-needed basis. Second is all the benefits we think we’re going to get in terms of the synergistic value of better maps that are tied to search and tied to mobile. There are fantastic opportunities from an advertising point of view.

On the cost side, we have no worries. Don’t overemphasize the issue of costs. Google is a large company. Often, because Google is quite protective of how it operates, most people build outside views of what it costs us to do things, and often they exaggerate. Last week, people asked about a report from someone who ran a bunch of numbers on YouTube. [An analyst report estimated YouTube is costing Google roughly half a billion dollars a year.] All I’ll say publicly is be careful. All our infrastructure at Google is built by Google. When people run models, they generally use standard industry pricing for bandwidth, storage, but we build everything from scratch. So we know our cost position but nobody else does.

Q: Was YouTube worth the US$1.65 billion price tag?
A: In the last 18 months, YouTube entered a critical and tremendous phase, what I call the legitimacy phase. The U.S. government is on YouTube. The Pope is on YouTube. [That] tells you something of the power of YouTube as a brand and as an institution. We are starting to find significant partners to take YouTube to different business models—a lot more advertising models. People are bringing their content to YouTube and creating the new real estate of YouTube, much more premium content. Last week, we announced a big deal with [Universal Music Group] and others to put long-form content on there. It is a formidable opportunity and we love the trajectory it has.

Q: With the recession, we’re seeing Google’s growth slow somewhat. There’s been talk of layoffs and some products being cancelled. How do you maintain the corporate culture?
A: If you go and read the first two letters of the founders, when the IPO was done, and then the following year, it’s a quest for innovation. Look at just the last 90 days, with the UMG deal, we had Ocean [which mapped the ocean floor], we had Android [an operating system for mobile devices], there’s so much innovation happening. Despite all the turmoil in the economy, our growth agenda has remained unchanged. Our priorities have remained unchanged. And our funding to these priorities has remained unchanged.

What we did do in the fall and winter was a comb through. At Google, 70 per cent is our core business, 20 per cent is adjacent businesses, where you want to do cool stuff, and 10 per cent is creative stuff that’s really on the edge. Of the 20 per cent, we did go through a bunch of areas where we had investment and asked if they really fit the strategy, the vision and mission. That’s why we decided to exit the radio business. We passed it through the filter of “Does it fit? Does it have real technological differentiation? Is it technology based?” When you put ads on the radio, there’s no feedback loop. When you put ads on Google, you get perfect information on who clicked on your ad, how long did they click, and to what words? So you can optimize and get a great return on investment and see it. In the radio business we were just another me-too.

Imagine an innovation company that never killed anything. You’re kidding yourself. The ladies and gentlemen that work on these projects know that it’s failing when it’s failing. When you tell them, “this didn’t work, we tried it six different ways,” they move onto the next one. That’s how Google is managing through this environment right now.

Q: Despite all the cool stuff that comes out, at the end of the day Google relies heavily on advertising. People think of it as a tech company but I’ve always thought of it more as an advertising company. Is that a model Google is comfortable with, or do you want to diversify away from that?
A: Google is an innovation company, that happens to have a core business that relies on advertising for its revenues. But if you look at the areas where we are investing heavily in terms of our R&D and our innovation, like Android, like open architecture source code for wireless platforms that everybody’s going to benefit from, like the mobile space, the application space, there are many areas where Google is asking the question: Does it fit the mission? Google is lucky. It has the resources in engineering and resources in general to be at the forefront of these really profound changes that are going to change society in the coming decade. Think of just wireless. Two years ago, to get anything from the Internet on your mobile phone was a sheer impossibility. Two years later, I have an Android phone that is akin to a smart phone. We haven’t got them in Canada yet, but they’re coming. If you have a GPhone in the U.S., it’s like having a supercomputer in the palm of your hand. You have GPS in there, a camera in there, so many other functions.

Q: One last question about the newspaper industry. Google is having to fend off accusations that it’s stealing newspaper content and profiting by selling advertising around it. How do you respond to that?
A: The story is just factually incorrect. We pay hundreds of millions and billions of dollars every year to these content providers, and we partner with them to make better business models, to make great businesses for everybody. The fundamental issue is not Google. The fundamental issue is the Internet and wireless and Moore’s Law is at work. We continue to tell all our partners, let’s continue to work together, to create new and different things that the Internet and wireless enables now. That’s what we’ve got to create together.

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