The New Gründergeist

Editor's note: Eric Schmidt, Google's chairman, was in Berlin today and paid a visit to the headquarters of Native Instruments, a leading producer of hardware and software for digital music production and DJ equipment. He gave a speech about innovation, technology, and the future of the Internet in front of around 100 company founders, economists and scientists. We've included the full text of his speech below.

It's wonderful to be here with you all in Berlin.

Every time I’m here, I’m reminded that this city is a symbol for the world. It’s a symbol of progress and unity and the ability to join together in a common cause ... to open up opportunities ... to literally tear down walls. You are celebrating 25 years here since the Wall came down, and we can celebrate together 25 years of strong and growing friendship between our countries.

It’s evident in the depth of our countries’ business relationship. Today, there are more than 3,000 German companies in the United States, employing over 670,000 people; and over 2,500 American companies in Germany employing 800,000 people. In other words, the well-being of 6,000 companies and 1.5 million people depends on the continuing good relations between our two countries.

Google is one of those companies with significant investments on both sides of the Atlantic. We employ over 1,100 people across five offices in Germany, and last year alone invested over €200 million here. Overall, we have 9,000 people working in Europe and we have made capital investments worth €4 billion over the last four years. We’re deeply committed to this country, and we believe in this continent.

After all, we share a common bond: a deep love of innovation … of creativity … of entrepreneurship. I saw it at The Factory, the startup hub we helped open in Berlin this summer. And I see it here today at Native Instruments -- a company that is based on invention and disruption. Your fusion of music and software has revolutionized an industry, and from your incredible ideas, a whole new genre of music has emerged. Electronic music is everywhere today. I even like some of it. I could give another speech about the importance of EDM in modern pop, or we could talk about my favorite Beyonce four-on-the-floor remixes. But we’ll do that another time.

Instead, I want to talk about a different, probably more important subject: invention. I have two broad points to make. First of all, that the process of invention is never-ending. The best inventions are never finished. Great inventors don’t just stand there, rub their hands together, and say “My work is done here.” They’re not Damien Hirst, freezing their creativity in formaldehyde. They keep working furiously to create something even better. It’s part love, part necessity. Because if they don’t reinvent their ideas time and again, someone else will -- rendering their life’s work irrelevant, or worse still, extinct!

Which brings me to the second point I want to make -- just as invention is dynamic, so are the industries it creates. When Karl Benz invented the petrol car, he didn’t just create an engine with three wheels (it really was three wheels to start with!) … he created an entire industry. It was the same with Tim Berners-Lee. He didn’t just build the world’s first website, he paved the way for the World Wide Web.

I see many of you smiling and nodding at this. But invention has its discontents, too -- because it is messy and unpredictable. No one’s ever really ready for a technological revolution. Plato believed writing would make it harder for his students' to remember things. Artists feared that photography would spell the end of painting. Radio and then television portended the end of conversation. My favorite is Mark Twain's hatred of the telephone: "It is my heart-warmed and world-embracing Christmas hope”, he wrote in a holiday letter “that all of us …may eventually be gathered together in a heaven of everlasting rest and peace and bliss, except the inventor of the telephone."

I’d hope that, despite all his cynicism, Twain would not have said the same thing about the search engine. Google started out as a dream -- literally. One of our founders, Larry Page, woke up in the middle of the night thinking … what if he could download all of the links on Internet? Would that be useful, he wondered. Grabbing a pen, he scribbled down the details in the hope it might be possible. At the time he hadn’t thought about creating a search engine. That came later.

This history matters to me because it’s an important reminder that invention is about chasing dreams: the ability to make the seemingly impossible, possible. As Albert Einstein once said: “If at first the idea is not absurd ... then there is no hope for it”. Look at Thomas Edison. The Wright brothers. Karl Benz. Their ideas seemed crazy at the time, absurd. But they lit the night, lifted us into the clouds, and literally put us on the road to the future.

A century later, Google made it possible for people to find out about almost anything by typing just a few words into a computer. At the time people were amazed. They couldn’t believe it. But while technically complicated, the first iteration of Google was actually pretty rough. You got a page of text, broken up by ten blue links. Of course, the results were better than anything else out there. But by today’s standards they weren’t great. There were no images, no videos, no news, no maps … nothing fancy.

Imagine if no one had improved on the Wright Flyer … I would have flown here, across the Atlantic, hanging on for dear life to the back of a canvas wing! And if Benz had not tried to improve on his three-wheel car, then his company would have been relegated to history by the competition. What happens is, others see an opportunity created, and then dive in. People keep thinking and creating, and an original invention gets better.

So Larry and Sergey -- like every other successful inventor -- kept iterating. It started with images. After all, people wanted more than just text. This first became apparent after the 2000 Grammy Awards. Jennifer Lopez wore a green dress that, let’s just say, caught the world’s attention. I mean, the dress itself has its own Wikipedia page: Green Versace Dress of Jennifer Lopez. Seriously, it was a sensation.

And it was the most popular search query we had ever seen, but we had no surefire way of getting users exactly what they wanted -- J-Lo wearing that dress. Our results returned links to websites that may or may not have had the right picture. Or might have described it in the site’s text. From that problem, Google Image Search was born.

A more serious challenge led to Google News. After 9/11, one of our engineers realized that results for the query “World Trade Center” returned nothing about the terrorist attacks. And as every web site was a silo, there was no way of comparing news from different providers or different countries. Wouldn’t it be better if people could see all the news headlines in the world, and know in real time who was saying what about each story?

And then there was the small issue of translation. At its inception, the Web was mostly English-language content. So it wasn’t that useful to the vast majority of people in the world. Enter Google Translate, which now provides more than one billion free translations every day for more than 200 million users worldwide, in 80 languages.

As you can see, a lot of our search innovation has come from our own frustration with Google’s results. Maps are a great example. It was always pretty obvious that when people searched on Google for an address -- for example “Unter den Linden” -- they didn’t want a link to websites mentioning this street. They most likely wanted to know where it was, and get directions there.

So, we built a map ourselves that was clickable and draggable, making it super easy to explore. Over time we added monuments and other places of interest; businesses; and directions by foot, car, or public transport. And we developed Google Earth because there was no complete satellite-view of our planet and people like to check out their neighborhood, or a hotel where they are going on vacation. Then we created Street View so you could actually see the location when you got there -- you didn’t have to squint to see the street numbers.

Maps now feel like such an integral part of search that most users probably can’t imagine Google without them. It’s the same with many of our changes. Your search just gets better and better over time. Google “Berlin weather” and you’ll no longer get ten blue links that you need to dig through. Instead, you’ll get the weather forecast for the next few days at the top result, saving you time and effort. Or Google “bratwurst” … and at the top will be images, nutrition facts, and a web page with a recipe.

Along the way we had to think about making money too, or else all this innovation would have been unsustainable. Nikola Tesla was an extraordinary inventor -- one of the greats. But his innovations never got beyond the research phase -- they never became available to millions of people because he failed to make them commercially viable. At Google, we started by putting unobtrusive text ads next to our search results. Advertisers bid via auction on different search keywords -- mortgages, flights, tents, shoes, you name it. The beauty of this approach is that the ads are highly relevant to people, and advertisers only pay when users click. In addition, these ads have enabled a whole new generation of entrepreneurs -- small- and medium-sized businesses who could never afford newspaper or TV ads, but can now reach a national or global audience using Google. I like to think of them as micro-nationals. Take Gerhard Schmieder, who makes cuckoo clocks in the Black Forest. Thanks to AdWords, he’s now exporting his beautiful, handmade clocks to the US and Asia.

Technological change has also forced Google’s pace of innovation. Think about mobile. As our screens have gotten smaller, we’ve had to adapt and evolve. Searching on a mobile device is very different from a desktop computer. Speed and simplicity really matter. It’s why the best answer is quite literally ... the answer. If you ask “how do I get to Hamburg by train”, you want the railway timetable right there on the screen -- no extra effort required. And that is what Google provides.

Mobile also helps Google better understand your context, which in turn means better results. For example, if you search for “pizza” while you’re on Torstrasse in Berlin, we can show you pizzerias close to where you are -- not way across town. And of course, mobile is at the forefront of voice search, which makes everything so much easier because talking is less effort than typing. Stand next to a historic monument and ask “how high is the Brandenburg Gate?” And we’ll get you the answer, right there on your screen. In case you are wondering, it’s 26 metres!

As people spend more and more time on mobile -- and desktop usages falls -- getting the user experience right on smaller touchscreens is increasingly important. This year, our industry reached an important milestone as mobile usage exceeded desktop for the first time ever. Time spent on desktop has now fallen to just 40%.

You often hear people talk about search as a solved problem. But we are nowhere near close. Try a query like “show me flights under €300 for places where it’s hot in December and I can snorkel”. That’s kind of complicated: Google needs to know about flights under €300; hot destinations in winter; and what places are near the water, with cool fish to see. That’s basically three separate searches that have to be cross-referenced to get to the right answer.

Sadly, we can’t solve that for you today. But we’re working on it. Flight search is a small step in the right direction. For years Google wasn’t very good at answering queries like “flights from Berlin to London.” We showed a bunch of links to other sites, where users then had to enter their query over again. And we noticed lots of repeat searches, a sure sign of user frustration. People wanted direct answers, with fewer clicks. So we created Flight Search -- and now you can quickly compare prices and times from different airlines right from the results page.

This issue of providing direct answers to questions is at the heart of complaints being made about Google to the European Commission. Companies like Expedia, Yelp, and TripAdvisor argue that it deprives their websites of valuable traffic and disadvantages their businesses. They’d rather go back to 10 blue links. What’s interesting is that the traffic these websites get from Google has increased significantly -- faster in fact than our own traffic -- since we started showing direct answers to questions. That said, the amount of traffic going to other services should not be the main yardstick of success for Google because the goal of a search engine is to deliver relevant results to users as quickly as possible. Put simply, we created search for users, not websites. And that’s the motivation behind all our improvements over the last decade.

Which brings me to my second point, just as invention is dynamic, so are the industries it creates. A few years back, a lawyer for one of our competitors drew a picture of a coastline with a little island offshore. He added a dotted line, explaining that this was the only ferry connecting the island to the mainland. His point was that Google was just like the ferry because it was the only way to navigate the Internet. Many of you may instinctively feel that’s correct. You use Google a lot (thank you) and so does the rest of Europe (thank you again)! But while we’re undoubtedly an important part of the Internet -- and the key player in search -- information discovery comes in all shapes and sizes because there are many windows onto the web.

If you want the news, you’ll likely go straight to your favorite news service. Bild, the most widely read newspaper in Europe, gets around 70% of its traffic directly, because people bookmark the site or type www.bild.de straight into their browser. A little over 10% of their traffic comes from search and just under 10% comes from social sites like Facebook and Twitter. As The Economist recently said: “social networks … have become an important navigation system for people looking for content across the Web”.

If you are looking to buy something, perhaps a tent for camping, you might go to Google or Bing or Yahoo or Qwant, the new French search engine. But more likely you’ll go directly to Zalando or Amazon, where you can research models and prices, get reviews, and pay for your purchase all at once. Research by the Forrester group found that last year almost a third of people looking to buy something started on Amazon -- that’s more than twice the number who went straight to Google.

If you are looking for travel information -- flights, somewhere to stay, a car rental, insurance -- there’s a lot of choice. There’s Google, for sure. But you might go to Kayak and Opodo for flights, Booking.com or Airbnb for hotels or apartments to rent, Hertz or Priceline for your rental car, and Money Supermarket for your insurance. In fact, according to the Washington Post, Expedia, Orbitz, Priceline and Travelocity account for 95 per cent of the US online travel market. It’s ironic as many of these companies complained to the US Justice Department four years ago that Google’s Flight Search feature would undermine competition -- a claim that’s clearly not borne out by the facts. Instead, Google Flight Search has become a handy aid to flyers, without displacing the established travel players.

Local information is another really important search category. “Where can I get sushi?”, “What is the best hotel in Munich?”, “Get me a great local plumber”. Of course Google is an option, but so are Yelp and TripAdvisor, Dooyoo, Ciao, or HolidayCheck. In fact Yelp’s CEO says that his site is “rapidly becoming the de facto local search engine,” while TripAdvisor’s CEO claims to be the web’s “largest travel brand”. And people increasingly look to friends on social sites to get these kinds of recommendations. As Mark Zuckerberg has said, Facebook’s “trillion pieces of content is more than the index in any web search engine."

And then there is mobile. People use mobile in a very different way from the desktop. To quote The Economist again: “mobile devices have changed the way people travel the Internet. Users now prefer apps (self-contained programs on smartphones) to websites’ home pages”. Of course, some of us here this evening are of a certain age. We were brought up using computers -- machines that sat on our desks, and, if we were lucky, on our laps. But when I look at my children and grandson, their world is entirely different. It’s all mobile, and they spend most of their time on one of many apps downloaded on their phone. In fact, seven out of every eight minutes of mobile phone usage is spent within apps. And the most popular app in the world -- including in Europe -- is … Facebook, a company which now describes itself as “the onramp to the Internet”.

The reality is that people have choices, and they are exercising them all the time. Google operates in a competitive landscape, which is changing constantly. As Axel Springer, a new investor in this area, has said "there's a lot of innovation in the search market." And the barriers to entry are negligible, because competition is just one click away.

I hear the term “network effects” thrown around a lot. It has become something of a dirty word, even though it describes the process that makes many services useful. A single telephone isn’t useful. You need other people to have telephones so you have someone to call. And a social network without your friends and family isn’t much of a network, and it won’t be very social. So true networks can be useful. But search is not a network that relies on connecting to other people. You don’t use Google because your friends do. Put another way: Google isn’t useful because it’s popular; we’re popular because we’re useful. Of course, the more people use our search engine, the more useful we are to advertisers -- but just as users have choice when it comes to information discovery, advertisers have options when it comes to online marketing. You can use Google AND the competition. These relationships are not mutually exclusive.

We hear similar network-effect arguments being made about data. Our experience is that you don’t need data to compete online. When Google started, Yahoo was the biggest player in search by a long way. We used just a little bit of data to figure out how to answer queries in a far better way. Or look at social. We had the most popular social network in Brazil. It was called Orkut, and it had many millions of very active users. But in just a few years, Orkut was overtaken by Facebook, just as Facebook overtook MySpace. It’s the recipe that matters the most, not the ingredients.

The reality is that Google works very differently from other companies that have been called gatekeepers, and regulated as such. We aren’t a ferry. We aren’t a railroad. We aren’t a telecommunications network or an electricity grid, with only one line going to your home, and no competitors allowed. No one is stuck using Google.

We’ve spent the best part of nearly two decades earning your trust and proving our worth to you. And we still do that every day. Because we know that if we cease to be useful, you’ll leave. Constant invention and re-invention is at the heart of a process that keeps Google useful and relevant. If we stop innovating, someone else will innovate around us -- leaving us obsolete over time.

History has proven that size and past success are no guarantee for the future. Great companies can be surpassed swiftly. Look at Yahoo, Nokia, Microsoft, Blackberry and others who seemed unrivaled just a few years ago, but were disrupted by a new wave of tech companies, Google among them. Many of you are skeptical. I get that. You look at Google, Apple, Facebook, and Amazon and say there’s no way competitors can beat them. I’m less certain.

For one thing, these companies are each others’ biggest competitors, because in tech competition isn’t always like-for-like. Many people think our main competition is Bing or Yahoo. But, really, our biggest search competitor is Amazon. People don’t think of Amazon as search, but if you are looking for something to buy, you are more often than not looking for it on Amazon. They are obviously more focused on the commerce side of the equation, but, at their roots, they are answering users’ questions and searches, just as we are.

But more important, someone, somewhere in a garage is gunning for us. I know, because not long ago we were in that garage. Change comes from where you least expect it. The telegraph disrupted the postal service. Radio and television shook up the news industry. Airplanes ended the age of ocean liners. The next Google won’t do what Google does, just as Google didn’t do what AOL did. Inventions are always dynamic and the resulting upheavals should make us confident that the future won’t be static. This is the process of innovation.

And it’s a process that has been going on since time immemorial, from when someone first had an idea to build something, and someone else thought they could do it better. It’s a process filled with dreamers and doers in equal measure -- people who saw a problem somewhere, and decided to fix it.

Innovation is not just about the next whiz-bang gadget, much though people love them. It’s about our quest for knowledge and our humanity. From the vaccines and medicines that have saved countless lives to the invention of the lowly clothes washing machine, which helped emancipate women.

It’s about economic opportunity too -- a growing workforce and rising living standards, both key to human dignity. Young, fast-growing companies -- the innovators -- are the drivers of growth and employment. And they create a virtuous cycle, as these people are more likely to go on to start their own companies, with their own ideas, generating more economic activity. We have a duty to future generations to keep that cycle going, which in turn means continued encouragement for risk taking and the creative process.

I should be fair to Mark Twain, in closing. He was good friends with the great inventor Nikola Tesla. And while he might not have cared much for the telephone, he had a deep respect for the world of science and technology. He even patented three inventions of his own. One of my favorite pictures is of Twain in Tesla’s laboratory. The great cynic and satirist is standing there, staring at a ball of light emanating from a coil in his hands. He is looking to the future. And he is amazed.

Thank you very much.

Eric Schmidt, Chairman, Google