Live Blog: Google’s Eric Schmidt At The US Senate Hearing

Today’s the day. Google chairman Eric Schmidt is being called on the carpet in front of a US Senate subcommittee, to talk about whether his company is a monopolistic orge. I’m here, live blogging. Fun starts at 2pm ET.

NOTE: Our follow-up article, which covers the entire hearing with highlights and without live blogging typos is now available: Google Hearings: The Post-Game Show. You can also continue on with the live blogging, below.

Here’s a quick note. I barely made it in, went to the wrong place, long story, you don’t need all that. But I’m playing so serious catch-up. So cut me some slack, OK?

Senator Kohl starts, says we’re going to examine how the world’s largest search engine operates, treats consumers, if it biases results in its favor as critics charge or not. He’s having an open mind, a forum to examine the issues.

Need to be mindful of businesses that depend on Google, Google’s dominance means it needs to take special care in terms of not falling into anti-trust areas. Stats now on how big Google is. Millions of searches done to get answers.

Google’s promise at its founding was that it would be unbiased, not altered by web page’s relationship with Google, to get people in and out as fast as possible. Quoting Page from 2004 on how happy to quickly send people to other sites.

But Google has become more dominant and powerful and maybe its mission has changed. Acquisitions, including the Motorola deal pending and Zagat complete. These raise fundamental question: “Is it possible for Google to be an unbiased search engine and at the same time own a ‘web portfolio’ of businesses?”

Competitors allege Google is trying to leverage its dominance rather than fairly presenting its search results. This could harm competiition. Anti-trust is about making sure there’s a competitive environment so consumers can pick winners and losers. Need to protect the ability for the next Google to emerge.

Now to Senator Lee.

Google’s big name even means synonymous with search, stats on how much usage in the US and dominance in paid search ads. Last year, Google made $30 billion in search advertising revenues. First few Google search results attract 90% of clicks. Which sites there that get traffic important.

Former Reagan official suggests that Google is a monopoly gatekeeper to the Internet. Whether true, given its ability to steer commerce, it is in an position to determine who will win and fail [you know, like how it killed Facebook, Google TV was a big hit, Buzz won….]

Names a bunch of Google products, Chrome etc etc Flight Search. Now with Motorola, it’ll be in handset making. That’s raising more concerns among groups, so it’s now under investigation in the US and abroad for anti-trust concerns.

Over time, Google now seems to be trying to steer people back to its own stuff rather than outbound, that it biases its results to favor this. Evidence that it has taken info from competing services like Yelp and TripAdvisor, then demoted them. Some reports say Google has kept competing search engines from crawling.

Allegations sought to impose exclusivity restrictions with advertisers. [And evidence Google also kills kittens and eats unicorns, distrubing evidence.] Agreements that Google be the default search provider in the iPhone [Google has that much control over Steve Jobs]. Citing Ben Edelman’s research on advertising favoritism. Excluding competiting geoservice providers.

Chief concern is the impact on consumers, espeically if consumers are mislead by Google’s self-ranking [my goodness, you should see the self-ranking preferences over at Yahoo, but whatever].

Chief concern is the impact on consumers, espeically if consumers are mislead by Google’s self-ranking [my goodness, you should see the self-ranking preferences over at Yahoo, but whatever].

And now over to Eric Schmidt. But first, apparently Senator Feinstein, since like many of the witnesses are from her home state (and mine!).

Feinstein singing Schmidt’s praises, citing growth of employment. Now Jeff Katz of NexTag, she’s mentioning. This is probably the most publicity NexTag has ever had. Katz is getting praise as having run other companies. I wonder, does NexTag do paid inclusion? Jeremy Stoppelman of Yelp, background on Yelp as a service (it’s great, you should try it) and Stoppelman’s background. She hopes they tango rather than tangle.

All witnesses sworn in. Eric ask to talk. Thanks for inviting him. Let’s take step back. 20 years ago, company was setting thngs on fire, it lost sight of things, Washington stepped in. This is Microsoft, which must not be named. “We get it” about the lesson that are sent.

Before talk about thing, highlight they “always put consumers first.” Not every website can come on top. Definitely problems with businesses not happy. Second, focus on loyalty, not locking in users. If you don’t like Google, you can switch to another search engine with literally one click (well, technically, by typing in another address). Third, be open not closed. They release open source code (sort of) and open standards (sort of). Fourth, be transparent. They share more about how their search engine works than any other competitors.

Schmidt talks about economy, Google’s doubling-down on America (jobs, Senators, are you against jobs! Jobs are Google. Google is people!). Investing in local, since 97% of people look only but only 63% of small businesses have sites (and 99% of them probably still advertise in print yellow pages).

America is also home to other competitors like Apple. Welcome it, that makes for better products. today’s Google’s time for spotlight, but not all companies cut from same cloth, one company’s past isn’t another’s future (we’re not Microsoft!). Passion to serve users well, crate new jobs “that our wonderful country needs.” (God bless America, land that I love…)

Senator Kohl: Many believe Google’s fundamental mission to get people to other sites has changed. Now you have your own sites. What do you say to those who say there’s a conflict of interest when you own many of the businesses that provide the answers. Wouldn’t you favor those?

Schmidt: Not sure Google is a rational business trying to maximize its own profits (um, yes, it is). Ten years ago, the best answer might have been ten links; today, the best answer might be that it can algorithmically computer an answer (buzz buzz blah) and provide that.

Senator Kohl:  But in large measure, that’s really just trust us. Is that really sufficient? Shouldn’t we be guided by Reagan’s trust by verify?

Schmidt: Agree, and hope this hearing is part of that process. But ultimately it’s how consumers behave. Easy for them to move, fearful of that. Our customers want quick and accurate answers. WE know people like what we do as we have an extraordiary testing regime [hey Eric, google SEO, get back to me on the quality of some of those answers]. Nevertheless, get down to 1% testing, side-by-side, to know producing what customers want.

Senator Kohl: In 2007, Marissa Mayer talked about putting some Google products first, it was fair: “we do all the work.” How do you measure what she said then and what you’re telling us now.

Schmidt: I wasn’t there, so maybe I should use my own voice. Category of queries not well served by links. Maps are an example. Invested hundreds of millions of dollars along with testing and intuition that if someone types in an address, they want a map. “It would be very difficult to do that with the 10 links model” “Furthermore,I should mention all of our competitors have similar models.”

Senator Kohl: Reading back what Mayer said about putting Google Finance first. If that’s company policy, that’s contrary.

Schmidt: In our case, we implemented policy as I’ve described it. Google Finance had a variety of links originally, decided better to provide actual quotes, so did that, tha’s the source of her answer and right below that list, all the other engines (which, by the way, other engines don’t do for Google).

Senator Kohl: But to be listed first is an advantage.

Schmidt: Disagree listing stock quote is listing Google itself first.

Senator Kohl: Are Google provides subject to same ranking process.

Schmidt: They are when they are in actual answers (ie links) But think you’re both aksing about when Google knows an actual answer, better to show that.

Senator Lee: Not aksing if you’ve been given the right info, asking if your own secondary services subject to the same tests and standards.

Schmidt: As I understand your answer, I believe so. [believe so, Eric? We want to know!]

Senator Lee: Has a chart (I can barely see) of a study of search rankings of three price comparision sites and Google shopping. NexTag, PriceGrabber and Shopping has variation, Google has consistent rate, third in virtual every single instance. You’re saying that’s from the same algorithm?

Schmidt: There’s a conflation with the chart and hard to comment. Google Product Search is about getting you to the product, so we tend to look for the product, which is why the product is more highly ranked than the product comparison sites. Apples to oranges.

Senator Lee: OK, if we call this a Google product search, that’s not the same?

Schmidt: I may have confused you. We do product search ranking. Things like this are product comparison sites. Google product search is about searching for specific products.

Senator Lee:  But this seems uncanny. You’re never 12th, always 11th, but the others will be all over. You’re always third.

Schmidt: I’d have to look at the specific results.

Senator Lee: We have the result right here (oh, well let’s just stop everything. Clearly, you couldn’t provide those before). It seems that when you’re coming up magically third, not sure if it’s a separate algorithm, “either way, you’ve cooked it.” But let’s move on.

Schmidt: “we’ve not cooked it.”

Senator Lee:  “You have an uncanny attraction to number three.” Now showing another chart, asking if you want to be at top. Among natural search results, Google product listing [its actually a Google OneBox, and now I think the senator is an idiot], that gets an image.

Schmidt: That’s not an ad, that’s an organic search result. [now Eric’s an idiot, it’s a onebox]

Lee:  Want to followup on that, but out of time.

Senator Schumer: Preamble on growth of high tech sector, good for New York. Yeah, NY is #1 or #2 in investment in entire sector. And more preamble. Google has been important in the growth. But with Google’s great power is great responsiblity. NY’s future is little companies that are growing, if Google were shutting down ability for those to function, it would hurt NY.

[Danny Sullivan: Do you have any idea how many small busiensses that aren’t search engines get huge amounts of free traffic from Google? OMG, my head hurts. Why do we do this dog and pony show stuff.]

He talks, is Google trying to steal from them? Or are they generally having a more positive attitude. He expected them to attack Google. “But they didn’t. 4/5ths of them said Google is a positive” more than other companies they deal with. We don’t see them as rapacious. If I spelled that right.

Still going, he has a question. Last year, Google picked Kansas City for your high speed Internet service. Hudson Valley is very eager [Danny Sullivan: OMG, is this a Dear Google: what can you do for my state?] Would you consider that?

Schmidt: Absolutely. [Danny Sullivan: anyone else I need to buy off? Lee, what do you want?]

Schumer: What could Google do better to foster competition?

Schmidt: Always interested in fostering competition. We could invest more money in developer and platform support for platforms Google’s built like Android. [Danny Sullivan: hey Eric how about letting people choose their shopping, local, etc one box provider?]

Senator Cornyn: Read that agreement over the illegal drug ad sales. Basically, Google admits to helping online pharmacies to sell illegal and possibly dangerous drugs. He’s going on reading what happened. [DS: What’s Eric’s spin going to be on that mess, which isn’t an anti-trust thing but sure as hell looks bad. ]

Can you put that in context for a complete and accurate picture for Google as a coproate citizen and to the issue of trust?

Schmidt: All of that is generally correct. We regret what happened. Unfortunately as part of that agreement, we’re not to speak about any of the details. You’ll have to speak to the DOJ about that. Important thing for me to say is the conduct that is covered has nothing to do with any of our current adverting practices or policies. It was a historical event.

Senator Cornyn:  Oversight or what?

Schmidt: It was certainly without my knowledge, but  can’t go into any of the details other than to say we’re clearly regretful and it was clearly a mistake.

Senator Cornyn:  You can’t contradict what my council says, but you can’t comment?

Schmidt: Let me ask my counsel. Leans in. A million cameras all going off, that’s a golden moment. Nope, can’t say. We absolutely regret what happened. Mistake.

Senator Cornyn: Do you disagree with the characterization?

Schmidt: I agree with it.

Senator Cornyn:You’ve taken steps to prevent this in future?

Schmidt: Absolutely, and expresses regret again.

Senator Cornyn:  [Didn’t catch full question about competition and Android, he says at 40%]

Schmidt: Very proud of it, but it’s first and foremost freely licensed. Turns out it’s possible to use Google search along with Android but also expressly possible to not use it (and indeed, some handsets don’t use it).

Senator Cornyn: Can Google design Android to make other apps but its own not work as well?

Schmidt: sure not true because under rules of open source, anyone can do anything, if they did, even then, it would be reversable.

Senator Klobuchar: Googled her name, did versus Bing. Found article from her father I think, about the Minnesota Vikings, but she’s glad Bing (for whatever reason) didn’t show it. [DS: It’s football, folks, I’m out of my depth.]

Anyway, talking about first rank results getting more traffic, if you move to the second page, lose more, businesses telling her they want certainty. Should companies have a right to expect more certainty? [DS: sure — buy an ad. geez.]

Schmidt: He has sympathy for business that had rankings go. By definition, ranking decisions are not perfect. Algorithms not specific to a particular company. So from his persepctive, we don’t know how to be more precise, because you touch so many, changes happen roughly every 12 hours, relatively minor.

Senator Klobuchar: Mentions company paid $40K to make up for lsot rankigns. You can see the cost. [DS: yes, they got $40K in free traffic before.]

Schmidt: We did make a large change (Panda) but that’s relatively rare.

Senator Klobuchar: And you also buy ads too , right?

Schmidt: We do have house ads, we try to limit that, it’s a very tiny number (well, not so much).

Senator Klobuchar: Now about the stealing of intellectual property, if you type in trying to find it, you might get to an illegal site. Is there more Google could do?

Schmidt: Important issue. Taken position we have to represent the Web as it is rather than as we’d wish it to be, censoring unless under color of law. We favor position of following money (I guess go after those who are most noticeable.)

Senator Klobuchar: Must be some way to find these sites?

Schmidt: Difficult, can find in some ways, but sites can pop up, whack a mole problem [yes, thought he’d say that]. YouTube has system to detect, harder to do on the web.

Senator Klobuchar: Continue to work on it?

Schmidt: Yes, it’s a huge issue. Core problem is you can look and tell site is copyright infringement. Problem is a computer can’t.

Senator Klobuchar: You did event for small biz in Minnesota, thanks. And don’t forget about doing Internet for Duluth [you know, as long as we’re all asking for favors here].

Senator Grassley: Heard good and bad from Iowans. Some say drive to own sites to detriment of small businesses and consumers, but others are extremely supportive.

Shouldn’t penalize companies for success but also not let them be abusive. Government shouldn’t pick winners or loser, anti-trust laws to keep things level.

And to a question, how about Google driving traffic to itself? How do you respond? And are you concerned your company has been exerting enormous power in ways that hurt small rural businesses?

Schmidt: Our focus is on getting the right answer. That is the guide that we use. It’s really about consumers. It’s perfectly possible in the course of that. Vast majority they think benefit.

Senator Grassley:  [DS: didn’t catch followup, sorry]

Schmidt: Highly competitive market, welcome oversight, making deciosns based on principles.

Senator Grassley:   How else do you help small businesses and how can they compete with big box stores on Google [DS: read Search Engine Land, come to one of our SMX events.]

Schmidt: Initially, small busiensses were nimble. Long history of helping htem, they succeed where bigger ones don’t. On the margin, they can rank higher. Can have local flavor with global impact.

Senator Grassley:  Is Google directing users to Google’s own site regardless, in ways that small local Iowa businesses are not benefiting, large national companies get top listings even if someone puts an Iowa location in the query. Obviously small business cheated, consumers mislead. This was a constituent concern.

Schmidt: Some companies will masqeuerade as local [DS: geez, Eric, and you’ve known this is a mapspam problem for what, like four years? now it haunts you.] Working it.

Senator Al Franken: [DS: I still can’t believe he’s a Senator] He loves Google, but in many ways, its unprecendent growth is why we need to pay attention. When you dominate how people search for information and own separate products and services you want to succeed, your incentives shift. [DS: my god, geez, anyone want to talk about the conflict with just having AdSense on pages Google lists? That’s like the biggest conflict of all.]

He was taken aback by Marissa’s quote. You answered that you put a map out there when someone wants a map out there and that’s what they want.

I sort of understand that, or a financial answer, but then the ranking question, you said that’s not the case, when you’re not putting out the answer people want, do all your rankings reflect an unbiased algorithm, and you said, after a little hesitation, “I believe so.”

That seemed like a pretty fuzzy answer coming to me from the chairman. “If you don’t know, who does? That really bothers me”.  We’re trying to have a hearing here, if you favor your own stuff, and you admittedly don’t know the answer.

With Yelp, you wanted to buy it, couldn’t, so you started taking their material [actually, they were taking it before]. Yelp contends even now consumers can’t find links to Yelp in Google’s merged results and impossible to be displayed as prominently as Google itself. Is that fair?

Schmidt: I generally disagree. Yelp always been there, always been highly ranked, some years ago began working on project aorund location, around a place, a map, a restaurant, a store, given search information, we also took snippets from Yelp along with many others. Those becasue what is know as place pages.

Our competitors also have a similar offering. If there’s confusion about why we need that page, think if you’re on a phone, it’s hard to go through links, a map can make more sense.

I felt Yelp would be very happy with us pointing to their site and using a little. They were not happy, sent a letter, so we took them out of those pages. So you won’t see them in there. We ultimately bought Zagat to do our own.

Senator Al Franken:  Is Google still using Yelp’s content to drive to Google Places?

Schmidt: As far as I know, no.

Senator Blumenthal: Talking about growth, Google’s nearest competitor (Bing) is losing $2 billion per year, a dynamic best summarized by former Google exec Jonathan Rosenberg in 2008: more info, more users, more advertiser, more info, it’s a beautiful thing: lather, rinse, repeat, that’s the engine that can’t be talked.

And the question is, drawing on lessons that presumably you’ve learned, can Google suggest measures to be taken voluntarily at this point to promote competition to dispell those allegations and perhaps dissipate some of the momentum toward government intervention?

Schmidt: My general answer would be that making the internet win guarantees? Competition? for all of us. There are sites now that get more than half their traffic from Facebook. There’s every reason to believe a broad strategy to promote the Internet. The levers necessary are already largely in place.

Senator Blumenthal: Let me be more narrow. Certain Google properties are at the top of Google’s search results. If you eliminated that, would that be a step in the right direction?

Schmidt: I would disagree. Consumers want a map, now you’re forcing two steps. And competitors do the same and wouldn’t be restricted.

Senator Blumenthal: Other steps, if we were a court and liability were found and the question was remedies, what would you suggest?

Schmidt: Spent a lot of time thinking about this. We actually believe we made those changes to benefit. Google’s data liberation front project to let people flee Google if they want (it’s a good thing). We do things to make sure we stay in an appropriate competitive box. Ultimately the Internet, the global playing field of the Internet, is the real protection.

Second round time.

Senator Kohl: Does Google recognize that it has monopoly power and are subject to specialized rules?

Schmidt: We’re satisifed today that the thing we we’re doing are both in the legal and philisophical rounds. The answer is we very much understand the role we have to play and we’re kept honest by not your good graces but the press and other ways.

Senator Kohl: But you do recognize your marketshare constitiutes monopoly, that you’re in that area.

Schmidt: I agree we’re in that area but would have to let the judges look.

Senator Kohl: If Bing went away, Google would be all there is. You’re effectively a gatekeeper. You’d argue Google returns the most relevant results first free of political bias. But is that possible. There must be some decision on whether my statement or yours will be at the top.

Is there really an unbiased search engine? Should we be troubled about any company like yours with huge influence? Doesn’t that demonstrate the need for real competition in that area? [DS: zing, Bing, you’re not considered real enough.]

Schmidt: Social networks are one balance. As for ranking, we have so many things, it wouldn’t be possible for me to epxlain to your satisfaction or mine why one thing ranks over another, it’s a complex formula. It’s the best that we can do, and I want to say upfront, we occaisonally make mistakes.

Senator Lee: On the record, under oath, do you give preference to your own products?

Schmidt: Universal Search looks at many components, if we think you’re looking for a product, we’ll show that product search insert you saw earlier, and that then takes you to another product. The sanwer is we give prefeence, but we give in in the context of what the person wants.

Senator Lee:  Yes, so it does give preference to the lead to the cameras or to a page where you’re selling advertising.

Schmidt: There’s no advertising component in that, but I take your point.

Senator Lee: Some of my fears I have to say have been confirmed. To summarize, I am troubled by some of Gogole’s proactics fo inserting its own offerings in natural algorithm results in the most prominent area. Threefold. This practice seems to leverage Google’s primary search dominance, give it an unnatural advantage.

NO other business can hope to compete (except you know Yahoo did the same thing year ago, how that work out to keep it going). Second, an inhernent conflict of interest rather than an honest broker of information, have incentive to channel to its own listings (DS: Geez, Lee, bigger incentive to push out to Adsense partners – are you even aware of that?).

Third, may hard consumer choice by disadvantaging competitors. Trouble –  take swift action to fix this.

Franken: [Asks about mobile search dominance, how many Android phones run google search by default]

Schmidt: Estimate on order of 2/3rd.

Franken: So if someone makes Android phones, can they do that?

Schmidt: Absolutely.

Franken: If I want to use Yelp not Google Places, can I delete on my phone [DS: OMG Al, do you use a phone?]

Schmidt: Yelp always available on browser?

Franken: I mean an app.

Schmidt: Google Places isn’t an app. I think what you’re getting at is…

Franken: (Laughing) tell me what I’m thinking…

Schmidt: Many Android partners combine Google apps into phones as practice and we do a revenue share with them on Google Search.

Blumenthal: trying to think of an analogy. You run the racetrack you own it, for a long time, you had no horse. Now you do, and they seem to be winning. [DS: hey, that’s not a bad analogy, if not fed to him, I’m impressed.]

Schmidt: I prefer to think of the Internet as the platform and Google as a GPS. Google does nothing to block access to the competitors, and in all the cases where use, if we get to an answer, we try to show all the other possible answers.

We need to be able to get freely to the algorithmically best answer. If we can do that with zero click that’s better for the consumer. I genuinely believe that.

Blumenthal: But there’s no allegation you might misguide to the wrong place, but there’s something different if the directions put the consumer at the place you own. I know we’re oversimplying a complex area.

Schmidt: We really, really do test this stuff and think it’s best, we run the company for the benefit of the consumers, not the other websites.

Senator Lee: (to Blementhal) I think you might be saying Google is doping the horse.

Blumenthal: No

Klobuchar: Can you do more to explain when changes are coming (weather reports!)

Schmidt: We do some, we could do more. but if we’re completely transparent, we’d be heavily gamed by sites trying to spam us. Do believe we can do better job to describe the change.

Klobuchar: Businesses that advertise are also customers. Does Google need to do more to protect privacy of consumers versus those?

Schmidt: We debate a lot, have detailed privacy policy. won’t do something suggested,what some companies would like.

And that’s the hearing done.

Postscript: Please see our follow-up article, which covers the entire hearing with highlights and without live blogging typos: Google Hearings: The Post-Game Show.