The economy according to Google

Google survived the recession better than most companies. Now SVP and CFO Patrick Pichette has a message for Canada about how to survive the next one.

In June 2008, Patrick Pichette resigned as Bell Canada’s president of operations and took a new job in Mountain View, Calif. Named Google’s senior vice-president and CFO, the Montreal native became responsible for the tech giant’s finances just months before the Great Recession hit full stride. While in Toronto last month to speak at the Economic Club of Canada, Pichette discussed what the recession and the recovery looked like for Google, and implored Canadian companies small and large to up their investments in digital advertising. After his presentation, he sat down with Canadian Business.

In this morning’s talk, you said that there was no recession in the digital world, and that there won’t be. So the economic slowdown didn’t touch Google at all?
I mean, everybody got affected by the economy, but the digital economy didn’t get affected in the same way the car industry or travel industry or the traditional economy would have been. There are two phases to this recession. There was a phase in 2008 and early 2009 where nobody knew what was going on, and when I spoke to economists and financial analysts to see where the economy was going, it was incredibly opaque. By the middle of last year, the world came back to some normalcy, so you could go back to what you do for a living. And that’s what we did. Google sort of runs on its own agenda, but in the past 18 months so much happened, we kind of took pause to make sure that we knew what was going on and were attuned to it. And now that we’re back to some level of normalcy, we’re blazing away with our agenda again.

It seems like Google made some decisions about priorities and some decisions about how it was going to spend money. Is it fair to say that you were a guy brought in to say no in a corporate culture where people are used to hearing yes?
When you’re the CFO, you’re there to ask the tough questions, to make sure nobody wastes. And everybody expects you to ask those questions. It’s checks and balances, right? That’s an important role for any company. At Google, I think you have a start-up mentality. I’ll call it a really generous but frugal mindset. Most Googlers travel economy. If you go to India and back, and you need a sleeper — OK, we get that. But, I mean, most of the travel I do in North America is in economy. If I get a coupon to upgrade, I’ll do it like everybody else. But that’s the mindset — and I’m the CFO of this company with $25 billion cash in the bank. I could make every argument for why I should be flying first class everywhere. It’s just not who we are. This is an engineering company with a bunch of engineers trying to do engineering stuff, and so the mindset of the place is quite frugal. It’s generous — we want people to be productive but we kind of mix the two.

The impression I have is that there was a process, which coincided with you coming in there, of Google taking stock and of making decisions about how they were spending money. Did that happen as a moment in the company?
You had the perfect convergence of two sorts of events. One is an incredibly uncertain world, where Google employees were asking, ‘What’s going on?’ And then, parallel to that, when they brought me on board, one of the things we agreed to do was comb through the place on a regular basis to. You win with reason and with facts at Google. Having opinions is completely useless if you have good hypothesis, well supported by facts. My facts were that we were bottlenecked by engineers. And the worst thing we can do as a company is to have six initiatives, all of them half-invested, all of them going nowhere. I prefer to have three flat out, because then we really have a chance to test what we’re trying to do. If there’s a product that we’ve launched and nobody’s on it — Lively, for example — we shouldn’t be romantic about it. We have to live by the values that we have, of running these innovation experiments, and if they fail, it’s all part of it. That’s what innovation is. You try, and then incrementally, you get better mousetraps.

I had a comment from a Googler a couple days ago. He said, ‘Patrick, I didn’t believe when you started bringing this discipline that if the economy got better, or if there was a big initiative we really wanted to fund, that you would actually give us money for something that’s not ‘in budget,’ and just let us do it.’ And in the last six months of 2009 we had a number of instances where really cool things were going on, but they weren’t in budget. And I looked at people and said, ‘What are you talking about? Thank you for bringing it, right? Good governance, right? But we’re making the call we’re going to do this, and away you go.’

What are examples of those?
They’re mostly around product. Chrome OS, Chrome in general, mobile, Android, all these areas that surprise us how good they are. And when you’re surprised by how good they are, if you have twice the success, you shouldn’t say, ‘Well I’m going to slow down because of the budget.’ If you have great success, go. We have the means to do it.

You mentioned just now, and a couple of times this morning, that Google is an engineering company with an engineering culture. That can lead to a lot of innovation, but what are the challenges presented when you have a company that’s so engineering driven?
Let me answer with one of the things Google does phenomenally well, and that’s the focus on users. To make the negative case for a moment, if you have an engineering company, you may end up with solutions that are technologically sound, but nobody cares. And history is paved with those kind of things. But we have this kind of crazy, relentless focus on the user to counterbalance the engineering culture that actually gives me the comfort that we’re doing what’s right. These are the war stories you hear in the Valley. Eric [Schmidt, Google CEO] will talk about when he was at Novell or at Sun, where they did fantastic servers, incredibly powerful — you just couldn’t get them to boot up. You’d want to shoot yourself, just reading the stupid manuals. The best engineers in the world, terrible user experience. It drove him nuts.

Has Google really achieved that balance? You have a habit of surprising us, which can make it seem as though you’re going madly off in all directions. There’s a chaos to Google, which is charming, but which also leaves some people wondering when you roll out a product like Buzz, ‘What problem does this solve? What question does this answer?’ Has there been any vision drift in the past few years?
Au contraire. There is a lot of innovation that we push for, and there’s a strategic advantage to surprise. But there is a lot of science in that. There is discipline to the madness.

I want to get to Canada here, and to get there I want to ask you about Google Fiber, your pilot project to introduce ultra high-speed broadband Internet in parts of the U.S. What does Google stand to gain from it?
It’s really an experiment. People really push on megabits right now, and the whole ecosystem is built on megabits. If you really want to get the next generation of opportunities, innovation, you have to think in much bigger bandwidth. You can get that kind of bandwidth between data centres — these big pipes do exist — but not for the home and the user. We believe that if you create a platform that has a thousand times more bandwidth, you create opportunities for innovation. And so for us it’s about pushing the innovation edge, experimenting. It’s not about becoming a telco. It’s about pushing the limits on innovation. And then from there, great things will happen.

The CRTC says that Canada’s a world leader in access to the Internet, but Harvard’s Berkman Centre for Internet and Society just updated its study on next generation connectivity — very high-speed Internet, 3G networks and the like. They rank Canada just 19th in the world in access to those technologies. Do you think that’s an issue for this country?
I mean, there’s a lot of Internet access in Canada, right? The fact that 75% of the population has access to it, I think that we have a pretty decent infrastructure in Canada, with the history of regulation. I just think there’s so much more space for innovation.

You’ve talked about this country’s need to cultivate more global champions, and you mentioned this morning that Canada has some unique advantages in that regard. Geography, obviously, is a big advantage. Our education system is an advantage. But what else can we do to cultivate those champions?
I think that there’s two dimensions to the answer. The first one is, I continue to be surprised that the businesses of Canada don’t embrace digital marketing. It is the next frontier. Learn what media’s about in the digital age, how do you actually target people, how do you grow your business, how do you actually make your addressable market not only local, but global. In all these dimensions, Canada is behind.

Why are we behind?
That’s a good question. I don’t know. I was surprised to see how behind we are, certainly relative to the U.S., and in fact relative to other countries like Australia. Australia is a smaller country in population, but in terms of economics it’s quite similar. And yet in Australia, they’re actually much more aligned to where the eyeballs are, which is where their marketing and advertising spends are. I think in Canada, we just don’t have that natural muscle, I don’t know what the root causes are, but I’m very aware of it.

I came home one night from work a couple years ago and my daughter was crying because her best friend had moved to France, and it was her birthday, and my daughter forgot her birthday. I just turned on my laptop, I went to Google and I typed ‘teddy bear, this town, France, purchase,’ right? Like, eight teddy bear sites in France where I can put in my credit card. Four minutes later, my daughter’s happy. Somebody in France obviously got it right. And instead of me scrambling locally to get a teddy bear and put it in Canada Post, in four minutes, it was over. That natural muscle, right? Companies that get that are the winners of tomorrow, and we need a lot more of that in Canada. So that’s one thing. The other thing has to do with innovation, and it has to do with the ecosystem of Silicon Valley. Whatever we can do to emulate it in Canada, it needs reinforcing. Forty per cent of the venture capital in the U.S. is there, four out of 10 dollars in three miles, right? All the smart people — there’s an entire ecosystem. Whatever we can do in Canada to continue to create that kind of micro-ecosystem is really important to make people stay here.