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Alphabet CEO: The U.S. Should Work To Maximize An Open, Interconnected Internet

By Jacob Wolinsky. Originally published at ValueWalk.

E:\Work\Alphabet CEO Sundar Pichai.png

Following is the unofficial transcript of a CNBC exclusive interview with Alphabet Inc (NASDAQ:GOOGL) CEO Sundar Pichai on CNBC’s “TechCheck” (M-F, 11AM-12PM ET) today, Thursday, May 12th. Following is a link to video on CNBC.com:

The U.S. Should Work To Maximize An Open, Interconnected Internet, Says Alphabet CEO

Part I

DEIRDRE BOSA: Now as we discussed some big some big tech does continue to be under pressure today despite the rebound in the broader sector over the last few months, it had held up better than some of those more speculative areas. This week we continue to see names like Apple and Microsoft underperform. Against that backdrop, Alphabet held its first in person I/O Developers Conference in three years in Mountain View yesterday, we were there. The audience got hardware teases like a Pixel Watch and plans for Google Glass successor. Pichai also announced some developments in artificial intelligence and breakthroughs in language processing. Now that return to normalcy and the energy in the amphitheater though it was in contrast with what was going on in the markets and economy as I sat down with him, the Nasdaq closed lower by another 3%. So that is where I started.  I asked Pichai how vulnerable Alphabet is to a recession?

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SUNDAR PICHAI: Well, we definitely see uncertainty ahead, like everyone else and the, the good thing is we’ve been around as a company for a while. Have worked through past moments like this, be it 2008 or the early days of the pandemic and we take a long-term view. Obviously, when you’re, you know, serving across the economy, you know, and a lot of the macroeconomic factors like GDP growth end up affecting advertisers’ spend as well. But a lot of, like, what you saw today at Google I/O too is when we are investing in AI, one of the largest investors of R&D in the world, and we take a long-term view and we work hard to make our products better. And so, you know, so I think, I think for me, the work we are doing today will pay dividends two to three years out. So that’s how I approach it.

BOSA: When you say that you’re seeing uncertainty, where is that showing up right now? For example, this morning we got inflation numbers, some saying that maybe it suggests a peak. Are you seeing the same thing in the data that Google has in terms of the travel data, the purchasing, the ad spend?

PICHAI: Yeah. We definitely see travel recovering. You know, there are signs that people are clearly moving post the pandemic, and so there is some return to normalcy. But there are what make, what gives uncertainty is there are so many different factors, be it supply chain issues or be it rising energy prices. And, and so trying to add all of that up together is that uncertainty—

BOSA: What about inflation specifically? Does the data that you see suggest that maybe we’re at a peak? Are you optimistic?

PICHAI: I think it’s gonna take time to work through. A lot depends on, I do think people are seeing relief in certain sectors. But then you have other new areas which are showing problems maybe due to supply chain constraints. But I think it’s gonna take us some time to work through this.

BOSA: Like, where, new areas?

PICHAI: You know, just, you know, energy has been an issue, as an example. In some cases, rentals have gone up. And, you know, so, you know, food prices. So it’s, it’s a complex factor, particularly globally.

BOSA: Right. Now at I/O you guys had a number of announcements. You’re gonna be spending more and I wonder you’re still a $1.5 trillion, I almost said billion, trillion-dollar company. Your workforce is now more than 150 people strong, or Google are strong. How nimble are you as a company if we continue to see this economic slowdown? When would you start to consider scaling back plans? Would you be able to quickly?

PICHAI: Well, I’ve always, you know, prided on our ability to be nimble when needed. And, and, you know, as a company, we wanna be resilient in moments like this. We are, we are very excited about the opportunities ahead. And so we are investing. We are continuing to hire, bringing in great talent. There are areas where we are in where we are seeing a secular transformation, like Cloud and the transformation to digital. So we, we are continuing to invest. But, you know, we’ll obviously given the uncertainty, you know, pay, pay close attention to it. And to the extent, you know, as a company we need to do something differently, like we have always done, you know, we, we do this responsibly.

BOSA: What do you think it’s been what do you think what makes your strategy different, let me ask it this way, than some of your peers, that you’re able to hire 12,000 people this year? You’re able to spend almost $10 billion on infrastructure? Why do you think you’re in this position versus some of the other companies now that are coming out and saying that they’re gonna have to freeze hiring plans, or even do layoffs?

PICHAI: Well, I mean, as, as you said at the start, you know, all of us are impacted in varying degrees. I think we are, you know, we, we invest in foundational technologies and we are in many areas so in some ways, we are diversified. Obviously, we have important products like Search and YouTube. We have computing products involving Android Play and our hardware devices and and Cloud is a big area of opportunity for us as well. So I think we are exposed to many, many sectors and we do this globally as a company. And I think that allows us to take a long-term view and think through these phases.

BOSA: Yeah. You guys spend a lot on research and development, as evidenced here. I wanna talk about some of the diversification because Alphabet is a company of many different businesses. You also touch on many different societal issues. So, I want to talk about some of them, how they fit in today, how they fit into Alphabet’s future. Developers first, since we are here at I/O. How do you manage it shifting App Store dynamics? Does Google deserve to continue to take a fee for providing a platform for developers and companies, or is something changing here? Is that era over as Match and some other companies have argued that it should be?

PICHAI: Yeah, look, it’s an important area and we’ve been listening and we wanna make sure we get it right. I think it’s important to remember we invest in Android. We provide the operating system for free both to OEMs and to carriers and, you know, and, and try and make phones affordable. And we invest a lot in keeping the platform secular and we give the distribution with built-in payments to reach. And, you know, and for the vast majority of developers, you know, pay reasonable fees and, you know, around 15% or so. And but I think it’s important for that for us to continue investing in the platform too. So, I think we have struck the right balance. We are constantly looking how we can add value to developers, and there are so many developers who are who have embraced the model, who are investing on the platform. But, you know, these are important conversations and so, we’ll continue to listen to them.

BOSA: You say that you provide Android for free. Do you mean to the consumer?

PICHAI: To the consumer, to OEMs and, you know, we, we invest thousands of engineers and under open-source license provide the operating system for free.

BOSA: But it’s what the developers pay in terms of those fees and commissions that allow you to provide that for free, right? So—

PICHAI: That is part of our business model. Yeah.

BOSA: Exactly. So, what happens if those fees go away? Is that why you don’t think they ever will go away because they’re important to keep the ecosystem going?

PICHAI: We provide an economic value there and, and I think it’s rooted in foundational economics in terms of the value we provide. But we have made many changes to our developer program. So, we’ve made a lot of changes and I think, you know, we brought many developers onboard. And so I think we’ll be able to navigate the transition well.

BOSA: Let’s talk social media next. We certainly watched YouTube’s growth and how quickly it has been growing, although we saw that decelerate a little bit the past quarter. What does free speech on the internet mean to you?

PICHAI: I think, you know, free speech I’ve always viewed it as, you know, foundational. I grew up in a large democracy and, you know, the importance of free speech and giving people a voice I think is really foundational. As Google, you know, Search is one of the products. Free Search represents what’s on the web today. We, you know, we only take down stuff that is against the law. And so the, the core principles of free speech are deeply built into the platform.

BOSA: Sounds very similar to how Elon Musk describes free speech, in that they will only comply with the law. Would you say that your approach is the same as him? Or help us understand how your strategy may be different.

PICHAI: I can talk about our approach. I mean it’s on a strong principle of free speech. We comply with laws and regulations. We also have in, in a product like YouTube, where we recommend and where we can amplify content, you know, we do have community guidelines. So we have clearly stated policies. And, and we, you know, take action. And that’s what actually allows us to maximize free speech help keep the platform safe for everyone involved and, and I think there is a balance to be struck there. But I do think underlying all that is a strong commitment to free speech and, you know, and that’s how we approach it.

BOSA: How closely have you been following or not been following what Elon Musk has been saying about how he might run Twitter? How might that change the landscape for you? How much are you thinking about this?

PICHAI: You know, I’m, I’m a avid user of Twitter. I think it’s an extraordinarily important product for the world. I’ve gotten a lot out of it and I think there is value in investing in it for the long term. And, you know, and I, I think that is important because it plays an important role in, in democratic society. So I share that view. And, you know, I’m, you know, I would like to see the product continue to get better and so, you know, that’s what I think about.

BOSA: If he reverses the ban on former President Donald Trump, how does that change or not change the calculus for YouTube?

PICHAI: I mean, well, these are different products. And, you know, we, we, we have, we’ve always had policies and we apply them consistently, regardless of who it is. And, and we have deep experts who like at it and, you know, and, and we’ll continue making our decisions.

BOSA: And how does AI shape, I know you spoke a lot about that on stage today and this whole idea of maybe open sourcing a social network like Twitter or YouTube. Do you think that would help counter some of the free speech issues in our society today? Or would it amplify them?

PICHAI: Well, I think, you know, I think, I think it’s important to give people a sense of transparency. And, you know, and there are many ways to accomplish that. And, for example, we publish our community guidelines or, or in the case of Search, how our raters evaluate for search quality, we publish that publicly. And so I think there are different ways to approach this and I think it’s important to do it in a way in which spammers and others who are trying to work around your products are not able to do as well so but I’m glad there are different approaches being discussed.

BOSA: Right. Now, privacy is another area being reshaped, being debated in public. On “TechCheck,” we half-jokingly say that the regulators in chief are the EU and Tim Cook. What do you think about one company, Apple, sort of unilaterally changing the privacy landscape as we’ve seen it done over the last year or so?

PICHAI: You know, I think well, there are many, many factors which are driving privacy. For me, I would argue that it is users’ evolving expectations that are moving the privacy needle more than anything else. And, you know, users increasingly in a digital world, I think, I think they are asking for privacy. And I think all of us need to respond to it. There’s been extraordinarily important legislation like GDPR. And all of us have, have had to work to comply with that. And you saw, as Google, you know, we are helping organize information, make it better for you. And as part of that, there are products where we do that, be it Gmail Photos. We never use that for advertising. The products we monetize with that pricing, we give users clear choice and controls, including more controls we announced today. So I think the way I think about it is people care deeply about privacy. It is going to constantly evolve and we need to stay a step ahead of that evolving user expectation.

BOSA: So people care deeply. You’re seeing that people want more control, especially over things like tracking and targeting. I wonder why then has Google not moved as quickly as Apple in terms of third party cookies when clearly consumers are opting out of that kind of tracking on their Apple devices.

PICHAI: I mean, we, there are, we try to consumers many choices. We have clearly announced plans to, you know, phase out third-party cookies. But there is a large ecosystem and people use many services, including news publishers and content and which are monetized by advertising. And so we, we are working with advertising, you know, with publishers, with regulators to help drive this massive change across the ecosystem. I think, I think we are, feel responsible to get it right.

BOSA: Was Apple hasty or irresponsible in moving so quickly without getting the proper feedback?

PICHAI: I the they are coming at it with a different, different viewpoint. And, you know, they don’t operate, you know, products for publishers the way we do. And so I think they are looking at it different. So I don’t wanna comment on that. You know, I think about what we should do as a company.

BOSA: Now, in terms of your relationship with American lawmakers, last year you spent nearly $10 million on lobbying. That is actually less than half of what you spent back in 2018. What does that tell you? Is scrutiny easing? Is the relationship getting better? Or has crypto replaced big tech as sort of the punching bag?

PICHAI: Oh, there’s definitely, you know, I think internet and tech are playing an important role. And so there is definite scrutiny. I think it’s important Congress passes legislation. I think the US is behind on privacy legislation. We have long called for strong federal privacy legislation. I think there’s important legislation to be done around children’s safety online. I think, I think, I think scrutiny is important. I think we plan to engage constructively. And but there are important issues where we engage on when we say, for example, making sure there is rural broadband, or making sure people have access to digital skills, are all topics we lobby on as well. And, and including the importance of free speech. And so I think, I think these are complex topics. And I think the next decades will have new rules written for the internet. And, you know, we wanna make sure we add perspective there too.

BOSA: I mean, you talk about things like rural access to the internet some of the things in language processing that you talked about on stage today have really shown themselves to be so valuable during the pandemic. Would you say that the relationship has improved, become more constructive with lawmakers then in America?

PICHAI: I mean, I think they, they always I, I think they respond to areas where we see doing good work, be be it COVID around pandemic to help we did to make sure we got message on vaccines out, or the work we are doing to contribute to small and medium businesses, particularly training them on digital transformation. So there are many areas we see common ground. We’re also innovating as a company. You started early asking about inflation. There are many areas as a company we lower prices. You know, tech is, you know, people take it for granted. But year after year, we provide the services we do and, you know, we, we in our own ways contribute to making sure it’s affordable for users. So I think there’s a lot of areas of common ground as well.

Part II

BOSA: We want to bring you some more from my exclusive interview with Alphabet CEO Sundar Pichai. We also spoke about YouTube which accounted for over 11% of the company’s total revenue last year. This past quarter, the company did miss the street’s estimates as TikTok continues to dominate the short-form video space. So I asked Pichai how big of a threat TikTok is?

PICHAI: To me, you know, YouTube, people forget that YouTube was short-form video, right? I think, I think users constantly evolve to newer places. I think there is real excitement around what, what is today called short-form video. And, and, you know, it’s to me what’s exciting is it’s, it’s a big area in which you’re seeing the shift in the platform. Creators are responding, and users are adopting it. And so we definitely see strong growth. YouTube through the pandemic has turned out to be a more important platform than we ever imagined. And, you know, we see healthy indicators on the platform. So, again, you know, we have to respond to what users are asking for. And, you know, we are trying to give them the best experience. And, and so we feel challenged to do better. That’s how I would think about it.

BOSA: Is, is TikTok a threat then? Do you think of it in those terms?

PICHAI: I think there’s always going to be, you know, now having been in, on the internet for over two decades, you’re constantly going to have new services come, and people will use that. You know, things like Snapchat, Pint, all of these didn’t exist a few years ago, right? And, and it shows the power of mobile as a platform, how, how much opportunity there is for innovation and creating new things which shows how competitive and vibrant the underlying sector is. And so for me these this is all more evidence of that. And, you know, as companies, we always have to be nimble and we have to adapt. And that’s how it feels every Monday when I come into work.

BOSA: The TikTok piece of it is different in that it’s owned by a Chinese company. I lived in China for a number of years. I couldn’t access Google. I’d have to log on to my VPN even to get my Gmail. Is there a double standard though? TikTok has grown completely unfettered here in the United States. It is so popular now. Do lawmakers here have your back, have American companies’ backs in letting Chinese companies grow so large here while our companies are banned over there?

PICHAI: Look, I, I mean, I would go back to my earlier point. I think part of the reason I think it’s really important Congress, you know, tackles on, on all the, the industry has to play a role and and be constructive and supportive, too, on privacy and children’s safety. I think the more we have, you know, clear rules and frameworks which applies to everyone I think that’s how we can, we can make progress on topics like this.

BOSA: Do you think though lawmakers should be harder on China just given that clear sort of distinction, that bifurcation that we see between the two countries, the standards that our companies are held to versus theirs?

PICHAI: The way, the way I think about is, look we, we have a open internet and, you know, as a company we have strongly believed in a open internet. And I think that foundation is important. So, I think, you know, the U.S. should work to maximize a open, interconnected internet. And, and as part of that and making sure people as use, as users are protected. And, and, and I think those are the two main responsibilities in terms of at least how I would think about approaching it.

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