This is transcript of the question time Google Australia's MD Nick Leeder held after his Business Series lecture at RMIT University on the February 20. In his answers, Leeder talks about the importance of the NBN, the “critical mass” missing from Australia’s start-up scene and also compares the strength of Sydney and Melbourne’s venture capital communities.
On R&D funding, Australian politics and the NBN
Question: I have two questions in one. You talked about the need to get the science students and engineers studying more. The government has just announced a billion in cuts to R&D for the big companies, and a lot of business groups are saying that's going to affect large-scale undertakings and therefore getting those engineers and science students that they're hoping to build up for the future. So I wanted to know you view on that government decision particularly. But also going into an election year, groups are all going to come out with their wish-lists. If you were going to go to both sides and ask for one thing what would it be?
Nick Leeder: If we were going to ask for one thing,
Host: Just one.
NL: Look I actually think at the moment, for both sides of politics, I think the objective [should be for] ubiquitous high-speed broadband - don't lose it. There's an argument about the mechanism to get there from both sides of politics, and a fierce debate about how to get there. But in that battle, let's not lose the objective… I think that would be my one ask.
Around R&D and money from the government, you know it's a funny thing, we don't think there's a money problem. When we look at VC as an interesting example in Australia, there is VC money in this country, but the amount of it that actually ends up going offshore and back through the valley shows that there's an issue. It's not a money issue; it's actually a critical mass issue.
So our view on that is that it's about making sure we're really explaining to people the kinds of careers that you can have through STEM (science, technology, engineering, maths) and the possibilities that open up is one of the key things that we can do to help encourage young people to come through. Because, you know, we don't all have to be doctors and lawyers. Doctors and lawyers are wonderful and fantastic people, and I have two doctor parents, but there is more that we can do now, there are other things, other options for our best and brightest, and I think that's what we have to really explain so we don't see the top per cent of our students systematically go into those disciplines. But I actually don't think we have a money problem.
Google and Health technology
Question: Nick could you give us some thoughts in terms of how Google's working with health in Australia? When you talk about productivity it seems to me to be the best chance for us to make change in productivity within the health system because infrastructure and people are expensive and difficult to do. I'd be interested to understand what Google's thinking in this area.
NL: We've had a couple of goes at health and at the moment we're more looking at things like driverless cars, Google Blast, the home, and I think the reason is that there's so much activity already underway in the health space, there's a lot of very smart people working on how to drive productivity in the health space, and you can see the government are already doing a lot of work there already. So, we're not saying there's not a fantastic opportunity there but even with our 15,000 engineers we have limited, bandwidth I suppose, and the directions we're going off into are slightly more consumer orientated at the moment and business orientated. So it's not an that we're doing a great deal in at the moment but having said that, the opportunities are self-evident and there's already a good set of examples and precedents being set in that space. It's not an area that we're particularly focused on at the moment.
Silicon Valley and the University sector
Question:…You talked about the Stanford model in Silicon Valley, what's your view on the precincts model under the innovation plan released last weekend, and what is Google doing specifically to help deepen ties with universities to grow that sector?
NL: Precincts are good. I mean, we are big believers in physical proximity. In fact, I think our CFO was here this week and met with a whole bunch of start-ups who are in this sort of incubator called Fishburners, and he was asked, "what do you think about teleworking?" He said: "don't believe in it". Everyone was bit surprised, but we're actually very old fashioned on this stuff, we think that great ideas come from bringing people together. We're so old fashioned that we do breakfast, lunch and dinner for free in our office. It's literally to get everyone around the table and so the engineers are bumping into the business people and bumping into each other because what we do see is that that helps ideas flow. And I think that's where universities are going as well, you only have to walk around RMIT or UNSW to see that the architectural ideas about bringing people together are still very, very important. So proximity is critical. We think that reaching out to the universities, we have very big internship programs now, with a number of the universities, to make sure that forty engineering students are coming through Google in Sydney and getting a taste for it, that's one example, building an appetite for these guys to work on the kinds of things that we do. Not just because they'll actually come and work at Google, but they'll go off and set up a start-up and hopefully that'll work as well. So there's some outreach work that we're doing with universities to help create those pathways from university into the space and give people a taste for what it can be like.
On Google’s tax dodging
Question: Good morning Nick. Sorry to spoil your morning. Google is more than a technology company it's a force for good and your philosophy is "don't do evil". But lately you have been cast under a lot of shadows in terms of your tax obligations, and the assistant treasury even singled out your company and the OECD just recently released a report talking about, you know, the international community needs to get together to change the tax codes so you guys can pay more money. So do you guys feel under siege?
NL: Do we feel under siege? I don't feel particularly under siege, but look we understand the issue, it's an important issue. In fact, I think the OECD is exactly where this issue needs to be dealt with. Obviously as a company, as well as a technology creator and innovator, and as a company you have a duty to your shareholders to make sure that your structure is efficient and so on, because we compete. We compete with a lot of big companies as well, so that's one thing we have to do. But equally, we understand that there is an issue here, around the world, and it's one that actually requires some cooperation from different countries. You can't solve this issue one country at a time. So I think we look forward to working with the OECD on that, obviously from the side, but that's the right place to solve the issue. I think it's actually the right time to do it.
Question: Do you mind if I ask a follow-up?
NL: Yeah sure
Question: Given that the international community seems to be like, can't get together to act on any issue of major importance, do you think it's a bit like wishful thinking to think the OECD can sort out this kind of major international tax problem?
NL: Do I think they'll be able to sort out a major international tax problem? Yeah I do, I don't see why not. I think that group, you know, it's going to take some time, but I think that group is the right place to visit it, because as I said you can't do this one country at time, it just doesn't make sense. So that's the place to do it, and I don't see any particular reason why they shouldn't be able to do it.
On Google acquisitions and lacking “critical mass” in Australia
Question:… You mentioned that capital wasn't an issue in Australia but building a critical mass was. Can you elaborate what Google Australia are doing domestically in terms of corporate venturing, and sort of allocation of funds if any and your mandate to be able to invest in start-ups?
NL: Yeah sure. In terms of Google's approach to investing in start-ups, it is a global approach. We have a team that sort of scours, or in fact a lot of stuff just comes to them from around the world saying, "we're ready to be sold" and so on. We've had a couple of interesting examples of where Google has done that, famously Maps was an Australian acquisition. That's how Google Maps actually started. We've recently acquired another company called Wildfire, which is a New Zealand company. It works in the social networking space. So Australia and New Zealand are on the radar, and the CFO was here over the last couple of days and was talking to start-ups about that. The reality is that it's a very, very competitive space in terms of people wanting to do trade sales. So the start-up ideas have to be very good and they have to be incredibly scalable. And that's one of the issues we find in this part of the world, because one of the tests we have is that if it won't be used by a billion people then it's probably not for us. That doesn't mean that it might not be a really good idea, but it means that say Shoes of Pray, a fantastic idea, is it right for us? Probably not. So those are some of the kinds of things we look for and I think having Patrick here was a good way to also make sure that Australia is on the map and that what's happening here is being registered. But it's pretty competitive.
Question: You mentioned Silicon Valley and the amazing benefits it's brought to the American economy and worldwide more globally. The success is something that many economies are trying to recreate around the world. Do you believe there's a laundry list for that and is that an ecosystem that can be recreated or is a case of serendipity or organic, I'm not sure.
NL: Yeah, I mean they're really reaping the benefit from 50 years of investment in IP in the US now. So this isn't a short term, you can't just switch this stuff on. But a couple of the key ingredients you look for is mass. Really incredibly essential is to have enough mass of thinking, and the connectivity between the universities and the business communities is also something that Australia does but I'm not sure that we do it as well as the US. You need that meeting point between industry and universities to be really strong, that sort of plate of tension. So I think the other thing is just infrastructure, and we are in good shape on infrastructure. And we are a good place as well that can attract in talent, and again, a lot of the intrinsic here are very good. As I said before, when Google thinks about where to put its offices we have a choice around the world. But Australia is a place that we think has a lot of the right intrinsic. But connectivity between industry and university, a really strong supply of STEM graduates coming through, you know, STEM plus X, and again that community convened and working together really well. I mean, if you've spent any time in the valley the networks, the social networks and business networks are deep and rich. And I think that's something that we want to play a part in helping that as a kind of anchor in the Australian market, but that's something that has to be built as well.
On Sydney vs Melbourne in Australia’s start-up scene
Question: You may have answered it… and one of our companies got to sell a company into Google a decade ago, or half a decade ago.
NL: What was the company?
Question: Tonic Systems, Tony Glenning. So, we see critical mass as well as a key issue. And we think the local, local very grass-roots stage, you know the Fishburners of the world, it's very exciting to see that as vibrant as it is. I was going to ask, where do you see critical mass, what does it look like, can it occur? A little bit the same as the last question, you know, you're in Melbourne, Fishburners is in Sydney, we've got the York Butter Factory and others. Is this a multi-city opportunity, or is it really something just to focus in on a high-density single precinct?
NL: I think we might be able to do it semi-virtually but I also think we need to think about our relationship with the valley pretty carefully, because we don't have critical mass yet. But Australians do very, very well in the valley. I actually don't think it's necessarily a failure if an Australian start-up packs their bags and head to the valley and then has wonderful success. I think that actually can be great for the company and probably good for Australia in the long-run as well. So I think we just have to be quite flexible in our thinking on how do we connect. There's actually a really good VC community in Melbourne. In fact I actually think that's one of the things that Melbourne has done better over the last 15 years is bring that network together. It's slightly more disparate in Sydney. But I think that's really a good thing, connecting those two communities and then connecting that into the valley, we have to think about those bridges and if we can construct those well, we may be able to overcome some of the lack of size that we have.
Host: It's just one of the things Melbourne has done better I think. A question up the back there?
On Google Fiber and “Silicon Prairie"
Question: I just want to ask you about Google Fiber in the US I believe it's been rolled out in Kansas. Are there any lessons there in terms of... well I guess it's a platform, what you guys are going to put on top of it, getting businesses, getting young companies to move to that area... that Australia can draw on?
NL: Well it really gives encouragement for the NBN. So Google Fiber, what Google's done in Kansas city, two cities on different sides of the river, is build fibre to the home and a couple of interesting consequences: this is a serious amount of fibre. You get a gig asymmetrical into the house and back out. So if you think about in the old days when we had 56 kilobits per second and then a couple of companies came along and said we can do five meg and everyone said, "What on earth are people going to do with five meg?" Well now we've got a lot of capacity, these homes are just getting lit up. A couple of things we're seeing there which are really interesting is, one thing is people love it, when they're on they really love it. They're able to watch up to six different channels of HD uncompressed in their house, and the CFO was here this week and he was actually expressing some surprise at the number of televisions sets they're finding in homes in Kansas. He says that four would be plenty, but not enough apparently. So that's one thing. But we're also starting to see people, he was talking about people actually setting up start-ups in Kansas, you know we talk a little about Silicon Beach and alike, and he's starting to see notions of Silicon Prairie in Kansas as a result. Literally the infrastructure is so good that people in neighbourhoods with the fibre are seeing the property values of their house go up, they're seeing people move in, and they're also seeing people sub-divide their houses and set-up some start-ups within their house to take advantage of the infrastructure. It's still early days, but you can see the appetite and some of the consequences of that as it gets put in.
On top level domains
Question: I'm curious as to your thoughts as to the new top level domains over in the middle, that process of ICANN rolling out the new global [TLB's] and the dot RMIT's or dot anyone's or dot brand. Do you have a few on how that's going to shape the landscape.
NL: I haven't spent a minute thinking about to be perfectly honest because I don't think that it's really that critical. I don't know about you, but just in my normal usage I don't worry about it and I think 99.9 per cent of the human race will just...
Question: Will Google it.
NL: Will just Google it. And we'll find them what they're looking for.
Question: Just a follow up there, Google's actual applied for 50, so I'm wondering why Google might be applying for 50 if it's not so important?
NL: Yeah look, there may be some other part of Google that has thought this through more fully than I have, I'm sure that's the case. I just sort of look at it from a user perspective. It's more complicated than I'm suggesting I'm sure, but I think as a normal user I don't think it's going to affect my life all that greatly.
Host: Time for one last question
On the digital revolution and defeating the tyranny of distance
Question: I grew up in about the same era as you did and one of the biggest challenges presented for Australia at the time was our geographical location and our geographical distance and it seems to me that the digital revolution has a lot more potential to increase productivity and effectiveness in Australia than perhaps other parts of the world, because that was such a huge barrier to us, and now we've got the opportunity to break that barrier down.
NL: I completely agree. The combination of aeroplanes and the internet is just incredibly interesting. I think it's difficult to establish, a business relationship or something like that, virtually. But if you can establish that relationship and maintain it through the internet that's obviously something that can be done, and, I completely agree with you. I think it's just a tremendous opportunity and we've got the opportunity to really differentiate and push Australia into a very, very interesting position in terms of its role in Asia by having really strong digital strategy here. So I completely agree with you.
Question: And I think from my personal perspective, I've been able to sell products to places in the world that I'll never get to.
NL: Yeah. We see this happening. I mean, the Youtube guys are a great example in terms of the content people. These people never, just very briefly, there's another guy Rob Nickson who's a baggage handler who does very, very high calorie cooking and puts his stuff up on Youtube. He started and said, "I'd just like to cook so I'll wack how to cook a schnitzel up on Youtube" and went from there. He never planned to export, he'd never been to America. His audience in the mid-west of America is enormous. They love what he does: deep fried lamingtons, why not? And so he never wanted to be an exporter, that was never his aspiration, but he's built an export business. Just because the internet, what it's done, is lower all the barriers to zero. And now he's gone, he's been picked up by a US cable company to do his deep frying over there.
Host: Sounds like he's going to undo all the great work Jamie Oliver is doing.
NL: That's right. But it's just a great example. In that case, the barriers are literally falling, he could never have built that business before the arrival of digital. And there are many, many example like that. You just need entrepreneurial spirit and some dough to take advantages of those opportunities before somebody else does.
Host: And what a positive contribution he's making. On that not we might wrap-up our Q&A session.