Former Google ads boss Sridhar Ramaswamy says that we live in a world that seems to give out free content when we use a search engine. But that world comes with a hidden cost–search results that distort what we find and serve advertisers rather than searchers. Ramaswamy talks with EconTalk host Russ Roberts about how Google works and why he started a new search engine, Neeva, with a different business model.
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I’ve been part owner of an organization that bids for key word clicks and we’ve bid to where the marginal spend approaches the marginal gross profits, which seems enough higher than the costs, that I’ve wondered if advertisers will create a trade organization to build a competitor to google. Is there any discussion of such?
For me it seems that unless Neeva does everything google including google docs, photo storage etc. $60 a year is too much to start with. $20 or under is a tip $60 is a subscription that users would want to think about.
it seems as if there are fewer comments on recent podcasts. Sadly I am not surprised.
Why do you think that is?
There seems to be two big arguments for the case against Google or Meta.
1) they are monopolies who are effectively causing advertising costs to be artificially higher than they should be, which is passed onto the consumer.
2) They are influencing political affiliation.
Tyler Cowen and Luigi Zingales had a spirited debate about these two a few years ago and had great points on both sides.
Incidentally, I tried find Swift 5 on incognito mode and didn’t get the same ordering as the guest.
Perhaps I’m wrong but I think if I started feeling bombarded by ads from Google, I’d switch browsers or go for something like Neeva. I also thought back to my recent purchases, which were surely influenced by days like mother’s day, valentine’s day, and Christmas. Days I was likely to buy something but probably wasn’t sure what to buy. Did Google help me here by surfacing ads that made sense or did they subtly brainwash me? Hard to know.
Safari version 15.2 has five search engines a user can set as the default search tool. You may also set your home page to be the web address of any search you prefer. Or, one might install a different browser entirely, like Firefox or Tor. I don’t have an iphone so I don’t know if this extends to mobile, but there are certainly options available.
Perhaps every person should be a personal ad and compete in the universal competition for attention, and then hopefully be purchased and make money. Each one of us should be selling ourselves and profiting with each click someone else in the universe makes. If the supposed aliens circling somewhere near get into the act, we could each make trillions and trillions of whichever currency happens to be current.
This conversation gives an understanding of how Ad-Search has worked at Google, and how Sridhar Ramaswamy intends to provides a less invasive, and fairer option for users. A highly enjoyable and educational conversation.
[Commenter name corrected–Econlib Ed.]
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Intro. [Recording date: March 9, 2022.]
Russ Roberts: Today is March 9th, 2022, and my guest is Sridhar Ramaswamy, former head of advertising at Google, and founder and CEO of Neeva. Sridhar, welcome to EconTalk.
Sridhar Ramaswamy: Delighted to be here. Thank you for having me.
Russ Roberts: Neeva, N-E-E-V-A, is a new search engine, and we’re going to talk about that later, that you’ve started. But, I want to begin and talk about Google. So, let’s start with some simple questions. How long did you work there?
Sridhar Ramaswamy: Yeah. Fifteen and a half years. Pretty long time!
Russ Roberts: And, what were your responsibilities when you started, and what were they when you left the company?
Sridhar Ramaswamy: It’s a fun little story. I went to Google with the stated goal of wanting to write code and to be left alone. Those were my two goals. I had run a pretty large group in a startup of–large, I thought then–of close to a hundred people, and I found it very stressful. And so, I wanted to do what I like doing: just write code, be left alone, drink a lot of coffee, play Ultimate Frisbee. That’s how I joined, as an individual engineer.
That lasted for about a year, and then I started helping to manage teams, manage larger and larger teams. Started running most of search ads[? inaudible 00:01:58], the largest business that Google has–ostensibly, arguably the largest business ever created, towards[?] 2009/10, and then all of advertising starting 2014. So, when I left, my team made over a hundred million dollars in revenue and had more than 10,000 people.
Russ Roberts: Whoa. Was it stressful?
Sridhar Ramaswamy: Yes and no. I joke to people that I started work at Google in search ads–the system that actually serves ads when you type in a query. And so, the team offered, of course, great impact, but also unparalleled opportunities to make, like, total fool of yourself and bring everything down. Every line of code you wrote. It’s like saying, ‘Every sentence I write can blow up the place that I’m part of.’
And, then I’ve also been in lots of conference calls where we were literally losing lots of money, thousands of dollars every second, and you have to figure out how to bring systems back up. Once you have dealt with that, rest of life is like, ‘Ehhh, it’s all good.’
Russ Roberts: So, Google is such an extraordinary story. It starts off as this remarkable–you could call it a utility–this useful thing that is magic. And, I like to use my grandfather as an example. I haven’t used this on the program in probably 10 years, but my grandfather was haunted by the phrase, ‘And, the strong man must go.’ Turns out it’s a line from a poem by Robert Browning. The poem, I think, is called “Prospice,” P-R-O-S-P-I-C-E.
I happen to remember that. But my grandfather didn’t remember it, at least when he was older; and you’re searching for it now, I can tell. And, in a fraction of a second, that unease, that nagging anxiety of not being able to identify that phrase, is over. For my grandfather–it haunted him for a while, then I don’t know if my dad told me the story or I was there, but in the middle of a crowded restaurant, he shouted out, ‘It’s Browning!’ because he remembered. And, people thought, ‘What’s he talking about?’
So, Google, in its earliest incarnation, was to help people deal with those kind of questions, things that they couldn’t remember things, things they’d never known in the beginning. And, it’s an answer machine, which I think of course is not as valuable as a question machine, but an answer machine is very, very useful.
And, somewhere along the way, people asked, ‘Well, how do we make money with this very, very powerful way of filtering the ever-growing amount of information on the web?’ And, someone had this idea of advertising. How did that build, and what did it become?
Sridhar Ramaswamy: Well, I think, first of all, Google was incredibly lucky to come of age at just the right time. Because, when a company comes to be, determines its culture, determines its business principles–this is the reason why Yahoo set up a directory for search and didn’t think about a search engine, because it came of age at a time, just five, six years ago, but it came of age at a time when there are not that many sites, where you could say, ‘Oh, I can literally make a list of all like the stock sites in the world, and here’s a page full of them. Why don’t you use that if you have a question about stocks? Just navigate. It’s fine.’ And, it did work. But, part of the magic of the Internet about things like HTTP [Hypertext Transfer Protocol], the protocol used to serve web pages, is that literally anybody could set up a site.
So, Google came of age at, like a Cambrian explosion of content. So, this whole thing of using a directory became obsolete very quickly.
And of course, it’s the brilliance of the founders and their idea of Page Rank, which I can roughly distill as, ‘You’re popular if every popular person says you’re popular.’ Which, of course, all of us have dealt with it in high school–it’s[? inaudible 00:06:15] super-annoying, but you know, that’s how the world works. That was their big insight into Page Rank, and so they created this amazing product that could make sense of the world.
But, another way to think about search is that it is the ultimate expression of human curiosity. There is literally–it’s also scary, by the way, and we’ll talk about that and ads soon–there’s literally nothing that’ll go through many people’s heads that they will not type into a search engine. You gave this example of ‘The strong man must go,’ but someone else will be like, ‘I have a headache over here. I wonder what that means.’ So, we type everything in, and that’s the magic of Google.
It took several tries. It was not the immaculate conception, AdWords, that we think it was. But, there were several products created, and the current one is like the third incarnation of how search ads should work. It’s based on this fundamental concept that if you’re really looking for everything, you are indeed expressing your intent of wanting something, of being about to take some action. And, when I interject with some commercial messages, that’s the basis of the two trillion dollar company and the hundred-and-twenty-plus billion dollars of revenue made in search ads today.
Russ Roberts: How does it work?
Sridhar Ramaswamy: This is the other magic, which is, for the longest time, advertisers would look at a platform, say TV or a newspaper. They would kind of have a vague idea of what kind of audience and what kind of mental state people were going to be in. And, they would take out ads. Okay. And, the publisher, as it were, a newspaper or a TV program, then bore the risk of supplying a certain amount of inventory.
That’s how contracts were made. That’s how they’re made even to this day. If you buy TV ads, you’re basically going to say, ‘I like this show, I like this show, I want two 30-second slots, and you the producer are guaranteeing for me that it’s going to reach this many people.’ It’s like, that’s the handshake.
AdWords turned this model on its head. It told advertisers, ‘We have inventory. We actually don’t know exactly what. We have an unending stream of queries. Why don’t you, the advertiser, do the work to figure out which queries are relevant to the product that you are selling? You take out ads, and if we think the quality of your ad is good enough, we will show it.’ That’s the arrogance of AdWords. It’s just like, ‘Oh, advertiser: You do the work. And, if you’re good enough, we will show the ad for you.’
Russ Roberts: And, charge you a certain amount. Carry on.
Sridhar Ramaswamy: Yeah, that’s actually a good piece of magic there. Unlike other advertising models, in which you honestly cannot actually tell things like who saw your ad or what the state of their mind is–you know, the person that saw the Nike ad during the NBA [National Basketball Association] game yesterday, were they in a mood to buy? Were they, like, anti-Nike? Did they just buy shoes? The advertiser knows none of those things. In search ads, here I am coming in and saying, you know, ‘Nike running shoes, very high intent to want to pay.’
The magic of AdWords, the magic of online advertising, is that the core concept in it is a click. You as a user express interest with an action, the click, which is magical, because you the user took the action. The platform, the website or the search engine, it saw the click because you clicked on an ad, but the advertiser also happened to see the click. It’s one of the few events in life there is a three-way observability. It’s like the three parties interacting.
So, the CPC [Cost-per-click] model actually aligns interests. It’s very powerful. Google has no interest to keep showing ads, because you’re not paying them on impressions. You have no interest to get back-clicks, because you know that it’s not going to lead to great conversions. So, it’s the CPC model that is also incredibly powerful, because you as an advertiser can buy a certain number of clicks, go see how much sales will grow, and then begin to tune the system. Remember, as an advertiser, it’s your job.
Russ Roberts: When you say CPC, what does that stand for?
Sridhar Ramaswamy: Yeah, apologies. CPC is basically the cost per click. So, yeah.
Russ Roberts: Cost per click. So, just to expand your observation about previous advertising: Nike takes out ads on TV, some number of people buy shoes. They don’t know whether the people who buy the shoes saw the ad, they don’t know whether, if they saw the ad, it really was one of 50 things they saw. They don’t know whether they heard from a friend that Nike makes good shoes. They don’t know whether it’s just a random idea. It’s an amazing industry until the modern world that anybody paid for advertising, given the lack of alignment that you’re talking about, in theory.
And, I emphasize the ‘in theory’ because as a very, very casual online advertiser–like, maybe three times in my life promoting something like a tweet to see what would happen–the connection is not quite always the same for at least some–at least, social media. It’s true that if I see an ad for Nike and I click the ad, certainly Google knows I clicked the ad; but there are many things in social media where a stream of stuff is coming by. I see it. They charge the company because somebody ‘saw’–I’m putting it in air quotes–‘saw’ the ad; it streamed by, they paid no attention to it, they’re dreaming about their mortgage or their family or whatever, and it’s not quite as tight. But, with Google, I think it’s pretty extraordinary.
Sridhar Ramaswamy: Well, the next part of the advertising story, part one, is in the context of something like search, you express pinpoint intent as a user about what you might be interested in. And, then there is this ad that the advertiser has handpicked and said, ‘I want to show this ad to Russ. He is looking for Nike running shoes.’ Then you, the user, take the action that is now observable both by Google and by the advertiser.
The magic of online advertising comes in the next steps, because Nike, the website, now knows, ‘Did that ad that Russ clicked on actually lead to a conversion? Did he buy the shoes?’ And so, this is why the CPC, the cost-per-click model, is powerful.
But, the next logical step is, they can back-calculate what is called CPA–the cost per acquisition, the cost per action. Did you actually take action? So, advertising is then reduced to, on the keyword ‘Nike running shoes,’ I spent, you know, two dollars a click. On average, 10% of these people went and actually bought shoes, which means that for $20 bucks, you are getting someone to actually take some action. And, now you have detailed information about potentially the hundreds, thousands, millions of keywords on which you could be relevant, and you set in place software that’s going to automatically tune these things, find new keywords, adjust bids up, adjust bids down.
And so, you basically got this industry that was optimizing online advertising because it was so efficient, it was so precise at saying what worked and what did not work. This is why, wherever possible, people want to get into this mode of what’s called performance advertising.
It works the same on social media, by the way. You should never be paying for impressions on social media. You should always be paying for clicks on social media, and sure as heck, you can track whether they’re any good or not.
Russ Roberts: We’ve had numerous, numerous people on this program worried about this model. You are, too. We’re going to that issue in a minute. But, I want to give you my story, which I’ve shared with lots of people on this program. I apologize to listeners, but this is a chance to get someone who is a little more knowledgeable than even some of my other guests about this project.
Here’s my metaphor for what Google does. I have a broken appliance in my apartment or house, and the repairman comes in and he fixes my washing machine, and I say, ‘How much do I owe you?’ He says, ‘Oh, it’s free.’
I say, ‘Well, what do you mean it’s free?’
He says, ‘Well, while I was coming in and out of your house, I took a lot of pictures of the stuff in your house, because I wanted to know what you’re interested in, and I sell those pictures to people who want to sell you things. And, in particular, I noticed what newspapers you read, and what magazines you subscribe to, and what kind of food–I went through your refrigerator and I learned about what you like to eat. And, by the way, I came a few other times just to check out the washing machine. It’s not just a one-time thing. So, I know actually quite a bit about you. And I have two pieces of good news. First of all, it’s free. I’m not–out of pocket, I’m not going to charge you for the repair. And, secondly, instead of seeing a bunch of ads that you’re not interested in, I’m only going to show you stuff you really want.’
So, on the surface, that sounds really wonderful. And, I have my own issues with that, which we’ll get to, but I’m more interested in yours. So, what’s wrong with that story? [More to come, 15:57]
Sridhar Ramaswamy: Wow. You sure packed an enormous number of very complicated questions into one anecdote. Where does one start? Let’s start [inaudible 00:16:14] with Google Search. Just Google Search, not the rest of seeing everything, doing everything, that kind of thing. We’ll get to that. That’s a whole other pretty interesting story.
The first issue is that search is not really about you the searching[?] anymore. It’s about serving Google. It’s about advertising. The entire ecosystem has turned into: The instant Russ puts in a commercial query, instead of answering the human curiosity–remember I said search is the ultimate expression of human curiosity? The dominant search engine in this role has become much more about serving itself, serving advertisers.
So, that core product simply does not exist. That’s Part One.
And, this was the foundational observation of Neeva. We wanted to create a product where the search is about the searching. It’s about what is good for you, it is about what is best for you. And, taken to a logical extreme, the ad model of Google Search simply does not work. That’s Part One.
Part Two: Along the way, Google concluded that being in advertisements everywhere, not just on Google Search, was going to be really, really important for its long term success. Turns out that they were wrong, and search is still the most profitable business and biggest business that is part of Google. But, Google bought DoubleClick and essentially became the middleman–bought every ad on the planet, or at least aspires to, and definitely serves a large fraction of ads on every site.
What this means is that ads now fund pretty much most of the sites on the planet. And, outside of the context of search–this is where social media definitely comes in–at some level, being successful in ads means that you’re what is called an Attention Merchant.
Tim Wu has a whole book on this: fascinating read; I recommend that all of your listeners read it. He’s a Columbia professor and now is, like, Special Assistant to the Biden Administration. He’s written a lot about advertising and media. But, essentially what has happened to the Internet over the last 15 years is that every site has figured out that the more time that they can get you to spend on them, the more ads money they’re going to make. The other question was [inaudible 00:18:41]–
Russ Roberts: Yeah, what’s the name of the author of the book?
Sridhar Ramaswamy: Yeah, so the author is Tim Wu. T-I-M.
Russ Roberts: Wu–
Sridhar Ramaswamy: His last name is W-U.
Russ Roberts: Yeah. Okay, go ahead.
Sridhar Ramaswamy: Yeah. He’s a law professor at Columbia. The name of the book is Attention Merchants.
Russ Roberts: And, one other clarification. I don’t know anything about DoubleClick. What role does it play as the–so, explain that, and I’m sorry; it might take a while.
Sridhar Ramaswamy: No, no, no, it’s fine.
So, DoubleClick was an advertising company. They were one of the early pioneers in online advertising. And, you can think of DoubleClick as essentially making the tools that make advertising tick on the Internet. Circa 2005 and 2006, Google concluded that the market for advertising–outside of its properties, outside of Google Search–was far, far larger than the money that it could make on Google Search. Turns out, as I said, this is a terrible–this is a bad assumption. Google Search is still way bigger. But, you know, good problem to have.
So, Google bought this company called DoubleClick, and essentially DoubleClick makes product for advertisers. You are an advertiser and you want to get your ads on lots of sites? Use DoubleClick. They’re a publisher. And, you want to monetize your site with advertising in the best fashion? Well, there’s DoubleClick. If you are an ad/tech company and want to reach a whole bunch of publishers and advertisers, well, that’s DoubleClick. And so, it is really almost the operating system of ads for the entire Internet.
Russ Roberts: Okay, so go back–
Sridhar Ramaswamy: And, this is when–yeah, this is when Google, and companies like Facebook and Twitter that came along later, essentially became Attention Merchants. They were all about, ‘We need to maximize attention.’
What that means is that every headline you see is going to be just a little bit more provocative.
There is a reason why you see conspiracy theories and anger on Facebook. You know what? It drives attention. It gets people riled up. They want to scroll. They want to click. They want to respond. They want to tell that stupid idiot that is writing all these things that they hate why he’s such an idiot.
And so, we now live in this environment where everything is about grabbing our attention. And so we have less and less agency over how we spend.
Russ Roberts: So, I think a lot of people talk about, and I certainly have written about, our desire to either be surrounded by opinions that are like ours–which give us comfort–or to be angry at opinions that are not like ours. And, that those–we’re constantly being buffeted between Scylla and Charybdis, those two forces. But, what you’re suggesting–so, I always thought–so, I choose a stream of websites. I surf things that feed my confirmation bias. What you’re saying is that the content itself, of course, isn’t static. It responds to that urge, and because of the power of attention–
Sridhar Ramaswamy: That’s right–
Russ Roberts: and by the way, just again, for economists listening, you may have heard of the Hotelling Model that drives things toward the center, because that’s where the mass of opinion and desires are, not the fringes.
What the Internet has done is push us all toward the edges, because you’re suggesting that that feeding–either the confirmation bias or the paranoia, to be blunt about it–it keeps us focused on a particular site. Keeps us clicking through, and watching, and checking.
Sridhar Ramaswamy: Yeah. And, by the way, in normal times, or at least the time before algorithms took over what content we saw, there were feedback loops. Of course, you hung out with the people that agreed with you. You didn’t seek out people that violently disagreed with you, unless you went to some protest or something. But, newspapers, for example, at least made a reasonable attempt at being balanced. There was a reasonable notion of truth.
Obviously there are lots of cases where this is not so. But, on the whole things were somewhat more balanced.
But, now we are in this environment that everything is about grabbing our attention. And, this is where things like the free model that you, like, give that really nice vignette about sort of come into play. We are now in a world where we think we’re getting a bunch of free products; but in effect we have given away all of our attention–and attention equals dollars. And, I think economists sometimes have trouble understanding that.
All of us are eminently manipulatable. The brands you’re going to remember are the ones that showed you ads, whether you cared for them or not. We have run studies, for example, where we ask people about remarketing ads. Every single person, if you talk to them, individually is 100% convinced that they can never be, like, persuaded to buy anything. But, if you ask in anonymous surveys whether they bought stuff that they didn’t really need because of remarketing ads, 50% of people will say, ‘Absolutely. I ended up spending money on junk.’ So, this stuff works, and free isn’t really free.
Russ Roberts: So, I’m a bit of a skeptic of these kind of claims. I like to believe people are somewhat rational and learn from their mistakes. And, I say ‘somewhat’–that’s the emphasis. When I was younger, I thought they were always rational, but I’m getting older. I’m getting wiser.
But, when most people make the claims you’re making, my first thought is, ‘Maybe.’ Maybe you’re doing the same thing to me that we’re talking about. You’re trying to make me worried about big bad Google, and you run a company now that’s about big bad Google–
Sridhar Ramaswamy: 100 percent–
Russ Roberts: But, you used to work there, so you actually had some idea of how manipulable people actually are. It’s not just studies in some academic journal, someone trying to get tenure. I assume Google did a lot of effort to find out what effect their search answers to queries achieved.
Sridhar Ramaswamy: This is an important thing to remember. The world cannot be easily divided into people that had evil plans and good people. It just does not work like that[?].
Russ Roberts: I love it. Yeah. I agree.
Sridhar Ramaswamy: Okay.
To me, the larger observation would be that if you pick a certain set of principles by which to live, especially simple quantitative principles, you have to be very careful about things going violently astray, because lots of things happen that are outside of your belief system.
Google is a large and complicated company, and so there is not a simple answer. In search ads, for example–this is the team that I told you I ran for over 10 years–the focus indeed was on ‘Only show relevant ads.’ I used to, in fact, be super-annoyed with engineers in my team that would give explanations for why some irrelevant ad would show up; and so I would have literally what I termed the Stupidity Rule with them. Which is: ‘If you and I can agree that an ad for a particular query is stupid, we will not discuss why the ad appeared. You need to help me get rid of it. I don’t want to hear about your systems. I don’t want to hear about your targeting logic. We will agree on common sense stupidity.’
So, search is one thing. The pressure that search does face is this encroachment. There is a demand for more and more money, and so you end up taking more and more space. It’s very relentless. And, the logical conclusion of search is that for a commercial query you are going to see a page full of ads.
And, by the way, nothing in how antitrust is written right now or is enacted can ever do anything to stop that. It’s like, ‘Hey, they created a product; they’re a monopoly; they’re free to do whatever we want.’ And, we are like, ‘Oh, free market will create a new Google.’ And, part of the reason I’m talking to you is, like, it’s a lot harder than you think.
On the other part about being manipulatable, there is not a group of people that are sitting in one room thinking, ‘How do I manipulate Russ today?’ No. What they are thinking is: ‘How do I optimize conversion rates on these ads?’ That’s all they are thinking. And, if it means showing the same ad to you 30 times instead of 10, even if it happens to really rile a whole bunch of people up about creepy ads following them on the Internet, the principles of that group are: ‘Of course you should show them.’
I have personally had surreal arguments with my team about remarketing ads, where they would come and show me trade-offs. I’d be like, ‘I want trade-offs. Everybody complains about remarketing ads to me. Okay. Come talk to me about how often you’re showing them.’ And, these are ads that chase you round the Internet. And, so–
Russ Roberts: So, when you say–
Sridhar Ramaswamy: Yeah?
Russ Roberts: You’re calling it ‘remarketing’–is that the phrase? So, this is when I’m thinking, ‘Maybe I should get buy a new watch.’ So, I search for a watch, and I look at them, I don’t like any of them, and I close my browser, and I pick up my phone later and there’s this weird ad in my, whatever it is, feed about–
Sridhar Ramaswamy: In your news media, in your feed, 100%.
Russ Roberts: Even worse. Even worse: I buy the watch. And, then I get ads for watches for the next three weeks because somebody didn’t tell them. I want to say, ‘I bought it already, it’s okay.’ But, of course, I can’t do that, because then they’d say, ‘He’s just lying.’
It reminds me of when MCI [Microwave Communications, Inc.]–which was a very good marketing company and maybe a good phone company too, but they were a really good marketing company–they had an event one time. The CEO [Chief Executive Officer] was talking and somebody raised their hand in the Q&A [question and answer] period. And, they said, ‘You know, I’m sick of all the ads. You keep calling me and you keep sending me all this mail.’ This was primitive, prehistoric times. ‘I keep getting these calls on my phone, I’m sick of them. What can I do to get you to stop doing that?’ ‘Oh,’ he said, ‘it’s easy. Just switch to MCI.’
So, obviously the answer was in what we’re talking about: If it works, that’s what they do.
Sridhar Ramaswamy: If it works, that’s what they do.
And, the weird thing–and this is where I talk about mentality and optimization principles. This team–it’s a good team, led by good people–came to me and said, ‘Sridhar, here are some trade-offs for you. We can reduce the number of impressions, ads, that we show on these remarketing ads by some ridiculous number.’ I think it was 12 or 15%. ‘And, if we do that, we will lose about a quarter percent of revenue. But–here’s the big but. We can’t really see that these ads are causing any harm. So, why would we want to leave .25% on the table? And, by the way, if you don’t show it, someone else is probably going to.’
So, that’s the stuff that happens. That’s the thing.
And by the way, it is not the case of you actually being interested in this watch. It’s much more of: You literally just saw something on some TV, in some newspaper article you were reading, and you were just curious. I’m like, ‘I wonder what this watch looks like.’ You had no intention–it never crossed your mind that you were going to think about even buying it. And, trust me, Russ: if you’re pounded with something 200 times, you will be persuaded. This is a common fallacy of our invincibility. We are not. We are eminently manipulatable.
Russ Roberts: Well, I’m a little bit skeptical of that, but let’s put that to the side for now. What I want to distinguish between–actually, let me focus in on a different piece of it. Let’s talk about the attention issue.
We had Matthew Crawford on the program, in a very provocative book he wrote called Why We Drive. And, he was suggesting the reason Google wants to have a car, a driverless car, is because they want to be able to get your attention when you’re driving. And, when you’re driving, it’s a little dangerous to surf the Internet, but if you’re in a driverless car, they can get that time too; and every minute, they want your attention.
Now, I understand it’s hard not to give your attention. We all have personal examples from our internet and phone and laptop behavior that show that it’s hard to sometimes say no. But, is it really so bad that they want to grab my attention? What’s wrong with that? What’s disturbing about it? Why is it bad for me that you want my attention? Obviously you’re giving me things that I’m interested in. On the surface, it’s like the repairman example.
Sridhar Ramaswamy: Well, first of all, there is the hidden cost of the ads economy. The blunt truth of the matter is that search costs maybe a billion dollars to run. Facebook, far far less. Okay? And, if this were to be a pure transactional product–which is, again, the model that Neeva is in: we are a subscriber search engine–I think you would end up in a situation where maybe Google made a good profit, say $5-, $6-billion dollars of revenue.
Instead, the ads economy is set up so that the entirety of your attention is now mortgaged and sold to advertisers. Google makes over $120-billion, more than $50- just in the United States. If you work out the math, that’s a tax of $160 dollars per living person in the country for a service that costs, like, pennies per person per year. And so, there’s the economic cost.
Russ Roberts: Yeah. That’s the other point, it’s just important to emphasize this, that: It’s free in the sense that there’s no out-of-pocket, but the products you buy are more expensive than they otherwise would be because to get people’s attention–
Sridhar Ramaswamy: Effort[?advertising? inaudible 00:32:39]–
Russ Roberts: Now, that’s always been a claim against advertising, that it’s just a wasted cost. There’s a value to it. It helps you find stuff. So, the real question, which is unanswerable but we could maybe make a guess at, is again, is it pushing you towards–
Sridhar Ramaswamy: How much is reasonable?–
Russ Roberts: Yeah. And, is it pushing you toward things that you actually do want, or is it trying to convince you to do things that you, not maybe don’t want so much, but you don’t know better, because you never see the other ads that might be the products that you really do want? That to me is the real concern.
And, there’s a separate part, which we haven’t talked about, which I think everybody is starting to understand, that: As the repairman leaves my house, he takes away the newspaper that I’ve been reading most of the time and he puts a different one in its place with different articles, because he has a political agenda, which I’m totally unaware of. I think I’m reading the same newspaper I always read, but actually he’s changed the articles, and I’m going to vote differently, and my neighbor is doing that, and it’s really not a good thing.
So, that piece of it as to what you actually see–not product consumption, which perhaps ironically is actually not that important, whether you buy the wrong pair of shoes–
Sridhar Ramaswamy: It is. Actually, I disagree with this very strongly, for the following reason.
Russ Roberts: Okay, give me both pieces. Yeah, go ahead.
Sridhar Ramaswamy: Yeah. I disagree with this strongly, because at the end of the day, you know something, Russ? It’s not that hard for you to find out what products are great for you. Okay? Remember Craigslist? Remember?
Russ Roberts: Yeah, sure.
Sridhar Ramaswamy: It’s still free. Technology makes it really possible for us to create scaled products that can serve the world relatively inexpensively. It’s almost as though we’ve said that every water supplier, every electricity supplier, every supplier of every utility to all of us needs to be owned by a monopoly that needs to be subject to no rules whatsoever about how much money they make and how much they can charge. And, we are like, ‘Oh. Because somehow at one level it is free, it’s fine for them to do all of these things.’
My take is that much of the benefits of scale in technology that could have come to larger society have gone to individual companies because of the ads model. Because they’re the ones that reap the profit of these models.
Russ Roberts: Well, there’s also the fact that–and I’ve spent time in Silicon Valley and Palo Alto, many summers as listeners know, and I’ve met really extraordinarily smart people. And, they spend their day doing what you’re talking about.
Sridhar Ramaswamy: Ads optimization?
Russ Roberts: Yeah. Which makes me a little sad sometimes, because maybe they could be doing something more productive in some dimension. You have to have a discussion of what ‘productive’ means. But, I think the general point is something to be concerned about.
Russ Roberts: Now, you’ve started a competitor, partly based on the concerns that you’re talking about. The weird part about it, and of course you can argue about whether–you made a parody; I could tell you’re a little bit skeptical that the free market will provide an alternative. But, the free market is providing an alternative. It’s going to be hard to do, obviously.
And there are many other–on my phone I have Brave; I have DuckDuckGo. I now have Neeva because I’m doing this interview. I subscribed–I’m happy to report. I’m going to give you a year. And, in fact, I may end up giving you more than a year, because as you know, many subscriptions endure until your credit card expires, because that’s when you really start to notice. They say, ‘You’ve got the wrong credit card,’ and then you realize, ‘Man, I’ve been subscribing to that for three years?’
But, anyway, so you have a subscription model. And, the first question–I’m going to have two questions for you. Before I do that, I just want to reference the EconTalk episode with Paul Buchheit, who was the leader of the team at Google that developed Gmail. It’s a long time ago, this episode. And, I asked him what was protecting me from surveillance within Google, and he said–this is my memory of it; it might not be fair to Paul, and we can go back and check the episode; I don’t think we did really good transcripts then–but Paul said, ‘Well, we have a motto: Don’t be evil.’ And, I thought, ‘Mmmm–that’s a weak read. It’s really not–‘
Sridhar Ramaswamy: Which has subsequently been removed from the company’s mottos. Please go on.
Russ Roberts: Oh, that’s a comfort. Or not. I mean, to me, it didn’t–it was when–I kind of liked [inaudible 00:37:13] it’s more honest. Their motto is: ‘We make money.’ Which, again, usually is a good thing, but maybe not in this case.
But, the two questions, obviously as the founder of a new company, just about the product, then we’ll talk about the process. You have competitors already that are free, that promise to not follow you around the way Google does.
And, the second is, is that most people aren’t like you and me: they’re not really worried about this. They kind of love it. And, they’re oblivious to all the things you’re talking about. And, the idea of paying $60 bucks a year for something that they can get for free from Google? ‘Why would I do that?’
So, tell me those two questions: your free competitors, and then you’re expensive relative to both them and Google–in the out-of-pocket sense.
Sridhar Ramaswamy: That’s right. That’s right, that’s right.
I mean, first of all, yes, there are competitors, but outside of Google and Bing, we are the only company that is actually a product company focused on search. We started using Bing’s APIs [Application Programming Interfaces], but we have since made very large investments in all of the infrastructure needed to create a better product. And, that pays off in a big way in terms of the innovations that we can create. It can index your personal data. None of the others can do that. It’s an optional thing. But, if you are like, ‘Hey, a bunch of my life sits on Google Drive, on DropBox, on other applications,’ you can use Neeva to search over those as well.
And, we are running infrastructure that is now at fairly massive scale, and that lets us create better products–for programming queries, for product queries. It’s just able to innovate a whole lot more, rather than slap, like, a privacy layer on top of existing products, like some of the others have done. So, we are one of the few companies that are, that is focused on truly creating a better search experience. That distinguishes us quite a bit.
The biggest hurdle that we face, by the way, is not the point of converting Neeva users to paid subscribers. Isn’t really getting the word out there. Isn’t raising awareness for people to even try. At this point, we have a product that is very, very good; but both because many browser doors are locked–like, for example with Safari or with Chrome, where we can’t get a default placement, or it is incredibly hard to have any mechanism by which you as a consumer has an option. By the way, there’s no way for you to change your default search on Safari in iOS [iPhone Operating System] or on your Mac. It’s things like that. It is getting people to even try Neeva. That’s the biggest competitive hurdle that we face.
We have very healthy conversion rates. Once people use the product, they get the value from the product and they’re using it day in and day out. Our conversion from the free tier to the paid tier is incredibly healthy. That is actually not something that I’m concerned about.
And, the reason for that is: once they use the product, once all of the tracking goes away, once all of these creepy ads disappear–because we also prevent tracking as a core part of the value proposition–people suddenly realize, ‘Oh, having a service that just works for me, where I don’t have to worry about what I’m clicking on, is a big deal.’ It’s more what we call the top of the funnel that’s a bigger issue for us.
And, this is where I will say again, competition is not a click away. That’s, like, a myth that is perpetuated by incumbents.
Russ Roberts: Say that again, competition is what?
Sridhar Ramaswamy: Well, so the typical answer that you’ll get from tech companies, whether it’s a Facebook or a Google is: ‘Oh: Competition is just a click away. Anyone can click on any other site and go do it.’ But, you know what? People are ingrained with their habits. People search by opening up a new tab and putting in a search query. And, if you cannot become a search provider there, you might as well not exist. You cannot break these habits. And, that’s what I mean by competition is not a click away, and the free market is most definitely not working when it comes to search.
By the way: Yes, DuckDuckGo is a 12-year-old company that has made slow inroads, but compared to say other [inaudible 00:41:26], whether it is enterprise software, whether it is cloud software, or whether it’s crypto software companies, the amount of actual competition in adtech, in search, is minimal. And, to a certain extent, I am, like, the weirdo of having enormous experience–and at Google–and also willing to take on a challenge that is as hard and as daunting as that, of building a new search engine. This is not the kind of thing that your 23-year-old entrepreneur is dreaming of, because they know that they’re not going to get any funding whatsoever if they propose an idea like this.
Russ Roberts: How many employees do you have?
Sridhar Ramaswamy: We have about 75 people.
Russ Roberts: And, do you have funding?
Sridhar Ramaswamy: We have funding from both Greylock and Sequoia, two of the premier venture firms in the Valley [Silicon Valley]. Sequoia funded Google. We are one of the few companies that have significant venture fund.
Russ Roberts: So, one question I have, and I have this for DuckDuckGo as well: These small right now–perhaps larger eventually, but right now small–competitors to Google, they promise they won’t track you, they won’t sell your information. Neeva gives you a little scorecard in the corner of how many sites have been keeping an eye on you that they have stopped, which is kind of fun. I kind of like it.
But, you have, as you mentioned before, an option where I can register–I can give you my name and email, and it will allow the power of Neeva to search other aspects of my life, my Dropbox and so on. But, why should I trust you? If I’m a paranoid person, which I am a little bit–not much, but a little bit–and I’m using you as I am partly because I just don’t like the Google dominance and I want to contribute to some competition, how do I know you’re not just Google but pretending to be something else?
Sridhar Ramaswamy: I mean, this comes to–trust is earned. It’s cannot be asked for and it has to be earned. And, I see trust as an ongoing relationship. It’s not one promise and therefore you trust us. Certainly it is in the ethos and DNA [Deoxyribonucleic Acid] of the product that we are considering, that we are building.
We are also very open about how we are not going to make money: We don’t make money by taking your data and giving it to anyone. We have no data products. We have nothing else. In terms of Neeva, we have a consumer subscription search engine with a freemium model.
That’s what we do, and really trust is earned over time, and we’re very open about what we do and what we don’t do. I think it’s the ‘what we don’t do’–have any other lines of business involving any kind of data–that I think is the guarantee.
We’re also working on technological solutions by the way, for things like search. There is some early research here that will let us run search in a true end-to-end encrypted fashion, meaning that we will be able to search on behalf of you all of[?] your data in such a way that we cannot see the data. If it sounds magical, it kind of is. It’s early research.
So, we are thinking about things like that, where we can provide services for you without you having to worry that we have the actual content of things like your [inaudible 00:44:54].
Russ Roberts: Let’s talk about search in a little bit of a philosophical way. I love what you said earlier about human curiosity. I gave a talk earlier today, and I often marvel at how–we talked about this in an episode with Lorne Buchman called Make to Know. Often as artists we learn about what we want to make by doing it. We don’t have a plan. I might have an outline for my talk, but I figure out what I’m going to say sort of when I’m saying it. And, thinking is clearly a combination of thinking about things in the calm of your armchair, but also talking, because we’re human beings. And, I think we have a romantic idea about search a little bit, which is, ‘I’m curious about things. I want to find something out.’ I gave the answer to–earlier, we talked about who wrote the line, ‘The strong man must go.’
But, a lot of search isn’t about finding an answer. It’s exploring. If I want to know the capital of France, I want to know Paris in a nano of a nano of a nanosecond. But, if I want to learn more about French culture, I don’t want an answer. I want to go swimming. I want to go sailing. I want to go, not navigating even. I want to just explore. I set out; I’m not sure where I’m going, and actually, I’m using all these water metaphors–we call it ‘surfing.’ It’s interesting. I’m not sure it’s the best metaphor, but that’s the one we’ve come to use for this. And, then we even say things like, ‘Oh, and you go down a rabbit hole,’ like going down a rabbit hole is a horrible thing. Actually, it’s what a lot of us–we long for it.
Sridhar Ramaswamy: It’s a fun thing. Yeah.
Russ Roberts: I want to find a rabbit hole to spend some time in. That’s what makes my mind sing, my heart sing.
So, I think what this means for search is that there’s no right answer to what kind of search serves me well. It’s a very deep philosophical question. Certainly I don’t want my search query to lead to things that are bad for me, or to be manipulated by someone who wants to sell me something. But, in what sense is there such a thing as, quote, “organic”–you call it organic searching in your documentation or ads about your product. Obviously there’s a difference between search where I’m being told what I’m looking for is something I don’t really want, versus something that’s really organic. How do you get there from here? What’s going to be the underpinning of a better search engine–not the ad part–just the finding out, the exploring?
Sridhar Ramaswamy: Yeh, yeh, yeh. This is a great question. We spend a lot of time thinking about this, talking about it. This is one of the things that genuinely excites us. I think you made the important distinction clear, the difference between an ad-supported search engine and everybody that is out there–Google, Bing, but definitely Duck and Brave, and you. They’re all ad-supported, and that is an important distinguishing factor, where we start with the premise that we only serve you results that in our opinion are the right ones for this query.
But, beyond that, how do we facilitate exploration? How do we facilitate alternate interpretations? I’ll give you a funny example. Actually my son came up with this particular one: it’s a genuine query that he had. The query is, ‘Find Swift 5,’ the number five. It turns out–
Russ Roberts: And, say that again. Say that again, find what?
Sridhar Ramaswamy: Yeah, the word ‘find,’ F-I-N-D. The word ‘Swift,’ like the bird, S-W-I-F-T. And, then the number five.
Russ Roberts: Okay.
Sridhar Ramaswamy: And, it turns out that SWIFT [Society for Worldwide Interbank Financial Telecommunications] is a banking code, is a banking system.
Russ Roberts: Yes, it is.
Sridhar Ramaswamy: ‘Find swift’, it could mean that. Swift 5 is also the name of a laptop that the company Acer produces. And, it turns out that the thing that he was really looking for was documentation for the function ‘find’ in the fifth version of the Swift programming language that Apple had created.
And so, there are lots of things in life where there’s this kind of ambiguity. And, we talk about, what are labels we can attach to different pages where we can tell you, ‘Hey, is this really the area that you are looking for? How do we also make it easy for you to do what we call go sideways?’
We have a neat feature on the Neeva iOS app. I think it was called Neeva Scope–it was called the cheat sheet, to begin with–where basically you can press the Neeva icon on a page, and we’ll show you everything that is around that page in web distance. So, you not only see one page, but you see other things that are similar to that page, not from the viewpoint of typing in the same search query, but more from the viewpoint of what is semantically close.
So, there are lots of ways of navigation. You can also imagine situations in which you take a set of search queries and then you say, ‘Hey, here are some links that you might be interested in because you tried all of these things.’
So, I think the journey is still out there in terms of what can be done with search. The deep-learning models are another very fascinating angle. They have the power to assimilate billions upon billions of documents and generate useful summaries. So, who knows? We might actually be producing content that doesn’t even exist, where search is more of a conversation between you on this [inaudible 00:50:50] model that has digested much of the Internet that is there, and is synthesizing new information for you.
So, the field is very young. If anything, I wish there were more competition, because, like, with 10x [10 times] amount of resources that we have, I think we would be producing many, many more interesting projects than what we are able to do right now. And, to me, that’s the magic that simply does not happen in today’s head-dominated environment, versus, like, one player, and no one else really can break in.
Russ Roberts: So, let’s go back to your son’s query of ‘Find Swift 5.’ So, many, many times, some of those answers which he wasn’t looking for might intrigue him. Obviously that’s part of this exploration thing we’re talking about. In this case, he actually did have a destination he wanted to head to. But then he realized, ‘Oh, I’ll go over here first.’
Now, one way to think about organizing that search is that you’d see all of those on the first page. And, it would give me a chance as the user to decide, ‘Oh no no no no, I meant the Swift programming language, not the bank code.’ I think what you’re suggesting happens now is that when people enter the word ‘swift’ into, say, Google’s search engine, people who were willing to pay for ‘swift’ would dominate at least the first page. Some of those things–would I know that they were paid for in Google [inaudible 00:52:25] today?
Like, on Twitter–I’m really good on Twitter, where I see something and I go like, ‘Those aren’t my friends.’ And, I look down, and it says: yeah, it’s promoted. But, on Google, what do I see? In the old days of Google, you’d see the stuff on the side and I’d go, ‘Oh, I’m going to ignore that.’ I never looked at it, ever. But, now, of course, like you were saying: there’s that thirst for profit. It’s now just mixed all in. It’s so exciting.
Sridhar Ramaswamy: You do see the label, though. You have to give Google credit on that. You see the labels for ads: you can tell. But, it is important to understand that it is still attention. It is still, you have to scroll past.
By the way, I use Twitter exclusively on desktop. Like, I have all kinds of subscriptions, but I still prefer desktop and a trusty ad blocker, because I find that even the services that I pay money to–maybe that’s a question for me–fill themselves up with ads, which is something that we, for sure, never want to do, because there’s no limit to that.
I find sites like the New York Times, but even the Wall Street Journal, to be unpleasant experiences on my phone, even though I shell out $15, $20 bucks every month, to both of them. They’re a lot nicer on desktop. Same for Twitter.
Russ Roberts: And, that’s because on your phone, it’s harder to block the ads? Why?
Sridhar Ramaswamy: Yeah. Because I use their app.
Russ Roberts: Ohhhh.
Sridhar Ramaswamy: I use their app, and the apps come with ads built in: no way to get rid of them. I use the app because I’m like, ‘This will be a more pleasant experience.’ No, it’s just unpleasant.
Russ Roberts: Yeah, I have that, too. Because you’re reading an article and you think, ‘Oh my gosh, it’s over. Oh no, it’s just a long ad. It’ll keep going.’
Sridhar Ramaswamy: It’s an ad that takes up sort of the whole screen.
Russ Roberts: And, it’s a brutal, throat-clearing for the author. The idea that I’ve written this brilliant feature article or profile of someone interesting, and then, yeh, I get a few hundred words in: it’s like, ‘And, now a note from our sponsor.’ Whoa whoa whoa whoa whoa–
Sridhar Ramaswamy: Exactly–
Russ Roberts: I wrote this beautiful piece.
And of course, it will change the way people write those pieces, because they’ll know they have to anticipate those. Or maybe they don’t. Maybe you don’t want it to look like a little stopping point for the ad, because then maybe they will think it’s over. We’ll see how this goes.
Russ Roberts: You are skeptical about competition in this area, and even I, who–I’m one of the more, say, ideological fans of competition–I’m a little bit uneasy about it here and have been growing uneasy about it, as I’m sure listeners have noticed. There are some hopeful signs on the horizon. Short of antitrust. Antitrust–we recently had an episode with Mike Munger, where we talked about how poorly designed current antitrust law is for these kind of issues. It really is–it’s interesting. But–
Sridhar Ramaswamy: It’s interpretations, right? The consumer welfare standard isn’t law, it’s an ad hoc interpretation that’s broadly gotten adopted.
Russ Roberts: Oh–and it’s not even–and, I wouldn’t say the history of antitrust is really a very good history of consumer first.
But, anyway: you’re worried. I’m a little worried. You’re more worried than I am. You have now taken a big personal stake. You’ve got a lot of skin in the game in this worry.
Now, I see some encouraging signs. Apple has shown some interest in privacy relative to its competitors, tried to make it a comparative advantage in terms of identifying their product. There are search engines like yours. I’m sure places like Greylock and Sequoia, the venture capital firms are funding–I hope they’re funding–some alternative social media efforts.
I know as of three years ago when I used to go to the Bay Area, there were all these wonderful, innovative attempts to be alternatives to the current social media. Maybe they’re going to be dead in the water, but do you have any optimism about how this might turn out? Or do you feel like you’re Don Quixote tilting at windmills–using someone else’s money, which is helpful, but–to fund the lance and the horse and the rations?
Sridhar Ramaswamy: Well, just on the last part, I put up my money for the first round of Neeva. I invested as much as Greylock and Sequoia, so there’s more than–I’m just not talking. I care about the outcome and I’m personally invested in a very real way, in addition to my time.
Russ Roberts: Fair enough.
Sridhar Ramaswamy: I actually do think that listening to what you’re saying, you’re, like, ‘Wait. Don’t worry about competition. There is a two trillion dollar company that is out chasing other two trillion dollar companies to rescue us.’ Listen to yourself. And, somehow we don’t think that that’s the government’s job, to be doing this. So, that’s my first point.
The second point is that I think things like consumer welfare standard, which by the way, when [inaudible 00:57:21] wrote about consumer welfare, he meant it from an economic perspective of producers and consumers, and not really that of you and me.
I think the fact of the matter is that current antitrust law largely does not apply to ad-supported companies, and I think this is where we need to make sure that law and regulation are keeping up with the challenges of modern times. I talk to people. My friend Kent Walker’s team. Kent is GC [General Counsel], head of legal, at Google. He has more lawyers than there are employees in the FTC [Federal Trade Commission]. That’s the world that we’re living today.
And so, our government, which technically is supposed to look out for all of us, is woefully under-prepared and under-invested to take on these behemoths of corporations, which in my mind are stifling competition.
There’s a lot more that can happen. But, most startup founders are not like me. They are not as determined or not as stupid to take on challenges like this. People go where there’s opportunity. There’s a reason why you’re seeing so many people in blockchain, because they’re like, ‘Oh, no Google, no Facebook, let’s go.’ And so, I think we need to bring that innovative mindset back to how we think about computing. There is so much more that can be done.
Russ Roberts: Yeah. For better or for worse, I think a lot of founders of startups, their dream is to be bought by Google. It’s not to defeat Google, for sure.
Now, I want to emphasize that word ‘technically’ in your sentence, ‘Technically government should be looking out for us.’ In my experience, it’s a mixed bag. Historically, in my view, it’s not unanimously held, but many people believe that antitrust and government regulation is often used to protect incumbents from competitors by putting lots of regulation on them. And all of a sudden, a new startup comes along and they have no chance because they don’t have that internal law firm that’s one of the largest in the country, already inside Google, to comply with all these regulations.
Sridhar Ramaswamy: GDPR [European Union’s General Data Protection Regulation] is an example.
Russ Roberts: What’s an example?
Sridhar Ramaswamy: GDPR, the European regulation.
Russ Roberts: Oh yeah, exactly.
So, I think the challenge is, we could imagine perhaps some antitrust regulation that might make the world a better place. It’s not clear we’re going to get it. And, I salute your efforts, and I’ll be fascinated to see not only if you’re successful, but I’ll be even more interested to see how your product changes, because I think one of your themes in the writing you’ve done on this is that innovation is important. You hinted at it, you alluded to it, you mentioned it when you talked about this, and it would be innovation that would not make more money for advertisers–revenue going for advertising–but would innovate by making my experience as a user more pleasant. That’s a great idea, and I’ll be interested to see how that proceeds in the next few months while my subscription is still active.
Sridhar Ramaswamy: Thank you, Russ.
Russ Roberts: My guest today has been Sridhar Ramaswamy. His company is Neeva. Sridhar, thanks for being part of EconTalk.
Sridhar Ramaswamy: Thank you. Please check us out, Neeva.com, N-E-E-V-A dot com.
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