Good Revenue vs Bad Revenue
Split every quality gain 50/50 between monetisation and product — bad revenue is not sustainable
- Difficulty
- Moderate
- Time to result
- ~ongoing to results
- Steps
- 4
- Confidence
- 89%
Schmidt's rule for the recurring decision every platform faces: when you improve the product, do you convert the gain into more ads and revenue, or into a better experience? At Google he arbitrarily set the split at 50/50, because he judged both to be important, and Larry and Sergey backed it. The result, in his framing, was that Google became more moral and also made more money. The alternative — maximise revenue by surfacing the lies, cheating and deception that draw people in — is not just wrong, it is unsustainable, because Gresham's law applies to speech: bad speech drives out good.
Origin
Schmidt, Larry Page and Sergey Brin repeatedly faced the choice at Google, and Schmidt set the arbitrary 50/50 rule; he has since put the same argument directly to TikTok and other platform leaders.
Core principles
- 01There is such a thing as bad revenue, and it is not sustainable.
- 02Split product-quality gains between monetisation and experience rather than choosing one.
- 03Bad speech drives out good speech — Gresham's law applied to platforms.
- 04Maximising revenue means maximising attention, and the easiest way to maximise attention is to maximise outrage.
How to run it
- 1
Name the decision explicitly
When product quality improves, treat 'monetise it or improve experience' as a stated executive choice, not a default.
- 2
Set a fixed split
Commit to a standing ratio — Schmidt chose 50% to revenue and 50% to product quality.
Pro tip An arbitrary but fixed rule removes the argument from every individual launch.
- 3
Keep the bad stuff off the first page
Accept that bad content exists on your platform, but design ranking so it never surfaces at the top.
Pro tip Schmidt's summary of Google: there's plenty of bad stuff on it, but it's not on the first page — that was the key thing.
Watch out The engagement-maximising alternative drives people insane and eventually breaks the business.
- 4
Audit the objective function
Check what your algorithm is mathematically told to maximise, since it will optimise that regardless of your stated values.
Pro tip Algorithms will not give a struggling user positive alternatives unless you force them to.
Watch out Optimising raw attention converges on outrage, because outrage is the cheapest attention.
In the wild
Whenever Google improved search quality, Schmidt directed half the gain to additional ads and half to a better user experience, with the founders' support.
→ In Schmidt's framing Google became more moral and made more money — bad results existed but never on the first page.
Asked what he would do as CEO of TikTok, Schmidt described the bandit-algorithm dynamic pulling users into confirmatory rabbit holes and prescribed the good-revenue/bad-revenue split.
→ He argues platforms can represent hope, creativity and invention rather than the worst of humanity, and that this is achievable.
Common mistakes
Treating engagement as a neutral metric
An objective function set to attention will find outrage and misinformation as the cheapest route, producing harm the company never explicitly chose.
Is it for you?
Best for
Leaders of consumer platforms and media products with an engagement-driven business model.
Not ideal for
B2B or enterprise businesses where revenue is not attention-derived.
From the transcript
“there's sort of good revenue and bad Revenue”
“I arbitrarily decided that we would take 50% to one 50% to the other because I thought they were both important”
“there's plenty of bad stuff on Google but it's not on the first page that was the key thing”
From the episode
Ex Google CEO: AI Is Creating Deadly Viruses! If We See This, We Must Turn Off AI! They Leaked Our Secrets At Google!
Eric Schmidt