Google CEO on YouTube, MSFT-YHOO, and New Google Projects

Includes: AABA, GOOG, MSFT
by: The Deal Economy

Google Inc. (NASDAQ:GOOG) chief executive Eric Schmidt kept his answers as broad as New Yorker writer Ken Auletta's questions during a conversation Wednesday at the St. Regis Hotel in San Francisco, hosted by Syracuse University's Newhouse School of Public Communications. Their wide-ranging conversation covered the Microsoft Corp. (NASDAQ:MSFT) - Yahoo! Inc. (YHOO) dance, social networking, privacy, mobile technology and Evil (as in "Don't Be"). Although Schmidt kept his strategic hand relatively close to his chest, he offered up a fair share of pointed insights, facts and metrics. Among them:

  • Monetization of free services such as YouTube, acquired in October 2006 for $1.6 billion, remains a mystery. Google's culture dictates that its goal is to change the world, and monetizing services is a way to subsidize that goal. Because it doesn't have to make money on such services right now, it has the luxury of time to invest in them.
  • YouTube now accounts for the majority of Google's outgoing bandwidth.
  • Google hasn't tried to block Microsoft's acquisition of Yahoo!. "An independent Yahoo! is better for innovation and competition," he said. Its independence is also "in the market's interest," especially considering that Yahoo! is "by far" the largest provider of online display advertising.
  • Gathering information about users has a "natural limit": when end users perceive that the data-gathering party has gone too far.
  • The "vast majority" of Google searches conducted on mobile phones come from Apple Inc.'s (NASDAQ:AAPL) iPhones, largely because its Web browsing interface is superior to that of other phones.
  • Schmidt, a member of Apple's board of directors, has had to recuse himself "once or twice" from conversations about the iPhone that posed potential conflicts of interest due to the so-called "two-hat problem."
  • Google faces moral quandaries when other media companies producing high-quality content have to charge lower advertising rates as a result of its free services. Google News sends more traffic to content providers than it cannibalizes, so "on balance" he believes the results are positive.
  • Google sees its text-based advertising model as a descendant of mailer-style direct marketing rather than TV-style advertising, and mobile advertising will be even more "tactical."
  • Schmidt's favorite projects in Google's future include artificial intelligence products such as a translation engine familiar with 100 languages, geopositioning products that capitalize on higher resolution, and a tool that allows users to view long-exposure pictures of objects in outer space
  • Governments have "the power to affect the Internet in remarkable ways," but "a lot of the world is organized around lack of information, trying to prevent people from knowing what's going on." Millions of photographs, mostly of people, are uploaded daily, creating a photo record that "has enormous value and is threatening to closed societies."
  • "Technology accelerates time." Issues of corporate governance are largely the same as they were 30 years ago, but everything -- including innovation, scaling and failure -- happens faster.
  • Google's "don't be evil" mantra came from an engineer's assessment of a project as "evil"; the project was later spiked. Although the company doesn't have an "evil meter," the aphorism is a "cultural rule, a way of forcing the conversation" in ambiguous areas.