Facebook just pulled a Netscape. What the hell are they thinking? They just flipped off Google and others in this openness war - how? by being closed.

Most of the Facebook kids were not around when Netscape blew it to Microsoft. Now Facebook is making a blunder to fight Google on a frontal basis.

Here they write via their developer blog ….hold on let me get the violin out..”Now that Google has launched Friend Connect, we’ve had a chance to evaluate the technology. We’ve found that it redistributes user information from Facebook to other developers without users’ knowledge, which doesn’t respect the privacy standards our users have come to expect and is a violation of our Terms of Service. Just as we’ve been forced to do for other applications that redistribute data in a way users might not expect or understand, we’ve had to suspend Friend Connect’s access to Facebook user information until it comes into compliance. We’ve reached out to Google several times about this issue, and hope to work with them to enable users to share their data exactly when and where they choose.”

Kara Swisher please decode this for us? I think that this is garbage for Facebook to do this - Hello Beacon…

I have been following Facebook for some time and never got one response from their PR people. I’m tired of waiting. My opinion is that this move is bad. What a PR blunder.

Update: Mike Arrington has a detailed post from both companies. Nice post Mike!.

Facebook: Privacy my ass - This is a Facebook PR stunt backfired…this imho only hurts Facebooks platform development efforts because FB need to develop the platform and this petty shit has to stop.. ..Elliott’s 2nd day on the job. Nice job pal - NOT.

Yahoo is getting a taste of the real world. Greed is Good! They thought Steve Ballmer was hostile - hell he practically walked up with flowers with his lips puckered compared to what Icahn is up to. Someone get a fork cause Yahoo is done!

Kara Swisher pens one of the finest blog posts decoding the letter.. Kara has been on fire lately and on top of the Yahoo story from day one.

My fav line from Kara’s post is this:

Icahn wrote: It is clear to me that the board of directors of Yahoo has acted irrationally and lost the faith of shareholders and Microsoft. It is quite obvious that Microsoft’s bid of $33 per share is a superior alternative to Yahoo’s prospects on a standalone basis. I am perplexed by the board’s actions. It is irresponsible to hide behind management’s more than overly optimistic financial forecasts. It is unconscionable that you have not allowed your shareholders to choose to accept an offer that represented a 72% premium over Yahoo’s closing price of $19.18 on the day before the initial Microsoft offer. I and many of your shareholders strongly believe that a combination between Yahoo and Microsoft would form a dynamic company and more importantly would be a force strong enough to compete with Google on the Internet.

Translation: Here I am stating the glaringly obvious. But don’t you like my use of self-righteous and indignant words like “unconscionable”?

Nonetheless, I must ask: What are you smoking over there on the Left Coast?

When someone dangles more than $40 billion to anyone on Wall Street, we’d throw our mother under the wheels of the bus if we needed to to get it. Frankly, we would do it for $12.43.

In any case, your break with reality is my golden opportunity.

CBS buys CNET as reported first by PaidContent.org.  I need to digest the impact of this but off the top of my head this is clearly CBS 2.0 - the web2.0ifcation of CBS.  I expect CBS to let the CNet folks lead the charge.  It’s a public secret that there is some great talent at Cnet waiting for the ‘green light’ to compete.  We’ve seen this with the recent moves by Dan Farber.  Dan has successfully started CNet in the direction of blogging and social media.  Charles Cooper is blogging hard and twittering.  CNet has a group of Pros.  CBS did good with this deal.  If CBS tries to run the show then this could be a dud.

The big question that comes to mind that isn’t that obvious is “Can the West Coast Bay Area build and run media companies”?.  There is talent here in the Bay Area, but is there a understanding of the business and economics?  Why can’t West Coast Bay Area companies dominate from this coast?

I hope CNET can lead the CBS 2.0 charge.

AdAge has a great article talking about the success of H&R Block’s implementation of Social Media.

Here is a nugget from the story. “Once brands embrace social media, agencies also have to change some of their fundamental processes when it comes to creating and distributing content, said Kelly Mooney, president and chief experience officer of Resource Interactive. For example, in social media there isn’t just one big idea. As evident in the H&R Block case study, sometimes social media is about stacking up many small ideas to create a big total impact.”

Over the past few months I’ve been consulting and researching social media strategies and tactics with large companies.  It is true that agencies are challenged in delivering on the social media plans.

This is Bill Gates last CEO Summit. Here is the link to his keynote speech where he talks about innovation.

Here at the UC Summit I just sat through a talk by Eric Swift, Microsoft’s Senior Director of Unified Communications, where Eric talks about the innovation of software in the Unified Communications area. This is ironic because Bill Gates has been talking about the impact of software all the time he has been at the helm of Microsoft. Now it seems that Microsoft is poised to move those advances into new emerging areas like Unified Communications. Unified Communications is the Web 2.0 trend in the telephony sector. It’s big.

Eric goes on to say that presence and identity are at the heart of all their software advances for Unified Communications for users and enterprises. He notes that the biggest challenge is the network problems - loss, latency, jitter, delay, connectivity, security, etc…

Eric Swift highlighted the two biggest trends for adoption of Unified Communications - 1) opt-in for users (verses the brut force implementation practices by enterprises), and 2) the massive adoption of ‘hosted’ services.

Note: I asked Eric to talk about how he sees Live Mesh (vis a vis Unified Communication solutions) - He gave a non-answer; It’s clear that Live Mesh is great solution for consumers and possibly much stronger for Small Medium sized Enterprises verses the deep and heavy Microsoft Unified Communications solution. Microsoft has some positioning to do on Live Mesh and their Unified Communications solution.

Overall I was impressed with the notion of software being the major advance for this new trend. I hope the network guys can solve the software problem around DDOS, delay, jitter, loss, connectivity, and security… Until the network issues are resolved video is a pipe dream in Unified Communications.

UC Summit is an exclusive conference of leading vendors, analysts, consultants, and opinion leaders in the growing area of Unified Communications (post from cofounder Blair Pleasant on day 1 of the UC Summit). Here we have the opening keynote by Mark Straton Senior Vice President of Siemens Enterprise Systems. Mark delivers the keynote speech at the Unified Communications Summit 2008 - UC Summit 2008.

In this talk Mark talks about the role of software in Unified Communications. More importantly Mark addresses the growing opportunity around consolidation. It has been rumored that Siemens is spinning out or selling its software enterprise group. Candidates include Microsoft, Nortel, IBM, and Cisco.

UC Summit 2008 is the first conference for UCStrategies.com - a growing authority blog on the vertical of unified communications.

Founder of UCStrategies, Jim Burton, comments on the state of Unified Commications. He says “Unified Communications has moved beyond the IP PBX and the soft phone on our PC. Very significantly, its reached the point where end-user behavior has created the need for more flexible communication tools and access to information at any time from anywhere. Going from “what will the customer do with it’ to “how will technology meet the changing communication patterns of the end-user” was a twisty road. But here we are - at a point where the narrow, twisty dirt road is about to widen and become a busy 6-lane highway!”

The interesting think from Mark Straton speech is the speculation that a major consolodation will happen nad that Siemens Enterprise (Unified Communications software group) will be bought in the next 60 days by a major player. My guess it will be someone who values software. The only name Mark didn’t mention in his keynote is Nortel.

If Nortel is the candidate to buy Siemens unified communications division what does this mean to their Microsoft relationship?

Rob Hof has a post about online advertising showing signs of weakness. I would generally agree with Rob, but would say it’s growing in another direction.

I’ve seen this movie before in 1998. The ad business is changing again. Back in 1998 the rage was impressions impressions impressions..it’s was all about banner ads. Then it became clear impressions and paying for traffic wasn’t working for advertisers - enter performance advertising - the paid keyword.

Today we are in a similar dynamic. Sure the ad market is showing weakness but it’s not because it isn’t effective. It’s because the CPM don’t get the job done for advertisers and publishers. New products will be coming…

I’ve been saying on this blog and other places that CPM will be one small feature of the future online advertising market. The future is about the social graph..the next Google will emerge from the new dynamics and relevance coming out of the social graph infrastructure (yes that would include data).

Microcontent is the big trend that will be the preferred ad unit in the future. As I have been saying for years - In Social Networks - The Content is the Ad.

Update:  eMarketer has social advertising data including key trends and growth rates.

Social Gaming Network lands a round of $15 million in venture funding.  Eric Eldon at Venturebeat has the best  writeup on the company and the news.

I think that Social Gaming Network is on to something really big.  The social graph is working and these guys have proven how fast applications can grow.  The big news here is the scale of their reach and the platform that they are building for Social Graphs and Social Networks.

This is a very important trend to watch.

It’s a done deal EDS is now the services arm for HP. Back when I worked at the Hewlett-Packard Company from 1988-1997 it was a growing company it was the ‘old school’ HP.  So much has happened in 11 years.  First iCarly came in and destroyed the Bill and Dave culture with massive changes to the organizations, failed PriceWaterhouse deal, and the bloated Compaq deal.  Here we have Mark Hurd in the midst of an operational turnaround pulling the trigger on a massive combination.  This might just be the end for many of the ‘old school’ HP execs.  I hope HP can retain some of that innovation legacy of Bill and Dave.  HP needs to keep folks like Ann Livermore.

HP is such a different company now and with this EDS deal - HP has officially transformed itself into a modern 800 pound gorilla in the computer business.  The old HP that I knew is gone.  Hello the new HP.

I think that this is a smart move and gives HP strength in numbers and service deliverables.  This will secure the enterprise business for a long time.  However, I still scratch my head at why HP isn’t being aggressive in the web services online consumer space.???

I wonder what’s next for HP on the consumer side???  hmmmm

Harry McCracken is another pro journalist going solo on the web. Web 2.0 is a haven for the talented who want to underwrite their future with their talent. I think Harry will do well, but what strikes me is the sheer guts it takes to do this. Congrats Harry. Starting a business is hard, but in the end it will take drive, energy, and talent (off course revenue).

Harry is known throughout the blogosphere but well known for taking a stand on a story that he wrote. When asked to take it down Harry stood up to the parent company.

Harry: let me know if you need any help and I’ll certainly link to you.

The big HP rumor is the contemplated buyout of EDS.

I was reporting this rumor on my blog last week. This will be a massive reorg for the computer giant HP. HP being a major player in the services business will buy EDS. Impact: massive reorg of the existing services organization. Remember the failed attempt by iCarly who tried to buy PriceWaterhouseCoopers to bolster the services offering to counter IBM. Question is will this deal be the same massive integration job as experienced with the Compaq deal. Unlike iCarly, Mark Hurd had the chops to pull this off. Word within HP is that Mark is in touch with the operational machinery of HP and has the respect of his management.

Rob Hof reports “With the big exception of that pretexting scandal in 2006, Hewlett-Packard has kept a remarkably low profile under CEO Mark Hurd. That may be about to change shortly, as the Wall Street Journal reports HP is close to a deal to buy Electronic Data Systems. (UPDATE: HP just reported it’s in talks but said an agreement hasn’t been reached yet.) At about $12 billion to $13 billion, or a 30% premium to EDS’s stock as of Friday’s close, the deal would be HP’s largest since the much-debated $20 billion Compaq purchase in 2002 under former CEO Carly Fiorina.”

This is a big blow to the existing services business at HP. Here is the spin from HP…. A deal would bolster Hewlett-Packard’s competitive position versus rival International Business Machines Corp. (IBM) as a provider of services such as tech consulting and customer support. The transaction could spark further large deals in the technology sector as cash rich, mature companies such as Hewlett-Packard look to acquisitions for growth.

These mega mergers just don’t seem to make sense when you see the massive integration. I could be years for an organization like HP to digest the culture of EDS. If HP and Mark Hurd can pull it off it will be a coup.

Update:  It’s Official - It’s No Longer the Hewlett-Packard Company

Social Media Test: Find the Holy Grail. It’s hidden in this video.

For all the social media marketers out there you need watch this video. Why because of all the noise out there in social media this video panel discussion is the most relevevant information for you.

The future of marketing will be impacted by widgets - this is what the Slide CEO Max Levchin didn’t want to say in front of all the people at Web 2.0 conference. This is where the holy grail is.. Sparing me of writing what the holy grail is ..I’ll just post the video and see if you can fish it out..

It’s a kind of social media test…

Key Players:

Hooman Radfar, CEO & Co-founder, Clearspring Technologies
Kevin Freedman, Vice President, Finance & Operations, Slide
Eric Alterman, Chairman, KickApps
Dan Riess, Vice President, Marketing and Ad Solutions, Turner Broadcasting System
Sun Jen Yung, Managing Director, Investment Banking, Oppenheimer & Co., Moderator

My friend and investor Andy Kessler puts out a great Opt-Ed piece today for the WSJ called the War for the Web.

Andy knows a thing or two about technology and big platform trends. He was documenting the PC revolution at Morgan in the 80s and made tons of money for his investors running a hedge fund with many successful investments during the Web 1.0. He nails it with this article.

Andy breaks down the analysis of the Yahoo Microsoft battle (really a War between Google and Microsoft). I see Microsoft’s moves as pure competitive strategy because as Andy points out the battle for the key corners of the ‘future Web’ is unsecured. Expect this War to continue. Advantage Microsoft.

The big fight is for the following core elements that are unsecured by any one vendor: 1) Cloud, 2) Edge, 3) Speed (of new services integration), and 4) platform. At the moment, neither Google nor Microsoft, or anyone else, has nailed down cloud, edge, speed and platform.

Andy goes on to say..”The continuing battle between Microsoft and Google will mean fierce competition – adding features, building data centers, cutting deals and spending money on speed and customer convenience. That’s the way to move technology forward. It’s great to see Microsoft with some fight left in it. Not only hasn’t the Internet yet matured, it’s becoming an ever-more high stakes game.”

Mr. Kessler, a former hedge fund manager, is the author of “How We Got Here” (Collins, 2005).

This memo is very telling about how Microsoft sees their business and the core message to the troop.

Basically I read this as him saying that this won’t be our Vietnam or Iraq. In watching this from the early days (see post here, here, here.. ).

In talking to deep sources on both sides of Microsoft and Yahoo it was clear that there was division within the companies on what to do. This combination would have been Microsoft’s Vietnam or Iraq. The letter is interesting to see how Ballmer positions it to his troops as he calls them back from Silicon Valley.

Here’s the letter. Thanks to Mike Arrington who posted this on Techcrunch.

From: Steve Ballmer
Date: May 3, 2008 5:17:30 PM PDT
To: “Microsoft - All Employees (QBDG)”
Subject: Withdrawal of Offer to Acquire Yahoo!

This afternoon I sent the attached letter [see update 2 here for letter to Yahoo] to Jerry Yang announcing that Microsoft has withdrawn its proposal to acquire Yahoo. We proposed the deal in the belief that a Microsoft-Yahoo merger would create a combined company with the resources and assets to win in the fast-growing market for advertising and online services.

Although the acquisition of Yahoo would have accelerated our ability to deliver on our strategy in advertising and online services, I remain confident that we can achieve our goals without Yahoo. We have a strategy in place to do so and we will continue to expand on this strategy and accelerate our progress.

Our strategy has three components:

· Deliver on the basics. We will continue to improve search relevance and build out our ad platform.

· Change the game through innovation. We will expand investments in engineering and deliver transformative tools and Web experiences.

· Expand our global scale and focus. We will pursue partnerships and investments to realize the competitive advantages that come with scale.

At the heart of our strategy is a commitment to bring the benefits of competition, choice, and innovation to everyone who uses the Internet—from consumers to content creators to advertisers.

We are 100 percent focused on executing on this strategy and we have made good progress in a very short time. We’ve improved search relevance dramatically, introduced compelling new search verticals, successfully integrated aQuantive, and added nearly 100 new publishers to our ad platform. In the last couple of months we’ve rolled out new versions of key products including Internet Explorer and Silverlight, and introduced new technologies like Live Mesh. We now have over 430 million active users of our Windows Live services worldwide. And we continue to add new technologies with acquisitions such as YaData, which brings leading-edge behavioral targeting technology, and Caligari, which gives us advanced 3D modeling capabilities that will help us continue to improve Virtual Earth.

Ultimately, our goal is to build the industry-leading business in search, online advertising, media, and social networking.

We are absolutely committed to being the leader in each of these areas. Now is the time to do what we have always done best—be tenacious, focus on the long term, innovate, and keep working hard.

I want to thank all of you for your patience during this process and for your dedication and hard work across all of our businesses. We asked that you remain focused on our goals through these cycles, and you have done this extremely well. We are committed to making the investments that will enable us to compete and, ultimately, lead in the online services and advertising businesses. Together, I know we will succeed.

Today’s Microsoft retreat is a victory for Silicon Valley and all the startups.  Now that the troops are pulling out of Silicon Valley everyone is jumping up and down eager to get down to business - except the bloggers who are all trying to figure out what happened (not including Kara Swisher she was on top of this story from day one).

This outcome was clear to me from day 1 - Yahoo would fight to the death rather than roll over and take it up the butt from Microsoft.  As this chapter of history comes to a close the story is bigger than what the stock number was or one particular issue.  It was bigger than all of that.  As I wrote in February it was the Silicon Valley Poison Pill in action.  The culture in Silicon Valley is deep in tradition and this trophy in Yahoo was not going to Redmond.  Hey I’m a big fan of Microsoft and Dan’l Lewin here in Silicon Valley (except that blogger idiot Mark Ashton), but the culture of Silicon Valley just won out.  This is going to make one great John Markoff story for the NY Times. - go ahead John run with it.

Another story line here is the big win for all those starving Web 2.0 companies looking for a partner - Yes Yahoo will remain free to be a real force in the Web 2.0 community again.  Now with open social (yes reported here first) and with upcoming announcements of Yahoo opening up.  Yahoo is born again.  As we the kids cheer in baseball Yahoo employees are cheering - “2 out rally….2 out rally….2 out rally…2 out rally”.  If this doesn’t wake up the dead at Yahoo nothing will.

This is a win for Web 2.0 and startups around the world but mostly a big win for Silicon Valley.   Yahoooo

Don’t forget how Google is loving this.

(Disclaimer:  I worked for HP from 1988-1997).

Where is HP these days?  While Microsoft and Yahoo battle and the Amazon and Google battle for the cloud, where is HP?   They recently announced that they want to leverage HP Labs (which I’m a big fan of).  They are running advertising campaigns about the PC being personal again and they have dominated the printer business for years.

What is their plan?   We’ll see next week.   Rumor in Silicon Valley is that HP is planning a big organization shakeup in an effort to be more competitive and profitable.

This story is developing … I have some idea on what it is but need to confirm a few things.

Age and startups?  It takes guts to do a startup. It’s easy to hide behind a firewall and lob comments from a big company.  It takes a unique individual to do a startup.  I think that it’s easier for younger but older entrepreneurs are not disadvantaged.  I haven’t run into many entrepreneurs that have 4 kids.

Key to startups is focus and balance.  Focus on the strategic plan not on what people are saying..

Always be shipping, always be closing, always be recruiting.

I never met Joel Spolsky, but I gather that he is regarded as the ‘burning bush’ in some programming circles.  Regarding Live Mesh - Joel just validated my view with this post and probably speaks for other people who have computer science degrees and business savvy.  His post caught my interest because I took heat on my comments from Live Mesh while everyone like Scoble were doing handstands around Mesh.  I read one document and coined the term “Live Mess”.  I took the lumps from guys like Scoble and moved on.  Some folks love it but my impression was the same as Joels.  Will someone other than Microsoft tell me what Live Mesh solves.  I’m open to hearing anything relevant to the computer science, software, or services technology world that we live in today.

Joel says “the incredible amount of bombast; the heroic, utopian grandiloquence; the boastfulness; the complete lack of reality. And people buy it! The business press goes wild!” The hallmark of an architecture astronaut is that they don’t solve an actual problem… they solve something that appears to be the template of a lot of problems. Or at least, they try.”

Here are my tweets from the day of the announcment…

	Furrier @scobleizer first impression of under the covers is too complex - it’s an OS and not clear to me what it’s purpose is..seems bloated 10:10 PM April 22, 2008 from web in reply to Scobleizer
	Furrier Microsoft launches new product - Live Mess 10:05 PM April 22, 2008 from web
	Furrier microsoft marketing-make things as complex as possible - oh thats the product strategy as well..first impression of mess-too complex for ?? 10:04 PM April 22, 2008 from web

Yezdi Lashkari outlines the origins and limitations of collaborative filtering, the importance of Web 2.0, and how the commoditization of certain specific web technologies will benefit both consumers and businesses alike. He addresses the importance of blending algorithms to effectively harness collective user behavior, and the wisdom of crowds.

Yezdi Lashkari was a co-founder of Firefly Networks (acquired by Microsoft), a pioneering company in the area of collaborative filtering and personalization.  Lashkari recently left Microsoft, where he played a number of senior product leadership roles, the last being a special assignment sponsored directly by CEO Steven Ballmer, focused on researching large scale network-centric computing infrastructures for thousands of hosts.  This work is now driving one of the technical pillars of the post-Vista Windows release.  Lashkari holds numerous patents in collaborative filtering, data protection and user profiling technologies.  He received his M.S. from the MIT Media Laboratory and has three computer science degrees covering research areas ranging from artificial intelligence, databases, to collaborative filtering and personalization.

Enjoy the podcast sponsored by Aggregate Knowledge - Leader in Web 2.0 Discovery Technology

Yezdi and I talk about the big trend in Search or Search 2.0 - and it has nothing to do with search as we know it today.

The full transcript from the Interview is here.

Furrier.org’s own Maria Bartiromo of CNBC sat down with Google CEO Eric Schmidt for an exclusive interview. Given the scope of the interview and the timing of it - I wanted to provide the entire transcript from the CNBC interview. Commentary will be flying in on this one. Already many are chiming in like SAI.

What strikes me is the humble nature of Eric Schmidt and the magnitude of their plans. SAI says that YouTube will be the secret weapon but it’s clear YouTube doesn’t have a clue on how to monetize it’s video position and audience asset. No offense YouTube, but I haven’t had one intelligent conversation with one YouTube person on monetization. Personally I love YouTube and see huge potential, but the current YouTube team just seems stuck. For example stupid pre roll deals and ackward sponsorships. Enough said, YouTube get on the cluetrain. Maybe Chad or Steve can fix it.

However it’s clear to me what Google’s secret weapon is …it’s intelligent software across their distributed platform - datacenter, communications, and Web. Ok this is not that obvious to most non-computer science folks but think a ‘new kind of’ Artificical Intelligence or AI. While Microsoft rolls out Live Mess opps Live Mesh(note had to get Live Mesh using only my hotmail account - duh), Google has to deliver on a new software model around the ‘new kind of’ AI.

There is more to be said…Maybe I’ll do more on the new podcast that I’m doing called the Discovery Series

Thanks to CNBC for the interview:

Here is Eric Schmidt interview via the transcript:

Maria’s interview with Google CEO, Dr. Eric Schmidt Tuesday at the Milken Conference in Los Angeles to discuss Google’s growth and U.S. slowdown, the possibility of a Microsoft acquisition of Yahoo!, online advertising growth rates, Google’s European stronghold and Google’s stock, and other topics.

Here is the full, unaltered transcript of that interview:

Maria Bartiromo, host: Eric, thanks so much for joining us.

Dr. Eric Schmidt, Google CEO: Thank you for having me on again.

Bartiromo: Let’s begin with this debate that seems to be brewing on Wall
Street about growth. So the company grew 46 percent in the third quarter, 40
percent in the fourth quarter, 30 percent in the next quarter, and then
sequentially 1 1/2 percent when you look quarter to quarter. How insulated
would you say is Google to the economic slowdown or recession?

Paul Sakuma / AP

Schmidt: Well, the numbers you’re using are year over year, quarter over quarter in the US. Globally, of course, we had good growth, and the US numbers are masked by the fact that, a year ago, we had a very strong quarterly growth of that quarter. So the real growth rate in the US is good,
although overall growth rates are slowing, as they have for years. Just because of the scale and size of what we operate. The business has continued to be good.

Bartiromo: OK, because when you get to a certain size, it’s really hard to
sort of grind down more market share when you’ve already got 70 percent or get
that much bigger, given the fact that the company is getting–you’re a large
business.

Schmidt: But we have–we have multiple ways in which we grow. Of
course, more people use the Internet, more people are using electronic
commerce on the Internet, more people are clicking on the ads, and also our ad
technology is getting much, much better. And it’s really any one of those
will push us over the top in any given quarter; sometimes they all come
together. We don’t seem to be very sensitive to macroeconomics, at least
right now. We don’t seem to be very sensitive to things like recession. But
we’re very sensitive to how quickly do we bring in the new product improvement
or something like that.

Bartiromo: The comScore data took everybody’s estimates down, and this whole
debate about whether it was accurate or not. How can you ensure that the
growth occurs, even if people pull in their spending, if perhaps advertisers
slow down on the budgets? I mean, is it fair to say that the hypergrowth of
2004 to ‘07 is–has been seen?

Schmidt: Well, as I said, if you think about it over a five- or six- or
seven-year period, growth rates are slowing, as they have to. So I don’t
think it’s a big shift. It’s not, you know, today it was one way and tomorrow
it’s another. In our case, we focus on quality, and we have a very simple
model. If we show fewer ads that are more targeted, those ads are worth more.
So we’re in this strange situation where we show a smaller number of ads and
we make more money because we show better ads. And that’s the secret of
Google.

Bartiromo: Yes, that’s what Mary Meeker was saying. She’s saying, `Look, it

could be that they’re actually benefiting from a recession because they’re
monetizing the ads better.’

Schmidt: There’s been–you you know, if you were running a business
today, you would be looking very carefully at where is your marketing spend
going? And we think that you’ll choose to put your marketing spend on the
thing that’s most measurable, the thing that’s most, you know–because you can
always defer a branding campaign that may or may not work, but you want to get
those customers and those leads right now, and that’s what we do.

Bartiromo: Let’s talk about DoubleClick. You acquired the company. How’s
the integration going?

Schmidt: Well, it just started. It started about three weeks ago. And
what we’re doing is we’re taking their products and our products and
integrating them so that people have better tools, advertisers have more,
literally, ads, and publishers have more spots that they can publish
information into. So it’s the combination of all that that we’ve been waiting
for so long, and it’s under way. It takes six months to get all the products
together.

Bartiromo: So you think that the integration process will take about six
months?

Schmidt: It’s on the order of that. And, of course, at Google

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everything is a try. We try this, we try that, we see what works. The early
indications are that we’ll be largely complete within that period.

Bartiromo: It’s no secret that Google owns search, but what about the display
ads? Is it–is it fair to say that’s sort of up for grabs? You know, you’ve
got DoubleClick, Microsoft

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has aQuantis. It’s up for–up for grabs, that part
of the business.

Schmidt: Well, it’s fair to say that that Google is not the leader in
display ads, but our customers want to be able to purchase text ads and
display ads and other advertising in one purchasing bundle, and the
combination of the tools that we’re developing, plus the DoubleClick
integration acquisition and so forth, allows us to offer a single product for
those advertisers. So we think that will help us with our display ads
competitiveness. We think our technology is better. And so really now it’s a
question of earning those customers’ respect and knowledge.

Bartiromo: So how do you ensure that that was actually the right acquisition
and not just go it alone, do it on your own?

Bartiromo: Tell me what you’re doing with Yahoo! in terms of testing. On
the earnings call last time, you said you’re setting up ads there. How’s it
going? What’s involved?

Schmidt: Well, the long and short of it is that we did a test for about
two weeks, which has since ended, where Yahoo! took a small percentage of
their ads and replaced them by ours. We did this as part of a commercial
conversation, which I obviously cannot go into, but it’s one of the strategic
options that we believe Yahoo! is considering at this time.

Bartiromo: Now, of course, after that, I guess the Department of Justice
announces that it’s, you know, doing an inquiry about this. Have you heard
from the Department of Justice on this?

Schmidt: Well, again, without going into the specifics, you should
expect that in all of these possible transactions, all of the regulatory
bodies will be reviewing them. If there were an acquisition of Yahoo!, for
example, the Department of Justice would also be doing a review. And the
anti-trust laws allow the government–and I think properly so–to look at both
commercial deals as well as acquisitions.

Bartiromo: What kind of a combination would you like to see with Yahoo!?
What kind of a partnership would you like to see?

Schmidt: Oh, well, we actually enjoyed working with Yahoo!. We also
compete with them. They’re a well run and, I think, impressive company.
We’ve primarily been concerned about the possibility of a Microsoft
acquisition of Yahoo! because of Microsoft’s history and because of the
assets that Yahoo! has are quite valuable. And we actually think that in the
wrong hands, they could be used in the wrong way.

Bartiromo: What do you mean, Microsoft’s history?

Schmidt: I think people are aware of the anti-trust trial from 10 years
ago. Microsoft has a long history in that area.

Bartiromo: Yeah, you can bet, I guess, who tipped off the DOJ about the phone
call that was made, Steve Ballmer or somebody from that side.

So what do we know about Microsoft and Yahoo!? Tell me this. I mean, I know
that, you know, we’re waiting on possible news from Microsoft, possibly, a
hostile–we don’t know what’s going to happen next. But what kind of a
challenge would Microsoft/Yahoo! be for Google?

Schmidt: Well, today we actually do not know what’s going on. We read
in the press that there’s discussions and we’ll see what they decide to do.
If they go ahead and the merger’s ultimately successful, it would be possible
for Microsoft to integrate some of the properties and essentially eliminate
consumer choice, particularly in electronic mail, instant messaging, the
things where they have 80 or 90 percent market share, and that’s a sweet spot
for Microsoft in its ability to eliminate choice.

Bartiromo: Mm-hmm. And, of course, Google has been getting all these new
killer apps, whether it’s Gmail or Maps or, you know, spreadsheets.
Ultimately is the game to compete direct, head on, with Microsoft?

Schmidt: Well, Google is actually trying to be an innovator, and we’re
always concerned about competition. We have found that if we can simply
invent a brand-new product that really solves a problem that really does
matter to you, we can get your business, we can get your attention, we can get
your traffic and your customers or what have you. We’re trying in a new thing
called cloud computing to offer very powerful Web services that do the common
things–e-mail, word processing and so forth–where the data’s kept in the
cloud, it’s kept by somebody else, it’s managed by professionals. You don’t
need to worry about where you keep all that information. We like that model a
lot. We’re getting traction. It is a competitive threat to other companies,
but we think it’s a technological breakthrough.

Bartiromo: How will you respond if Microsoft goes hostile?

Schmidt: Well, a lot will depend on whether their strategy is
successful. In the short term, we have pointed out the possibility of a bad
outcome, but it really depends on what happens in the hostile.

Bartiromo: Do you have any sense of how these things go? I mean, can they go
in the open market, buy the stock, and then just create a proxy battle?

Schmidt: All I know is what I’ve read in the press, which is that
essentially you replace the board and you force–you force the deal.

Bartiromo: Let me ask you about YouTube and MySpace. YouTube has these
phenomenal growth rates. What do you think is behind that?

Schmidt: Video is powerful. And it’s amazing. You know, we started off
with Mentos and the other sort of fun videos, and now people, because they
have so many digital cameras, are essentially uploading everything.
Furthermore, we’re beginning to see glimpses of significant professional
content on YouTube. People are using it–because there’s such a large reach,
they’re learning how to reach that audience. We’re working but have not yet
in my view gotten a breakthrough around monetization. So while we have lots
and lots of traffic and we have lots and lots of interesting and creative
people and all sorts of controversies–we’re blocked in countries, so on and
so on–I don’t think we’ve quite figured out the perfect solution of how to
make money, and we’re working on that. That’s our highest priority this year.

Bartiromo: Which is a huge priority, clearly. A lot of people feel like this
is an amazing opportunity for you. So, as far as monetizing that business on
YouTube, do you think that takes a year? Does it take the next five years?
What’s your time frame on that?

Schmidt: We believe the best products are coming out this year. And
they’re new products. They’re not announced. They’re not just putting
in-line ads in the things that people are trying. But we have a number–and,
of course, Google is an innovative place. The Yahoo! team are trying various
new forms of advertising, ones which are much more participative, much more
creative, much more–much more interesting in and of themselves. Google
believes that advertising itself has value. The ads literally are valuable to
consumers. Not just to the advertisers, but the consumers.

Bartiromo: They want to look at them.

Schmidt: When they’re targeted. When they’re the right ad for what
you’re doing or what you care about.

Bartiromo: Mm-hmm. But, you know, it gets me to MySpace. Some people feel
like, when you look at the MySpace part of the business, that’s really where
people are looking at, or feeling a bit of an economic downturn. Let me ask
you about that. The deal involving revenue promises, is that going to impact
margins in the coming two years?

Schmidt: Not materially in that sense. We have pointed out, and I’ll
repeat again, that the whole social networking space has been harder for us to
monetize–that is, develop advertising businesses again–than some of the
other–than some of the other spaces that we’re in. It has to do what people
are doing. When you think about it, you’re in a social network, you’re
looking at people’s photos, you’re figuring out where your friends are.
You’re not as likely to be purchasing a new car at the same time or purchasing
clothes or purchasing a book or what have–whatever business that you’re in.
So the development of the advertising tools and techniques, literally the
platform, has been more difficult than we have thought. But we’re working on
it, and we’re hopeful

Bartiromo: You’ve got $12 billion in cash right now?

Schmidt: A little more than that.

Bartiromo: What are your plans for that money? A lot of people say, `Look,
the company’s doing well. Growth is still continuing very strongly, global in
particular. Why not pay a dividend out? Why not buy back stock?

Schmidt: We love watching that cash sit in a well-managed bank and not
get lost.

Bartiromo: So you could categorically rule out, no dividend coming?

Schmidt: Well, first this: We never rule anything out. But right now
we’re happy to let the cash accumulate. The cash represents a strategic
option for the future. As you know, we had the luxury of entering the
wireless auction. And we did not win the auction, but our financial resources
allowed us to credibly and seriously enter an auction for 4.65 billion.
Couldn’t have done that without the cash.

Bartiromo: What did you get out of that, though, Eric?

Schmidt: Well, from a corporate perspective, we participated in
something important. From a consumer perspective, we know that our
participation helped in making sure that the networks remained open. So
consumers get choices. What’s better than that?

Bartiromo: Yeah, and the FCC was happy about that.

Mobile. A lot of people say mobility is where it’s at. You’ve said,
actually, I’ve heard you on conference calls saying that this is one of the
big priorities for the company. How do you envision this? Tell me what
you’re looking for.

Schmidt: First place, everyone I know, everyone you know carries a
mobile phone. And it’s true in every country.

Bartiromo: And I’m not carrying my PC, by the way.

Schmidt: And most people in most developed countries have a roughly 100
percent coverage of mobile phones. So it really is a tremendous phenomenon.
Over the next three or four years, there’ll be more than another billion or so
mobile phones added. Eventually our numbers indicate that there’ll be five or
so billion mobile phones in a world of six billion or so. People, this is a
phenomenon. It’s an unprecedented reach, even greater than, for example,
television, or even electricity in some cases. So that’s a platform that we
can exploit. Our mobile phone, both search traffic as well as advertising is
growing very rapidly, and we think people will do more and more interesting
things in mobile phones. And, I mean, small phones, big phones, big screens,
things that don’t look like a phone, things which are mobile.

Furthermore, the telecommunications industry is helping because they’re
deploying billions of dollars of literally excess data capacity so these
things will have fast networks wherever I go. One of the greatest things for
me is whenever I fly somewhere, I open up and I open up my iPhone or my
BlackBerry, and, boom, there’s everything in my world as I’ve landed in a
country I’ve never been in. It’s a remarkable achievement.

Bartiromo: Yeah. What needs to happen before we actually get to that world
that you’re talking about? In other words, do we need to see the providers
create different screens? I mean, do you need a larger screen to access some
of this data? How do we get there?

Schmidt: Well, one of the problems is we haven’t figured out a way to
change finger sizes. We just haven’t…

Bartiromo: Right.

Schmidt: There’s no solution to that.

Bartiromo: Right.

Schmidt: We’d like to, but we haven’t done it. And people don’t like to
kind of go like this. So you need a certain size screen. But there’s other
technology. For example, the processors in the phones have gotten faster.
The batteries have gotten longer last–longer lasting. The screens have
gotten brighter. The whole device has gotten lighter. So all of that has
been happening while people have been talking about this. We know that these
things are working now. We know because we measure it that there’s been a
huge increase in maps, Google Maps, hugely successful. These phones have
GPSes in them. So when I want to go to the equivalent of a Starbucks, I just
type “Starbucks,” it says it’s over there. For me, that’s just a huge–a huge
improvement. And that service is available almost everywhere in the world.

Bartiromo: That’s amazing. Let’s–that transitions right to the rest of the
world. Global has been really the hot spot for Google. Tell me how you keep
that going. Where are the biggest opportunities for Google right now outside
of the United States?

Dr. Schmidt: Well, first place, the Internet is growing faster outside the
United States than in the United States. Also advertising online growth rates
are higher outside the United States than they are in the United States.
You’ve got–and of course you have a weak dollar strategy–because the US has
a very weak dollar–so that also helps. For all of those reasons, revenue
outside of the United States should grow dramatically over the next while, and
that’s great.

In our case, the biggest difference–and, in fact, perhaps the only
difference–between people in the US and other people is language. Other than
that, simple rule: Everybody wants the same thing. They want fashion, they
want information, they want products, they want e-commerce, they want it now,
they want to have fun, they want to use credit cards or debit cards. So we
work very hard to make that true globally. I think most of the large,
successful US corporations, the ones that you certainly cover all day, all are
going to see that kind of growth if they’ll well positioned internationally.

Bartiromo: So when you look around the world, what’s the most important, sort
of richest area for you right here?

Schmidt: Well, for us, of course, Europe has been our stronghold for a
long time. And Europe is just very, very strong for Google. They have
relatively higher market share, they’re very sophisticated consumers, and a
very mature advertising rate. If you look at the global advertising market,
it’s the United States, Japan, China, Britain, France and Europe–and Great
Britain. Those are the sort of the big five or six. Well, of course, we’re
doing very well in Europe, we’re doing well in Japan, and we’ve been in the
process of entering China for a while, and we’re growing there nicely.

Bartiromo: What’s happening there, though? You’re number one in every market
except a handful in Asia. How do you break in, and really with a solid
foothold.

Schmidt: Well, in each case, they’re different. In China, of course,
there’s all the issues of regulation and censorship. We delayed our entry for
good reasons, and as a result we’re not number one there. In some of the
other countries, it’s because we didn’t get the language right. It turns out
Asian languages often have what you and I would think of are nonsensical ways
in which words are put together. So, for example, all the words in Thai are
put into one very long sentence. They don’t have word breaks. So developing
the technology to do that right and then search and index against it took us a
little while longer. We’ve now addressed that, so we think we should do well
now.

Bartiromo: Fascinating. So what’s the biggest challenge that you’re facing
today?

Schmidt: In Google’s case, I think it’s internal. It’s the ability to
manage the creative process, deal with the complexity in what is a relatively
large company, in terms of people, who’s doing what. We have 50 development
centers all around the world, people in different time zones, `Are you doing
that? Are you doing that? Do I work with you? How do I check in my code?’
Those sorts of things.

Bartiromo: And for a long time, people were saying, `Look, you know, Google
has this incredible campus, and, you know, spending money, and really
showering employees, making sure that people are happy there.’ Are you
beginning a new process of managing employee growth right now and managing
expenses more aggressively than you have in the past?

Schmidt: Well, certainly not our benefits, per se. Every day I turn
around, there’s some new benefit that we’ve come up with for our employees.
It’s part of our culture; we’re happy to do that. And, of course, we have
gross margins to afford it. So higher gross margins is one of the
explanations. We have slowed our head count growth for a couple of reasons,
but the biggest reason is it began to feel like we really didn’t have a good
sense of what people were doing. The systems in the company, literally who’s
doing what, what are they doing, seemed to lag our ability to hire these great
people. So we slowed it a little bit. But we’re still going to hire some
number of thousand people this year.

Bartiromo: Let me–let me go back to something on the DoubleClick
acquisition. Are you seeing any pushback from some of the advertisers who
say, `Look’–the ad agencies who say, `We’re already spending a ton of money
on Google. Why do we need to spend more on all this other stuff away from
search?’ How are you going to get them to devote more money to display, to
audio, to print and TV ventures, which are–and everything else you’re–and
the display ads, obviously.

Schmidt: Because we earn it. Because you can measure it. We never want
people to give us–give us money that we don’t earn and that we can’t prove
that they–t