Friday, July 11, 2008

Independent Yahoo better for competition

SUN VALLEY, Idaho - Google Inc. backs Yahoo in its effort to stave off an unsolicited takeover by Microsoft Corp. because an independent Yahoo will increase competition in the Internet search and advertising markets, Google Chief Executive Eric Schmidt said here Thursday.

"We absolutely support the decision that Yahoo made" in rejecting the Microsoft overture, Schmidt said at the annual Allen & Co. media summit at this Idaho resort. He made the comments during an hourlong interview with reporters. Google co-founders Larry Page and Sergey Brin were also present.

"There is no question in our view that an independent Yahoo is better," Schmidt It "will provide more competition in search and other advertising markets, in particular in display advertising," he said.

Google is the leading seller of Internet ads, but most of its revenue comes from paid search ads, which appear next to the results of an Internet search using Google.

Yahoo, which is stronger in display ads, rejected in May a $47.5 billion offer from the world's largest software maker. Schmidt would not say whether the informal offer — originally made in January for $31 per share, but later increased to $33 per share — fairly valued Yahoo, but said there is no way to know what the actual bid would ultimately be.

"Microsoft has a long history of having deals that look quite good and end up looking not so good when you read the fine print," he said.

Microsoft Corp. co-founder Bill Gates is also in Sun Valley, but has so far ducked reporters' questions. A Microsoft spokesman did not immediately return calls seeing comment.

The software company has indicated recently it would like to reopen talks, but Yahoo Inc. Chief Executive Jerry Yang told reporters he didn't expect to meet with anyone from Microsoft at the summit. Yang is trying to fend off activist investor Carl Icahn's attempts to replace the Yahoo board and sell the company.

The Google executives said their company had long considered making a deal with Yahoo, and the Microsoft bid spurred them to act. Google swooped in and inked a deal with Yahoo that will see the leading search companies share some ad revenue. Critics have said the deal was intended to block Microsoft, but Schmidt said the deal didn't prevent Yahoo from forging other partnerships, even with Microsoft.

"When Microsoft made the offer in January, we called (Yahoo) and said let's consider a business deal," Schmidt said. "We saw the Microsoft offer as anticompetitive for the market."

Schmidt said Microsoft has a history of gobbling up smaller companies and consolidating them in its Windows product, essentially choking off the market.

Google and Yahoo agreed to wait three months before starting their deal to give competition regulators a chance to review the deal. Schmidt expects the deal to pass antitrust muster, with testimony before regulators starting next week.

Schmidt and Page casually fielded questions on topics ranging from Google's presence in China to the company's plans to offer software that operates mobile phones. Brin joined the discussion halfway through, wearing a red and black cycling outfit after a bike ride with Michael Dell.

Schmidt was most pointed about a Viacom Inc. lawsuit that accuses Google's YouTube of violating copyrights on Viacom shows on cable networks MTV, Nickelodeon and Comedy Central. Viacom, which is seeking at least $1 billion in damages, won a court order to get viewership data from YouTube to prove its case.

"It's another mistake on their part," Schmidt said, sitting forward in his chair. "They should not have sued us. It was just an error. They should just retract the suit."

Schmidt said Google's relationship with media companies is better than it was a year ago, as many of them have started to embrace the Internet rather than fight it. The are no longer "in denial," he said.

Page said Google offers media companies the option of having their content removed from Google search indexes by simply adding a tag to the post.

"It's much easier to do on a practical basis" rather than involving lawyers, said Page, who is considered the technical guru at the Mountain View, Calif., company.

Schmidt said YouTube, which Google acquired last year, is "hugely successful in terms of users and content," although advertising revenue is expected to come in below expectations when results are reported for the most recent quarter.

"The revenue side has not been as forthcoming," Schmidt said. "We haven't come up yet with the right ad structure to go around that."

Page said the company would not run so-called pre-roll ads, which run before videos air, that many news sites run — even though that would boost revenue.

"If we ran pre-roll ads, we'd have more money today. But fewer users," he said.

Page also said Google sees "tremendous" revenue from the Apple Inc. iPhone because it is the only mobile phone that offers full Web browser capabilities. Schmidt, who is also an Apple board member, said he would be getting the latest version of the iPhone on Friday.

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