In an on-stage conversation with New Yorker writer Ken Auletta, Google CEO Eric Schmidt conceded that the search-engine giant doesn't know how to make money off of YouTube, the popular video-sharing site for which it paid $1.65 billion in 2006.
In an event at Syracuse University's Newhouse School, Schmidt said it "seemed obvious" that owning YouTube should generate "significant amounts of money" for Google, but that has proven harder than expected. In any case, monetization is not Google's primary concern with YouTube at this point, as YouTube could lead to "the creation of a whole new industry."
And there are two facts on Google's side: "We know people are watching it" and "We have the luxury of time to invest."
Google's Goal: 'Change the World'
Google's goals are loftier than monetizing its products. "The goal of the company isn't to monetize everything. The goal is to change the world. We start from the perspective of what problems we do have," Schmidt said.
For instance, Google.org, the company's philanthropic arm, is devoted to causes such as renewable energy and preventing disease.
Google's infamous motto -- "don't be evil" -- is taken seriously within the company. "We don't have an evil meter we can apply," Schmidt said, but internal discussions do address the issue.
"I thought when I joined the company this was crap -- companies don't have these things. I thought it was a joke. It must be a Larry and Sergey thing. So I was sitting in a room six months in, and an engineer said, 'That's evil.' It's like a bomb goes off in the room. Everybody has a moral and ethical discussion that, by the way, stopped the product."
A Plan for Monetizing YouTube
As part of this corporate culture, Wall Street's criticism -- in the form of share price -- is "not the signal we respond to," Schmidt said. "We respond to end-user satisfaction." But since Google is so highly valued by Wall Street, it does give them the "luxury of time." Schmidt explained, "Most businesses can't invest for scale. They have to make money now. That short-term focus does make people sometimes make the wrong trade-off."
Having said all that, Schmidt announced that 2008 is the year for YouTube to move into a profit center for Google. "In January or February, we had a big meeting" where Schmidt called on executives to move into moneymaking. "We have a revenue plan, a usage plan, a scale plan, a bandwidth plan," he said, noting that YouTube "is now the majority of outbound bandwidth. We had to retool the network."
Schmidt also emphasized Google's opposition to a combination of Microsoft and Yahoo. Microsoft's bid to take over Yahoo has failed, but Redmond is still seeking a strategic relationship between the companies. "We think an independent Yahoo is better for competition, for innovation and so forth," Schmidt said.
He acknowledged that Google has been seeking its own partnership deal with Yahoo, but said that shouldn't impact any dealings between Microsoft and Yahoo. "It would seem to me that the decision is up to Yahoo, not to Google," Schmidt said.