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Schmidt on Social Media, Ads and Hulu

Friday, 10 Jul 2009 | 9:44 AM ET

When Google CEO Eric Schmidt sat down to chat at Sun Valley, he couldn't avoid the most talked about startup at the Allen & Company conference: Twitter.

Schmidt said he had just told Twitter CEO Evan Williams how impressed he was with the service. Schmidt didn't hesitate to characterize he and co-founders Larry Page and Sergey Brin as big fans who "talk to Twitter a lot." Page says he's particularly interested in real-time search and would like to integrate Twitter search into Google results. Schmidt wouldn't say whether or not he's interested in buying Twitter, but I think it's notable he wouldn't rule it out. (Last year Brin was far more clear that Google wasn't interested in buying Facebook). Besides, there's precedent for doing business with Williams, who sold Blogger to Google in 2003.

I also asked Schmidt about another significant online trend: digital video distribution.

While Google's YouTube dominates the user-generated video market, non-professional videos are far less profitable than big TV shows, which haven't gone to YouTube, but to Hulu. Schmidt acknowledged that he'd have liked to get all the TV shows that have gone to Hulu, which is co-owned by NBC Universal, News Corp and, as of recently, Disney .

But, Schmidt remains bullish on online video ads, even without having the likes of Gray's Anatomy on YouTube. For one thing, Schmidt says he likes Hulu because it validates a model for online ads. And Schmidt says the sheer scale of YouTube gives its economics an advantage. They have enough professional quality content, even if they don't have top TV shows, that Schmidt says the site can make money.

Schmidt's answer to a question about competing for marketshare with Microsoft's new search engine Bing seems particularly relevant to the question of YouTube vs. Hulu as well. He said "We don't look at marketshare at all," and instead they look at whether or not a product is a game changer, figuring marketshare will sort itself out after. There's no question that YouTube was a game changer. And in terms of total online video, YouTube also dominates marketshare. The issue of profits remains.

For now Google's bread and butter continues to be its online search business. And even that monster business isn't immune to the economic downturn. But Schmidt did take solace in the fact that there hasn't been much change in Internet use during the global recession. And there's hope for a new driver of Google's business: display ads. Schmidt says that display ads will be the company's next billion dollar business. Co-founder Larry Page points out that display ads currently are jumbled and untargeted, saying there's plenty of money being left on the table... and that's where they see opportunity.

Questions? Comments? MediaMoney@cnbc.com

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  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.