Let the second-guessing, the mock horror, the disbelief, the crowing begin.

Google CEO Eric Schmidt has acknowledged he realized upfront that he was overpaying to acquire YouTube, to the tune of $1 billion, judged by any conventional measures.

The many critics of Google's $1.65 billion deal to acquire the video-sharing site three years ago will claim this confirms everything they have always said about the deal. Not quite.

In fact, not really at all.

Schmidt came clean in a deposition by lawyers in the Viacom copyright lawsuit that there was very little revenue coming into YouTube to justify the price his company paid.

No surprises here. There were intangibles to consider:

1. YouTube's popularity was sky-rocketing, making it the runaway market leader among video-sharing sites.
2. It was crushing his company's own site, Google Video.
3. YouTube was up for auction and would be sold to a competitor unless Google jumped first.
4. Google overbid to ensure YouTube didn't fall into rival hands.

The Google CEO said he told his company's board of directors that the 18-month-old video-sharing site was worth $600 million to $700 million, according to CNet, which obtained a transcript of his testimony. Of course, he fails to mention the potential costs of copyright lawsuits that already loomed for YouTube.

"In the deal dynamics, the price, remember, is not set by my judgment or by financial model or discounted cash flow. It's set by what people are willing to pay," Schmidt says.

So the real justification for the 150 percent premium Google paid was in derailing, or at least delaying, the rise of a potential competitor. Of course, Google has faced a long struggle to find ways to make advertising work on the site in order to pay the costs of free video. Only last quarter could Google say YouTube would be profitable in the "not long, not-too-distant future."

Of course, all the fuss over YouTube's valuation is not really Google's problem. The real issue is the extrapolation of valuations of all the Web 2.0 companies since then which have used the YouTube price as the benchmark for all the other-worldly valuations of their unproven business models.

Here are the relevant excerpts from Schmidt's deposition by Viacom lawyers, via CNet:

Viacom attorney Stuart Jay Baskin: And what was management's valuation?

Eric Schmidt: Much lower than we paid for it.

Baskin: And how was that communicated to the board?

Schmidt: I told them.

Baskin: So why don't you tell us what you remember telling the board in connection with the valuation?

Schmidt: I believe YouTube was worth somewhere around $600 million to $700 million.

...
Baskin: What methodology did you use to come up with that number?

John P. Mancini, an attorney working for Google, objects.

Schmidt: My judgment.

Baskin: Was it based on cash flow analysis? Comparable companies? What were you using as the basis for your judgment?

Mancini objects.

Schmidt: It's just my judgment. I've been doing this a long time.

...
Baskin: I'm not very good at math, but I think that would be $1 billion or so more than you thought the company was, in fact, worth.

Mancini objects.

Schmidt: That is correct.

(Photo credit: Reuters/Jonathan Ernst)

Although the company isn’t saying anything, it appears as if Apple has purchased a small Web mapping service called Placebase.

The loose ends were tied together Wednesday in a Computerworld blog post.  When asked to confirm whether it had indeed purchased the company, an Apple spokeswoman declined to comment.

Word of the buy cropped up briefly back in July but failed to attract much notice. But Computerworld noted that the LinkedIn pages for both the founder and the CTO of Placebase now show them as Apple employees.

Placebase, which was said to have generated a few million dollars in revenue, designed a platform called PushPin that allowed users to build maps and customize them by adding layers and other data. It’s product was a competitor to services such as Google Maps.

Given all the drama lately between Apple and Google, many in the blogosphere are speculating that Apple wants to use Placebase to supply mapping technology for the iPhone, a move that would supplant Google, which currently provides the technology.

Google has yet to outline a gameplan to respond to the search world’s latest phenomenon: real time search.

But the Internet company clearly recognizes the importance of fresh search results.

On Thursday Google announced a new feature that lets Web surfers view only search results that have been indexed by its Web crawlers within the past hour.

The update was one of several new features that Google has unveiled over the past week as it seeks to refine the tool used by two out of every three people searching the Web.

Google also introduced a feature that lets users specify whether they want results that are heavier on shopping-oriented Web pages, such as retail sites with products and pricing information, or results that are less commercial in nature.

The shopping option comes as Microsoft tries to lure people to its revamped Bing search engine by highlighting Bing’s strength in shopping and travel searches.

Meanwhile, Twitter’s real time search engine is becoming the Internet’s go-to place for finding the most current information on world events, from earthquakes to political protests.

Google officials said the new search features are not responses to the competition.

Previously, Google let users narrow search results to items posted in the past week or 24 hours.

According to Google officials, the introduction of up-to-the-hour searches doesn’t represent a change in the way Google crawls the Web - the same results were previously available in Google’s index, there just wasn’t a way for someone to only view the really fresh stuff.

Of course serving up results from the past hour is hardly the same as the up-to-the-minute information provided by real time search.

But until Google figures out how it wants to play the real time search game, the company is moving to make its flagship search engine more au courrant.

Google wants its online news site to feel more like the good old print product.

And the company is prepared to pay for it.

Google took the wraps off of Fast Flip on Monday, a slick online tool that lets readers flip through articles from newspapers and magazines as quickly and effortlessly as if they were turning the pages of a magazine.

The company said it will share advertising revenue with the 30 publishers whose content is currently available on Fast Flip, including the New York Times, the Washington Post and Newsweek.

Obsessive Google-watchers may recall that rumors of this product emerged back in June.

But the company officially released Fast Flip on Monday, making it available on Google Labs, the company’s outlet for products that are still in the testing phase.

Google is essentially hosting images of the first page of various articles from its partner publishers. A Web surfer can browse by topic or news source and scroll through fast-loading snapshots of all the relevant articles. There’s a “recommended” section that aggregates the most popular articles thanks to a new recommendation tool that Google has added (watch out Digg!).

Google is running banner ads alongside the article thumbnails, the proceeds of which will be split with publishers (though Google won’t disclose the terms of the revenue split). If a Web surfer wants to read the full article, they’re redirected to the publisher’s actual Web site.

“The publishing industry faces many challenges today, and there is no magic bullet,” said Google Distinguished Researcher Krishna Bharat in a blog post announcing Fast Flip. “However, we believe that encouraging readers to read more news is a necessary part of the solution. We think Fast Flip could be one way to help, and we’re looking to find other ways to help as well in the near future.”

It’s a fine balancing act by Google, which can continue to stand behind its argument that it helps news sites by sending traffic their way while also sharing a bit of the wealth.

But Bharat acknowledged in an interview with Reuters that various aspects of Fast Flip, including the business model, are subject to change.

Whether the current iteration will be enough to assuage some of Google’s most vocal news industry critics remains to be seen.

Missing among the list of FastFlip partners is Dow Jones, whose chief executive called Google a “digital vampire” this summer.

It’s easy to frame the latest tech business developments as epic clashes of giants and alliances of superpowers.

But Motorola co-CEO Sanjay Jha finds more inspiration for his metaphors in saloon bar lovers.

After unveiling the Cliq smartphone at the Mobilize 09 event in San Francisco on Thursday, Jha explained to the crowd how it was he turned to Google executive Andy Rubin and the Google Android operating system for the new phone.

“Actually it was two drunks in a bar finding each other and then finding that really it was the only solution that we had,” Jha said.

Jha called Google’s Rubin within the first day or two that he took the reins at Motorola, in August 2008, he said.

“Andy I’ve got to come to see you, we have some big decisions to make,” Jha recalled saying.

The resulting Cliq phone features some innovative software that integrates various social media and communications applications in the phone. But it faces tough competition in the Apple’s popular iPhone.

The next few months will tell whether Motorola’s embrace of Android was a game changing move or a case of beer goggles.

By Laura Isensee

A majority of Google users from California to Taiwan found themselves without access to Google’s popular email service on Tuesday.

Google has a diagnosis: The outage, which lasted more than an hour and a half, was a “Big Deal.”

The company outlined what went wrong on its blog.

“We took a small fraction of Gmail’s servers offline to perform routine upgrades,” Ben Treynor, vice president of engineering and site reliability czar, wrote.

But the company “slightly underestimated” the load that placed on other servers — called request routers — that direct web queries to the right Gmail server for response.

So those servers became overloaded, pushing the load to the remaining request routers, causing more to become overloaded. And “within minutes nearly all of the request routers were overloaded,” Treynor said.

“As a result, people couldn’t access Gmail via the web interface because their requests couldn’t be routed to a Gmail server,” Treynor said.

To fix the immediate problem, Google put more request routers online.

To ensure it doesn’t happen again, the company said it is increasing request router capacity well beyond peak demand. It is also making sure that its request routers work slower instead of refusing traffic if many are overloaded in the future.

We were wondering what Gmail users think of the outage. Are people considering changing email service? Did the outage spark any doubts about adopting “cloud computing” for business?

Apple, Google and AT&T all filed their responsesFriday to the FCC’s requestfor more information in the Google Voice app saga. The story line thus far has been trying to determine the reasons behind Apple’s decision to reject the iPhone app.  Some blamed AT&T for the thumbs down, believing that the iPhone’s exclusive U.S. carrier feared the app would provide competition for voice services on the smartphone.

But Apple said AT&T played no role in the rejection. In fact, the iPhone maker said the Google Voice app hasn’t even been rejected.

“Contrary to published reports, Apple has not rejected the Google Voice application, and continues to study it,” Apple said in its response. “The application has not been approved because, as submitted for review, it appears to alter the iPhone’s distinctive user experience by replacing the iPhone’s core mobile telephone functionality and Apple user interface with its own user interface for telephone calls, text messaging and voicemail.”

Google, in its filing with the FCC, chose to keep confidential Apple’s explanation for rejecting — or rather, failing to approve — the app.

Apple also provided some interesting tidbits on the App Store, which is now stuffed with more than 65,000 applications just over a year after its launch. Apple said it has more than 40 full-time trained reviewers, and at least two different reviewers study each app. It said 95% of applications are approved within 14 days of being submitted.

It added: “We receive about 8,500 new applications and updates every week, and roughly 20% of them are not approved as originally submitted. In little more than a year, we have reviewed more than 200,000 applications and updates.”

The US telecom regulator FCC has been looking into why Apple rejected an Internet telephony application from Google for inclusion in its iPhone application store. Responses from Google, Apple and AT&T, the exclusive U.S. iPhone carrier, are due today.

Along with Google Voice’s consumer fans, the outcome of the inquiry will be closely watched by other Internet telephone services such as eBay’s Skype. Apple approved a Skype app for iPhone but consumers can only make Skype calls when they are connected to a short-range wi-fi network and not via the AT&T cellular network.
The head of another U.S. Internet telephony provider Vonage weighed in on the topic in an interview this week. Vonage plans to offer its own mobile communications application later this year.

Marc Lefar previously served as chief marketing officer of Cingular, now AT&T Mobility, where he helped put together the mobile operator’s iPhone deal with Apple, before becoming Vonage Chief Executive last year. Taking his previous experience in the wireless industry into acccount, Lefar said it was unclear to him why the Google Voice application was rejected for iPhone.

“These apps we’re talking about, to me … seem to be reasonable to allow, relative to the range of things that have already been put into the app store,” he said.

“I think its very hard to defend a unique service and to distinguish some services in the communications space (from) others if all they do is use software to be able to provide that service,” he said.

“We’re very interested to see what the FCC comes back with. We think the inquiry is completely appropriate,” he said.
So is Lefar worried Vonage’s app will also face a tough time getting approval?
“It’s not a concern,” he said “We understand what the competitive environment is and we think there’s ample opportunity to deliver software applications that deliver some of our services across a range of devices.”
“We go into this with our eyes wide open.” said Lefar but declined comment on specific devices.

(Reuters Photo of Vonage booth at a trade show)

YouTube executives and spinmeisters have been pushing back more aggressively at the perception that the video site is a great big drain on Google’s bottomline, probably  losing $200 million to $500 million a year by some estimates. These execs say that hundreds of major advertisers are taking spots on YouTube against “hundreds of millions” of video views every week.

The problem with this is the lack of precise details. How much revenue is YouTube generating from these monetized videos exactly (even approximately)? And how much does it cost to stream and store those hundreds of millions of videos every week? Google and YouTube decline to provide any numbers other than to say things are moving in the right direction. Wall Street and investors are yet to be convinced.

Goldman Sachs analyst James Mitchell is the latest to have a shot at a respectable estimate for YouTube. He says it will generate around $300 million in 2009. He also thinks the best is yet to come from YouTube — and that Google will see some benefit.

We believe YouTube revenue will grow at 40 percent year-over-year or faster in 2010 as YouTube is generally under-monetizing its home page traffic versus peers, and as its home page is a natural venue for studios to advertise new movies.

For Google investors, the most important part of Mitchell’s analysis is that he thinks display advertising, of which YouTube is a major part alongside DoubleClick, could add 1-2 percent to Google’s revenue growth.

In the meantime, the majority of the videos uploaded to YouTube are done so by its users — and as the world’s most popular Web video site YouTube has a lot of users. Over a 100 million in the U.S. alone according to comScore. Goldman Sachs’ Mitchell says:

We do not expect serving query-specific video advertisements to represent a substantial business for the foreseeable future given branded advertiser discomfort with unknown content, and given consumer unwillingness to tolerate 30-second advertisements against 60 seconds or less of content; however, Google does not need such advertising to make YouTube profitable given YouTube’s cost leverage against Google’s existing assets and homepage traffic.

YouTube is signing up more so called professional content such as its latest deal with Time Warner on Wednesday with shows like “Ellen Degeneres Show” and “Gossip Girls”. For now, most of what they’re getting from Time Warner and others like Disney is promotional clips. We asked about getting more full-length shows like Hulu, and executives gave a very ‘watch this space’ type of response.

YouTube, meanwhile, is working hard to show that getting people to watch more and more video online is not as easy as it looks and involves lots of clever technology and algorithms that its engineers have been working on.  The idea — as the Wall Street Journal’s Digits blog explains — is to  make sure “people don’t just watch one video when they come to  the site”.

The company’s engineers are looking for ways to predict what topics will pique a user’s interest after they’re done watching a certain video, based on data about their viewing behavior.

Lots of news in online video world, some potentially significant. 

And some we can only wait and see about.

Google Inc, Cisco Systems and News Corp are separately doing things that could mean sweeping changes in the way video is produced and consumed on the web.