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That's Schmidt: So long to the Google chief who wasn't

The end of a troika

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For six years, Larry Page and Sergey Brin told Eric Schmidt that Google should build its own browser, and for six years, he resisted. "Google was a small company,” Schmidt remembered. “Having come through the bruising browser wars, I didn’t want to do that again.”

So Brin and Page hired some ex-Firefox developers and had them build a prototype. When they showed Schmidt the browser that would be Chrome, he relented. "It was so good that it essentially forced me to change my mind,” Schmidt told The Wall Street Journal after Google revealed plans for Chrome OS, the still-gestating operating system that moves all data and applications into the Google browser – another idea heavily pushed by Larry Page.

"I think we just wore you down,” said Page.

“I just gave up,” said Schmidt.

Eric Schmidt has served as Google CEO for nearly a decade, but by all accounts (including a 2004 Google filing with the SEC), he, Page, and Brin ran the company together – or not together, as the case may be. Brin and Page didn't just hire those Firefox devs on their own. They acquired entire companies on their own. "One day Larry and Sergey bought Android, and I didn’t even notice," Schmidt said in 2009. "Sergey found Google Earth one day while he was surfing on the web. And then he walked into my office and told me he bought them."

On April 4, Schmidt will step down as a CEO, handing power to Larry Page. But Page had ample power to begin with. According to Ken Auletta – the New Yorker journo who penned Googled, the 2009 tome on the Mountain View Chocolate Factory – the decision to replace Schmidt as CEO is rooted in the first days of 2010, when Page and Brin decided to leave China – against Schmidt's wishes.

"According to close advisors, the Google CEO was upset a year ago when co-founder Larry Page sided with his founding partner, Sergey Brin, to withdraw censored searches from China. Schmidt did not hide his belief that Google should stay in the world’s largest consumer marketplace," Auletta writes. "Schmidt, according to associates, lost some energy and focus after losing the China decision."

Even if you believe that Schmidt's "adult subversion" got the best out of Page and Brin, his success as CEO is somewhat limited. Google is often called a one-trick pony, with its AdWords advertising platform continuing to generate most of the company's revenue.

But as Schmidt himself has said, it's quite a trick. "If you’ve got a one-trick pony, you want the one we have," Schmidt told The Journal last summer. "We’re in the ad business, and it’s growing rapidly. We picked the right trick."

And Google picked the trick on Schmidt's watch. Ot at least the watch he shared with Page and Brin.

AdWords debuted in 2000, before Schmidt joined the company. But in those early days, the platform priced the company's search ads like traditional display ads. Advertisers paid a flat CPM fee (cost per thousand impressions). Schmidt joined Google's board of directors in March 2001, and that August he took over the CEO post previously occupied by Page. The next year, Google relaunched AdWords, switching to a cost-per-click setup that both priced and placed ads according to an Overture-like second-price auction. But there was one crucial change: ad placements weren't determined by bids alone. Ads were also ranked according to click-through-rate.

This is what ultimately turned Google the search engine into Google the money-making machine. With Overture – the search outfit eventually purchased by Yahoo! – the highest bidder always received the most prominent spot on the page. But in ranking ads, Google multiplied bids by something it calls "quality score", calculated using click-through-rate and various other measures of an ad's "quality", some of which remain a mystery to the outside world.

Google will tell you that its quality-score setup improves the "relevance" of the ads posted to its search engine. And it does. But it also ends up making Google much more money. Later, the company introduced a minimum bid, to similar effect. A minimum bid protects the user against cheap, useless ads, and at the same time, it boosts the Google bottom line. By 2007, Yahoo! – Overture's owner – was mimicking AdWords with a new ad system it called Panama.

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