Microsoft steals show at Google Analyst Day

Google Analyst Day could have been big news for Google.

Executives at the event on Wednesday trumpeted their enterprise Apps business, explained why they would bid on wireless spectrum, and said they were optimistic about getting approval to acquire DoubleClick, while trying as hard as they could to ignore the elephant in the room--Microsoft snagging a big Facebook deal.

All the positive spin on Google's future with advertising and social networks couldn't change the fact that Microsoft had stolen Google's thunder. Earlier in the day, Microsoft announced that it was taking a $240 million stake in Facebook, reportedly beating out Google in a heated bid for the deal to be the exclusive advertising partner for the popular social network.

In response to numerous questions from analysts and reporters, a seemingly exasperated Google Chief Executive Eric Schmidt repeatedly declined to comment "specifically."

Google co-founder Sergey Brin told reporters at the end of the day: "Occasionally we've lost one here, one there...Some of our competitors might be willing to spend very large amounts of money...and we're really interested in doing sustainable economic deals, so we would rather not participate in those sorts of transactions. But we definitely wish those companies well."

The executives were also asked about the company's social-media strategy, which up to now has been limited to Orkut, a social network big in Brazil but not the U.S. "Orkut has been very successful. It's among the leading social networks," Brin said. "We don't feel at a higher level that we need to own everything successful on the Internet."

Google has a relationship with MySpace, anyway, he added. "And we're very happy with that. We probably partner now with on the order of 20 or so social networks."

Another topic on the minds of analysts and reporters was the rumored Google Phone. But Google executives weren't budging on that either.

"I'm on the board of Apple. I'm using the iPhone," said Schmidt, holding up his phone to show reporters. "We have a policy of not talking about future products."

What Schmidt wanted to talk about was Google's hosted Apps business, which puts it in competition with Microsoft's desktop applications. "People always compare us to the market leader. We're not trying to solve that problem; we're trying to solve a different problem," to offer the ability for people to collaborate on documents, Schmidt told analysts.

"Most of the people I know and talk with who run small businesses would prefer to throw out their infrastructure and use all of our enterprise products," he said. "It's actually possible now for a small business to completely outsource everything" to Google.

While revenue from the Apps business is small for Google now, in comparison with its search advertising revenues, that piece of the pie will grow, Schmidt added.

Asked about whether Google would get government approval to acquire online ad company DoubleClick, Schmidt said: "We are optimist that this will close. We don't control the calendar." A decision could come by the end of the year or later, he said.

And then there were the questions about Google's threat to bid on 700MHz wireless spectrum that has the mobile telephony industry in a stir.

"The fundamental issue is we just don't have enough innovation in the U.S. market, especially with regard to mobile. The lock up, the small number of participants, all these things are tremendous friction on the (innovation) process," Brin said. "But I don't think we're saying we have to build out our own (network) necessarily."

"We will probably bid. It's perfectly possible that the best fitting strategy would be to bid with one or more partners," Schmidt said. "We won't make our final decision until the last minute."

Meanwhile, the company has a handle on its hiring rate, which contributed to an earnings miss in the second quarter and continued heavily into the third quarter, Schmidt said. The solution is to "hire a small number of incredibly talented people."

And Google isn't worried about retaining employees, even those whose stock has vested. "We're pleased with our retention rates," Brin said. "We've been public for three years or so now. Some people are starting to vest their share grants." Google has devised incentives to keep workers happy, he said.

Google is "going to have some turnover," Schmidt said. "What we're seeing is the correct amount."

Earlier in the day, Google Internet evangelist Vint Cerf talked about plans for an Interplanetary Backbone and the company gave some demonstrations of iGoogle, Google Maps and Gmail.

But ads remains the company's bread and butter and online ads are just a small part of the plan, Schmidt said. "We are now defining ourselves as being in the advertising market."