Yet Ballmer had a point. Google had not figured out how to make money on its surfeit of products. YouTube accounted for one of every three videos viewed online, three billion of the nine billion viewed in January 2008. The impact of this new medium would forever change the way politics are conducted. Seven of the sixteen candidates who ran for president in 2008 announced their candidacies on YouTube, and more people saw a taped version of the July 2007 Democratic presidential debate there than live on CNN. YouTube succeeded in democratizing information. It became a viral hub where a candidate’s flubs or fibs were exposed by a video. When Mitt Romney became a born-again crusader against abortion, videos were posted of the former governor of Massachusetts championing a woman’s right to an abortion. Overseas, when Venezuelan strongman Hugo Chavez shut down El Observador, an opposition newspaper, it began broadcasting on YouTube.

However, YouTube made no money. Its bandwidth and computer costs were steep, and it paid for some of its content. Three senior Google executives with knowledge of these figures said at the time that YouTube would lose money in 2008, and these losses would grow in 2009, with revenues initially projected at about $250 million and losses totaling about $500 million. There were those, like Gotlieb, who believed “they’ll never make money on YouTube.” He thought online display ads would annoy viewers, and that most advertisers sought predictably ad-friendly settings for their ads, something a site dominated by user-generated content could not ensure. Like many Valley start-up founders, Chad Hurley and Steve Chen believed, as Google’s did when they launched, that if they first built traffic, money would follow. By February 2008, Schmidt said he had summoned teams from YouTube and Google to “start working on monetizing it.”

“You didn’t tell us to work on it,” a surprised Hurley said, recalled Schmidt.

“Well, times have changed,” said Schmidt.

Schmidt was not unhappy with YouTube or its founders. He believed YouTube was becoming nearly as ubiquitous a Web activity as e-mail. But Schmidt wanted a business plan; he announced that his “highest priority” in 2008 was to figure out a way for YouTube “to make money.” He knew that online video ads had to be different from television ads. Ads that appeared before a video started would be annoying. Internet users wanted to see the video as soon as they clicked on it. Thirty-second ads anywhere in an online setting were too long. The ads couldn’t feel like an interruption, certainly not a long interruption. Schmidt’s joint teams came up with several novel advertising schemes. Schmidt said he didn’t know if they’d work, but “if any of them hit, it is a billion-dollar business. Of course, it’s now zero.” To minimize insecurity at YouTube’s headquarters in San Bruno, he dispatched Coach Campbell to visit regularly and to calm the troops and help coax a monetization plan.

There was another potential cash cow to pursue. In 2007, Google began to aggressively move to claim a slice of the mobile phone business, which then counted three billion users worldwide-three times the PC market-a number Schmidt expected to grow by another billion in four years. The success of Apple’s revolutionary iPhone, with its easy access to the Internet, was an eye-opener: the iPhone delivered fifty times more search queries, Google found, than the typical so-called smartphone. A mobile device was no longer just a telephone or a PDA, and portable access to the Internet advanced Google’s interests; the more people went online, the more Google benefited.

But Google was frustrated that many of its programs functioned poorly on mobile phones. They were frustrated that telephone companies, not consumers, decided which applications would appear on their mobile phones. “As compared to the Internet model, where we’ve been able to make software that basically is able to run everything and works for people pretty well, it’s been very difficult to do that on phones,” Page said. Google’s mobile quarterback was Andy Rubin. A former Microsoft employee, Rubin had left to cofound a mobile software company called Android, which Google had acquired in 2005. As the senior director of mobile platforms for Google, Rubin set out to make Android an open-source operating system-open to improvements from any software designer because the source code was visible, not proprietary, and peers could collaborate to offer and improve different software applications. This was a direct assault on the telephone companies, which policed what software applications could be displayed for consumers.

Rubin likened the current mobile market to what happened in the early eighties to PCs. Original hardware makers, such as Wang or DEC, were supplanted by IBM, which in turn was supplanted by the manufacturers of clones. As the hardware became commoditized, the price of the PC dropped. At the same time, the cost of the software rose, because a single company, Microsoft, controlled it. “Unless there is a vendor-independent software solution,” said Rubin, expressing the ethos not just of Google but of the Valley culture at large, “the consumer isn’t going to be well served. What I mean by ‘vendor-independent’ is you can’t have a single source. Microsoft was a single source. What Android is doing is trying to avoid what happened in the PC business, which was to create a monopoly.” That is why, he said, Android is an open-source system that “no single entity can own.” He is openly disdainful of phone companies like Verizon and AT amp;T, though he doesn’t name them, and obviously feels the same way about Apple’s closed iPhone system. “The thing I carry around in my pocket every day,” he said, gripping his yet to be released Android phone manufactured by T-Mobile, “is as powerful as the PC was five years ago. So how can I take advantage of that and make it do what I want it to? I’m the one who paid for it! Just because I have a service plan with some whacky wireless carrier doesn’t mean they get to dictate what I do with my product that I paid for. Another thing: It shouldn’t cost four hundred dollars. That’s absurd. If you add up all the components, somebody is making a lot of money.”

For Google, Android represented a perfect storm-its idealistic desire to promote an open, more democratic system meshed with its business interests. The more people who had access to the Internet, the more Google searches or Google Maps would be used, and the more data collected. And those using the Android operating system for mobile phones might also use it for their laptops, allowing Google to charge for this software or share in the mobile ad revenues.

There was another issue to be addressed with mobile phones: spectrum space. All radio frequencies-whether for cell phone calls, broadcast television or radio signals, or other wireless devices-travel over spectrum space that is assigned and regulated by the Federal Communications Commission. Google lobbied to ensure that the new wireless space would be open and not controlled by just a few telephone giants. Ivan Seidenberg, the CEO of Verizon, disputed Google’s contention that his was a closed system: “Since we think we have the most reliable network, we’ll publish standards and let people connect to any device they want to.” The FCC sided with Google, and in July 2007 ruled that the telephone companies could not control what applications were used on this new spectrum. Soon after the FCC announcement, Google raised the stakes by threatening to bid in the January 2008 spectrum auction, establishing itself as a telephone company.

Google had no intention of providing telephone service or producing hardware for a Google phone. They would not say this publicly, however, because by fanning speculation-and the speculation was incendiary-they kept people guessing and increased their leverage over the wireless telephone companies. They also brought themselves closer to achieving three objectives: to make Google programs, including such new features as voice search, work on wireless devices; to reduce the cost of mobile phone service and Internet connections by allowing advertisers to subsidize them; and to extend to mobile devices the company’s dominance in online advertising. Google believes that ads on mobile devices could fetch premium prices. With GPS positioning married to Google’s immense database, an advertiser could know who purchased cashmere sweaters or golf clubs and if a consumer was outside a store that had a special sale on, an alert could appear on the mobile screen informing her. Because this would be what advertisers and Google excitedly describe as “a service” or “information” rather than a traditional ad, the hope was that consumers wouldn’t be annoyed by these intrusions. In November 2007, Google announced that it was working with thirty-three corporate partners, including T-Mobile, Samsung, Intel, and eBay, to launch Android as a free operating system.