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Google’s Schmidt Passes CEO Reins to Co-Founder Page

Google Inc. co-founder Larry Page will become chief executive officer, taking the reins from Eric Schmidt, who oversaw the transformation of a barely profitable startup with 200 employees into the owner of the world’s most- used search engine, with $29 billion in sales last year.

“Larry is ready,” Schmidt, who will become executive chairman, said on a conference call yesterday. “It’s time for him to have a shot at running this.”

Schmidt, 55, who joined the company in 2001, will focus on deals, partnerships and customers, he wrote in a blog post. Page takes over day-to-day operations on April 4. Schmidt navigated the company past early doubts that it could build a successful ad business around a search engine. He also oversaw the 2004 initial public offering, the biggest for an Internet company.

“We view this as evidence of the founders staying fully engaged in the business -- a positive,” said Mark Mahaney, an analyst at Citigroup Inc. in San Francisco.

The company also posted fourth-quarter profit that topped analysts’ estimates as businesses boosted online-ad spending.

Google, based in Mountain View, California, fell $14.94, or 2.4 percent, to $611.83 at 4 p.m. New York time on the Nasdaq Stock Market. The shares dropped 4.2 percent last year.

Page’s Challenges

Page, who has never been the CEO of a public company, takes the helm of Google and its 24,000 employees as it confronts accelerating rivalry from Facebook Inc. The world’s largest networking site, Facebook has amassed more than half a billion users since its founding in 2004.

Apple Inc. also poses a threat in mobile software and advertising.

The change transfers leadership from a scholarly manager who holds a Ph.D. in computer science and worked for more than a decade as a technology executive before joining Google -- to an entrepreneur almost two decades his junior who was a student when he began working on the project that spawned Google.

Schmidt acted as a mentor to Page during his tenure. He also clashed with the co-founder, Ken Auletta, author of “Googled: The End of the World as We Know It,” told Bloomberg Television.

“They went through a very tough management patch,” Auletta said.

While Google resisted threats from rivals Yahoo! Inc. and Microsoft Corp. under Schmidt, Page will confront fiercer rivals, said Whit Andrews, an analyst at Gartner Inc.

Facebook Foe

“Google versus Facebook is an order of magnitude more challenging,” said Andrews, based in Shrewsbury, Massachusetts. Competing with the social network for the attention of Web users will require new technology that differs from search, he said.

Google co-founder Sergey Brin, 37, will focus on strategic projects, especially new products, the company said.

Page and Brin met at Stanford University in 1995 and the following year began to collaborate on a search engine. The fruit of that effort was incorporated in 1998, beginning in a Menlo Park, California, garage. Page and Brin brought in Schmidt to become chairman in 2001. He was named CEO later that year.

In the fourth quarter, Google benefited from its main search-engine business as advertisers stepped up efforts to reach consumers through the Web. Spending on search-based ads rose 23 percent in the U.S. during the quarter, with gains in retail and travel, according to Efficient Frontier, which manages more than $1 billion annually in online advertising.

Ad-Spending Boost

Net income rose 29 percent to $2.54 billion, or $7.81 a share, from $1.97 billion, or $6.13, a year earlier, the company said in a statement. Profit excluding some items was $8.75 a share, exceeding the $8.08 average of estimates compiled by Bloomberg. Sales, excluding revenue passed on to partner sites, were $6.37 billion, topping the $6.06 billion average estimate.

“As e-commerce growth has accelerated in the fourth quarter, so has advertising spending,” said Richard Fetyko, an analyst at Merriman Curhan Ford & Co. in New York, who recommends buying the stock and doesn’t own it. “When consumers shop more, companies are more aggressive with advertising.”

The company is focusing more attention on mobile devices with its Android operating system, an area where it competes with Apple for the sale of smartphones and tablets. Schmidt was on Apple’s board until 2009, when he resigned because of overlap between the companies’ businesses.

Android Growth

Android topped Apple’s iPhone in U.S. smartphone subscribers for the first time in November, accounting for 26 percent of the market, compared with 25 percent for Apple, according to ComScore Inc. BlackBerry maker Research In Motion Ltd. had the top spot with 33.5 percent.

While Google doesn’t charge for Android, it’s helping the company expand mobile-ad sales. Google was projected to grab 59 percent of the U.S. mobile-ad market last year, according to research firm IDC. The company benefitted from its 2010 purchase of AdMob, which had 8.4 percent of the market in 2009.

Google is maintaining its leadership in the search-engine business even as it faces a stronger challenge from rivals Yahoo and Microsoft. In August, Yahoo began using Microsoft’s Bing technology to provide online search results.

Google grabbed 66.6 percent of searches in the U.S. in December, up from 66.2 percent in the previous month. Combined, Microsoft and Yahoo had 28 percent, down from 28.2 percent, according to ComScore.

‘Adult Supervision’

Schmidt may be weighing a role in the administration of U.S. President Barack Obama,Auletta said in the TV interview.

Before joining Google, Schmidt served as chairman and CEO of computer-networking software maker Novell Inc. He had previously worked at computer and software maker Sun Microsystems Inc., where he helped develop the Java Internet- programming language. Schmidt, who has degrees from Princeton University and the University of California at Berkeley, also worked at Xerox Corp. and AT&T Inc.’s Bell Labs.

Schmidt commented on the management change to his more than 225,000 followers on Twitter: “Day-to-day adult supervision no longer needed!”

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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