Baidu and Yahoo China, two of the most popular search engines in China, facilitate the country's near 100% rate of downloaded music that is stolen. That's right, almost all music downloaded in China is stolen (more proof that the Chinese are smarter than us). Other search engines in China, like Google China, don't have a built-in mp3 download tab, and are pissed that they can't gain search engine market share.

The International Federation of the Phonographic Industry (and the world of tomorrow), a consortium that includes reps from Sony BMG, Universal and Warner, is on the case, suing nearly everyone in China. The organization reportedly wins 90% of its lawsuits, but loses suits against the big boys like Baidu, which entrenches the current search engine pecking order by crippling the little guy... with slaps on the wrist. Since the averages damages awarded per lawsuit amount to $130 (yes, dollars), getting sued isn't that big of a deal to a budding search provider. The IFPI spends about $13k per case, which is a bold profit shucking initiative that only the record companies could dream up.

In other search engine news, Google and Yahoo have teamed up with Mercedes to allow each search enginge's map services to be sent to your car, if your car is a Mercedes. You know the state of auto-navigation is in trouble when car GPS systems are Google mapping a destination. The service will be available on the S-class, CL-class and entire 2008 C-class lineup.

Deaf to Music Piracy [BusinessWeek via Valleywag]
Google, Yahoo to direct your Mercedes [News.com via Valleywag]

Sunday is the 3 year anniversary of the Google IPO, which means that it's been three years since you blurted out "I told you guys, it didn't open anywhere near $100. Short that shit and you're printing money."

A 480% three-year return on GOOG later. Whoops.

It's not to say that you haven't been on your game at all in the past 3 years. Kicking around some tech stock ideas you did utter the wisdom, "But hey, iPods are cool. It's like everyone has one of those things. Clearly that market dominance is already priced into Apple's stock. Just wait until Microsoft gets into the market. I'm telling you, short Apple and you're printing money." A 640% three-year return on AAPL since August 2004 and you blew it again.

Ok, ok, we won't forget your one triumph, which trumps all your other misses. You noticed that the only banker chicks who haven't gained the "Seamless 15" eat only NutriSystem bars and are constantly going to the bathroom to either cry or throw them up. This netted you a ridiculous 3,000% return on NTRI, which you bought in August 2004 after that one hot summer managed to not blow up after 8 weeks. Maintaining eye candy on the floor was something you were more than ready to invest in, not to mention put your mouth where your money was going.

Google's Historic IPO Run: Beatable [BusinessWeek via DealBook]

Yes, says Fortune's Geoff Colvin. Sure, there have been people claiming Google has hit the ceiling during almost every phase of Google's unprecedented value creation ascent, but Colvin swears that Google is bound for a tumble. The reason - Google can't keep investing capital at 13% and getting 53% returns, a spread better than 99% of the Russell 3000. Google has only invested about $9 billion of capital so far but is experiencing diminishing returns, from 111% four years ago, to 82% the year after, to 53% in the last four quarters.

Colvin looks at Google's implied future economic value added (EVA, or the dollar amount by which return on capital exceeds the cost of capital) in relation to its current share price. His argument:

To live up to the expectations embedded in its current share price, Google would have to increase its EVA, which was $2.4 billion for the past four quarters, by $2 billion annually this year, next year, and every year into the future - forever. So Google's EVA next year would have to be $4.4 billion; in five years it would have to be $12.4 billion, and so on.

That's what investors are counting on when they buy Google at today's price. Are they being realistic? No, they're not. To hit that EVA target, Google would have to invest $5.1 billion every year at its recent knockout return of 52.5 percent (assuming its capital cost doesn't vary much). But you can't invest $5.1 billion every year at 52.5 percent.

Google (Nasdaq: GOOG) is down almost a half a percent in daily trading.

Don't go gaga over Google [Fortune via CNN Money]

Golden child Google missed analysts unrealistic expectations of what the search engine is capable of in quarterly results yesterday. This is the second time the company has failed since its 2004 IPO. Investors unconsensually punished the stock in after hours trading, with shares falling up to 8.3% ($45.29), to $503.40, to say nothing of the cutting and “You sicken me” chanting by Larry and Serge in front of the bathroom mirror.

Google’s work force ballooned 13% and research costs shot up 88%, in an effort to put unauthorized crotch shots of tabby cats on Street Views. Some ideas for cutting back on soaring costs, which investment strategist Carsten Klude maintains are vital to a company like Google’s growth, include taking away the free lunches and not buying any more of the founders’ wife’s companies in an effort to get out of taking out the trash.

Google Drops on Profit Miss, Auction Spending Plan [Bloomberg]

If Mark Zuckerberg wants to know what it’s like to be touched by Sergey Brin and Larry Page (A. Weird at first, then really kind of nice), he’s going to put it out there in no uncertain terms, Brin told DealBook Sun Valley correspondent David Carr yesterday in Sun Valley. “We don’t really look at companies for acquisitions unless they are really interested,” Brin said, not saying that he’s run into with “mixed signals” before but seeming to imply it. “If they come to us, we’d certainly be open to talking,” he added, meaning “You come 90, we’ll come 10.”

Facebook, who turned down a $1 billion offer from Yahoo last year is under the impression that Google et al will want it for its new “Platform” (and mind) at least $2 billion. FB’s recent “growth spurt,” open policy, etc, also has people talking about a big buy, although there are some around these part who think Facebook’s crossover from exclusive to inclusive* (plus its insistence on overloading the page with, what’s the word, crap) should be a signal to companies to stay away and let the thing IPO itself in 2009.

Sun Valley: Google and the Facebook Question [DealBook]
Google's Brin Says Won't Pursue Facebook [CNBC]
Exploding Bubbles: Facebook Widgets And Your Butt [Wired]

*while lacking the intrinsic trashiness that makes MySpace’s spread legs okay

In the Web 2.0 parlor game of deciding who's going to buy facebook, guessing "Google" isn't exactly earth-shattering, but it's probably the most accurate guess one could make. Saul Hansell of the New York Times Bits Blog does just that, reasoning that Google might buy facebook just to cockblock rivals (a little too late for that, as I'm not sure any of Google's rivals would pony up the $$ at this point). Our guess at DB is "none of the above" - since we don't think any company will (would or should) pay what Zuckerberg wants for his "platform," and the thing will just IPO in early 2009 or even late next year.

Facebook's growth, and more importantly, it's marketing, give Zuckerberg most of the negotiating leverage when it comes to a potential deal. From the Bits Blog:

The bottom line is that this gives Mark Zuckerberg, Facebook’s young founder, chief executive and largest stockholder, a lot of options. He can sell the company for a lot of money, take it public or just grow with internally generated cash as was the strategy at Google, a company he idolizes.

By the way, if Zuckerberg does sell, my guess is that it’s Google that buys Facebook. Yahoo needs it much more. But Google has a penchant for using its financial muscle to keep hot companies out of the hands of rivals (wresting YouTube from the News Corporation and DoubleClick from Microsoft, for example).

3.6 Million New Faces [New York Times Bits Blog via DealBook]

Smart people would rather work at Google than Goldman Sachs, Bloomberg reports today. One reason is that “Goldman's current package is not enough to compete with West Coast IT companies.” But then again, if you work at Goldman, you get to play with Excel all day. It's so hard to decide, we know. Having difficulty picking one G over the other? We’ve broken it down for you, after the jump.

Goldman Meets Match in Googleplex When Recruiting Graduates [Bloomberg]

From the WSJ's MarketBeat column, Google is bigger than Berkshire Hathaway in terms of market cap. Coming off the second worst week of the year for stocks, and the end of the 14 quarter streak of double-digit earnings growth for S&P companies, Google now has a market cap of $166.3bn and Berkshire Hathaway has a market cap of $165.6bn. Berkshire makes more net income than Google makes in revenue, but has worse margins, growth and is void of that whole 'impending world domination' ethos. Berkshire companies pull in $98bn in revenue and $11bn in net income while Google pulls in $11bn of revenue and $3bn in net income. Google has a 29% LTM net profit margin, which is the 8th highest in the NASDAQ-100, and just ahead of Microsoft's 28%.

Midday Tidbits: Google, Bigger Than Berkshire [Wall Street Journal MarketBeat]

Google, the company that's trying to catalog every word that's ever been bound, reads your email to provide advertisements and doesn't have a problem with displaying the street-level view picture of 44th and 8th just as you were walking into Peep World to ask directions (what are the odds!) on its site, draws the line at an operating system's ability to scan your hard drive.

Google wrote a 50-page antitrust love letter to the Justice Department outlining how Windows Vista looks at all the porn on your computer through its desktop search feature. Google also has some problems with Vista's destroy Google "integrated search" customization and the indexing of desktop files. Google's specific complaints, from the Wall Street Journal:

In its April white paper, Google alleged that Microsoft didn't allow search bars in Vista that consumers can use to initiate searches to work with desktop-search software other than Microsoft's, said lawyers familiar with the matter. In addition, Google argued it was practically impossible for consumers to turn off the indexing feature of Microsoft desktop-search software that catalogs users' files, which meant a computer's performance was slowed down if it used a second desktop-search application.

Google has a long history of getting bored enough to try and cause some legal troubles for Microsoft, usually by taking the antitrust angle. Last year Google claimed that Microsoft was pushing its web search feature by using its influence in the over the browser software market to the detriment of competitors. Microsoft doesn't plan to do anything about any of this, as Google continues to plan "the invasion" phase of its business plan.

Google Intensifies Microsoft Fight [Wall Street Journal]

Google bought startup PeakStream for an undisclosed amount yesterday. Prior to the acquisition, PeakStream raised over $17mm in venture funding from big name venture shops Sequoia Capital and Kleiner Perkins Caufield and Byers. The company provides resources to program multicore chips like GPUs, which are often used in graphics cards. Since multicore chips use several integrated processors they are faster than traditional x86 chips popularized by Intel, but harder to program.

The rumors are that Google may be starting to use GPUs to boost server performance, to compliment existing x86 chips. Not evil, Google was ambiguous as possible about its use of PeakStream, and released a statement that said it ‘looks forward to providing PeakStream with additional resources.’ I guess all PeakStream needed was the Google employee free lunch to reach the next phase of its business plan. Google, on the other hand, continues to act more and more like the mice in Hitchhiker's Guide to the Galaxy, compiling the results of its experiments on human thought and behavior... or the mackinaw trout in Odell Lake, able to eat anything (barring an angler in a chub or plankton).

Google Purchases Start-Up PeakStream [Wall Street Journal]

We’re told by a trader at a New York investment boutique that Google will split 10-to-1. There have been many rumors of splits in the past but our source claims that this time it’s for real.

If he’s right, this would mark a complete about face for Google. At the Google shareholder meeting earlier this month CEO Eric Schmidt told shareholders, “We are not considering splitting and have not for a long time.” That’s about as unequivocal as you can get. So we’re maintaining a skeptical stance about this rumor.

Google’s anti-split stance, however, makes it an anomaly among public tech companies. Yahoo, eBay and Microsoft have all split. And Google’s share price—it’s closing in on $500 and some analysts predict it might go as high as $600—make it a prime candidate for splitting. High share prices are considered by many to be a barrier to investment by ordinary investors, although there doesn’t seem to be having much trouble finding willing buyers for Google shares.

One person who doesn’t seem troubled by the high share price is Eric Schmidt, who exercised options for 57,086 shares of common stock under a prearranged trading plan, according to Securities and Exchange Commission filings on Tuesday.

Google: No Plans for Stock Split [thestreet.com]
Google: Where's the stock split? [cnet.com]
Google CEO Exercises Options [Forbes]

Are you completely incapable of making the most basic decisions on your own, including “What should I have for dinner” and “How should I touch myself?” Don’t sweat it—while it’s true, yes, you are not in tune with your own body, some day, in the very near future, none of that will matter, thanks to a little thing called Google, another little thing called invasion of privacy and another little thing called monetizing this racket.

Eric Schmidt, Google’s chief executive, said gathering more personal data was a key way for Google to expand and the company believes that is the logical extension of its stated mission to organise the world’s information.

Asked how Google might look in five years’ time, Mr Schmidt said: “We are very early in the total information we have within Google. The algorithms will get better and we will get better at personalization.

“The goal is to enable Google users to be able to ask the question such as ‘What shall I do tomorrow?’ and ‘What job shall I take?’ ”

Yes, in just a short time, Carney will be able to sit comatose, while a computer tells him that he should indeed bite the bullet and buy 1,000 shares of Vonage (sidebar: is that thing bankrupt yet?), take that last hit of meth and RSVP to his twentieth high school reunion, even though he hasn’t yet secured a date. And Google will make another few billion off of what sounds like it’s shaping up to be quite an evening.

In other news, Yahoo sat around and twiddled its thumbs.

Google’s goal: to organise your daily life [Financial Times]

Thank you US Federal Court for ensuring that Google image searches will remain randomly entertaining for years to come. The Court overturned a February ruling that said Google image search thumbnails could potentially damage a porn site’s ability to sell images to mobile phone users. The overturn renders the thumbnails legal under fair use laws. Google shares have not been materially impacted by the news, despite its monumental importance.

The site/magazine that brought the suit against Google is Perfect 10. How is a pornographic website defined in legalese (besides awesomely)? The original ruling (which can be viewed here) states that the plaintiff:

P10 publishes the adult magazine “PERFECT 10” and operates the subscription website, “perfect10.com,” both of which feature high-quality, nude photographs of “natural” models…Attached hereto as Exhibit A is an example of the two-frame structure just described, containing in the upper-frame one of the thumbnail images that appeared on the display of thumbnails retrieved by an image search for “Vibe Sorenson,” a P10 model.

So imagine a bunch of state and federal justices, looking at dirty thumbnails and comparing them to original sized photos. Exhibit A is attached at the end of the .pdf (unfortunately it’s only of Vibe’s topless back). By the way, doing a Google image search for “Vibe Sorenson” is worth it (click here, image #3 doesn’t disappoint).

Ever need a legal euphemism for getting off? - “For some viewers, P10’s use of the photos creates or allows for an aesthetic experience.” Now you can ask that hot paralegal at Skadden if she’s into “allowing for an aesthetic experience.” In the original case, Google was a bit sick of skirting around the real utilitarian use of porn image searching. The Court smacked them down by using the Duchamp “what is art?” defense:

Google argues that P10’s works are not creative because P10 “emphasizes the objects of the photographs (nude women) and [P10] assumes that persons seeking Perfect 10’s photos are searching for the models and for sexual gratification.” The Court rejects this argument. The P10 photographs consistently reflect professional, skillful, and sometimes tasteful artistry. That they are of scantily-clothed or nude women is of no consequence; such images have been popular subjects for artists since before the time of “Venus de Milo.”

The Federal Court must not have had the same aesthetic sensibilities, or quality of "aesthetic experiences."

Google wins adult photos appeal [BBC]

Old Media is firing its arrows at Google at the 56th annual National Cable & Telecommunications Association conference. Trying to convince the public that Old Media has a leg up on the internets and wireless providers, execs got a little carried away. There was a lot to celebrate - from proprietary content lawsuits to the fragmentation of any sort of media-sharing portal (if audiences are going to shrink, at least let them be disparate!). Most of all, there was melodrama, as Old Media is a bit touchy when it comes to people predicting its defenestration by New Media platforms. From a Reuters story:

"The Googles of the world, they are the Custer of the modern world. We are the Sioux nation," Time Warner Inc. Chief Executive Richard Parsons said, referring to the Civil War American general George Custer who was defeated by Native Americans in a battle dubbed "Custer's Last Stand".

Unless Old Media plans to get its revenge on New Media in the gaming sector 100 years from now, maybe comparisons to the triumph of the American Indian are ill-conceived.

Shares of Time Warner (NYSE: TWX) are down over 1% today after a decent run-up in May so far (up 6%).

Old media turns combative against new media [Reuters]

Google is about to incorporate an algorithm that changes searches based on the personal information of logged-in users. The change will happen in the coming weeks.

Yahoo disagrees with Google’s approach (and continually surpassing estimates), from the Wall Street Journal:

Yahoo Inc. says it has experimented with using search histories to tailor results for individuals, but it doesn't favor this approach -- at least partly because the results didn't differ enough for users to see a big impact. Eckart Walther, Yahoo's vice president of product for Web search, says the company's research shows there are perils to personalizing search results. "If you get it right, people really like it," he says. "If you get it wrong, they dislike it even more."

Should a search engine differentiate between users and alter its service accordingly? Isn’t this a reduction in user control? Are the algorithms taking over? When will a search engine first be charged with discrimination based on provided results? Your thoughts?

Search Engines Seek to Get Inside Your Head – [WSJ via AOL]

Okay. Here's a little story. Around a year ago we were doing a lot of freelance writing, growing unpersuasive facial hair and trying to figure out what to do with ourselves now that we had bailed out of the world of high yield finance. One of the things that kept us entertained during this period was a quirky little online video sharing community called YouTube.

We liked it so much we even pitched a story about it to the New York Times. To our surprise, the Times loved the idea and told us to bring them a story in two weeks. This turned out to be harder than we thought, in part because the users of the still young YouTube community were very wary of outsiders emailing them and asking questions.

One then-prominent YouTuber answered our inquiries with this:

But how can i REALLY know you're from the new york times? you know, strangers on-line tend to lie...

Example: sometimes when they say that they are female when they are chatting ... they are really male... ;)

I hope you understand where i'm coming from...

But by far our favorite response was this one:

lol NY Times, ok dude. Sure I'll call you, then next thing I know we're in the back seat of your car behind a McDonald's and you claim that you 'forgot' the rubbers but it's okay because you've 'had a vasectomy' and your case of scabies has 'cleared up'.

The Wall Street Journal would've been a better line.

We did finally get the story, and it ran in the Times under the headline "People Who Watch People: Lost in an Online Hall of Mirrors." It was a bright and shining moment in our fledgling freelance writing career. Not only had we landed a byline in the Times, we had written one of the first articles in a mainstream media outlet about a cutting edge technology we were sure was going to be huge. We were journalists, cutting-edge, trend-defining journalists. And we were very happy about it.

Then Google bought YouTube. And even the receptionist got rich. Suddenly writing about cutting edge technologies didn't seem like such a bright idea.

The next time we discover the Next Big Thing we're not pitching anyone any damn stories about it. We're going to work for them. Even if it means we're sorting the mail or ordering post-it notes. Because it is just too expensive not to be Shannon Hermes.

YouTube's making millionaires in the lower ranks [MarketWatch via CrossingWallStreet]

The rise of YouTube from nowhere to being one of the most popular sites on the web is the biggest start-up story of the year. But is the rise of YouTube over? Over on the Alexa Web Discovery Machine blog, Geoffrey Mack has posted the graph above. It clearly shows that YouTube’s traffic growth flatlined—at least according to the mysterious and not necessarily accurate Alexa metrics—in October.

Mack adds, “It started going flat on October 9th. Anybody care to guess what happened on that date?”

YouTube Goes Flat [Alexa-Web Discovery Machine]

An agreement would allow Verizon's customers to view some of the most avidly watched entertainment on the Internet. That could advance the long-expected convergence of video and cellphones. It could also, at least temporarily, give Verizon a marketing edge over its rivals in the wireless and cable industries, furthering the company's efforts to expand into Internet and entertainment services.

Under the terms being discussed, customers of Verizon Wireless -- Verizon's joint venture with Vodafone Group PLC -- would be able to view some YouTube videos on their cellphones through the carrier's premium V Cast service, people familiar with the matter said. Verizon Wireless, like other cellular providers, has been adding video and data services to offset declining revenue from its calling plans.

LG15 fans are likely to be conflicted about this news. On the one hand, Verizon is using their girl for its own selfish gains. On the other hand, now we they can watch her from anywhere.

Verizon, YouTube Aim To Bring Web Videos To Cellphones, TV [WSJ]

The three-month test version of Google Print Ads starts this week and participating papers include the New York Times, Washington Post, and The Boston Globe. Around 100 advertisers, including the Netflix movie rental concern, luggage vendor eBags, and insurance broker eHealth, have already started buying ads through the new system.

It will almost certainly be in the best interests of newspapers for the trial to prove successful, as Google wants to eventually extend the marketplace to all of its online advertising customers. As of next year, newspapers could tap into a whole new arena of hundreds of thousands advertisers as the system is also made available outside the United States.

Google will add a "newspaper advertising" tab on its AdWords online portal, where businesses already bid on certain search terms to direct users to their websites.

Google Offers Olive Branch To Newspapers [Forbes]

One of the first great viral video sensations to hit the video sharing services were the various experiments mixing Diet Coke and Mentos to explosive effect. At one point the videos became so ubiquitous it seemed that everyone with a digital camera and a YouTube or Revver account had made one. The Wall Street Journal even ran a feature on the different corporate reactions to the videos (Mentos loved them; Coke didn't get it.) The pinnacle of this line of videos came from Fritz Grobe and Stephen Voltz, two men from Maine who created the stunning display shown in the video above.

Now comes word that Google has penned an agreement with Grobe and Voltz to share ad-revenue with them in exchange for hosting their video on Google video. The bet seems to be that viewers will follow the most popular content to whichever site hosts the videos. Thus the era of proprietary video sharing and possible profitability for the creators of online video content seems to have been born.

And, of course, the deep-pocketed Google probably doesn't mind creating any industry standards that will make video sharing more expensive for the host website, a move which will probably help stifle competition.

Google shares ad wealth with videographers [CNetNews.com]