January 13, 2008

Google’s Eric Schmidt Won’t Talk About The iPhone At Apple Board Meetings

Erick Schonfeld

37 comments »

This week’s New Yorker features an article by Ken Auletta about Google’s growing lobbying efforts and general education in Washington politics. The article recaps much of what most regular observers already know about Google, but there are two items that caught my eye—both shoehorned in towards the end.

One is the startling fact that because of Google’s increasing interest in the mobile phone industry (it is bidding for wireless spectrum and has created Android, a new open-source, mobile operating system), CEO Eric Schmidt, who also sits on Apple’s board of directors:

. . . now recuses himself from mobile-phone discussions at Apple board meetings.

Excuse me? I guess that’s commendable. Schmidt knows he has a conflict of interest there. But what good is a board member who cannot talk about a company’s hottest product? The iPhone only represents Apple’s biggest growth opportunity. If Schmidt won’t talk about the iPhone in board meetings with Steve Jobs because he’s gunning for the same market with Android, maybe he shouldn’t be on Apple’s board at all.

The other tidbit that I found noteworthy was this quote from a “senior executive at Time Warner”:

Sometimes I don’t know what to think of Google. We have the best relationship of anyone with Google. On the other hand, you always have to worry when someone gets so much more powerful than all the competition out there. This is why I come down to this: I hope the government starts understanding this power sooner rather than later.

I’ve heard variations of this sentiment myself. There is no shortage of competitors (or potential competitors) who are scared stiff of Google and wouldn’t mind seeing Google’s power checked by the government.

You can see this in the resistance to Google’s proposed acquisition of DoubleClick (which the FTC approved, but now is awaiting the EC’’s verdict). There are even grumblings of antitrust action that will no doubt become stronger if Google’s market share in search and online advertising continues to swallow everything else in sight. Concentration of power is not the same as abuse of power, but that won’t stop Google’s growing list of enemies from trying to link the two.

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January 19th, 2008 at 8:44 am

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January 13th, 2008 at 2:58 pm

Concentration of power is not the same as abuse of power, but that won’t stop Google’s growing list of enemies from trying to link the two.

I think in the case of Google’s industry and their direct interaction with individual consumers and their personal info and private data, it definitely has the potential to be the same. The point of government intervention is not just to stop abuse of power, but to also to prevent abuse of power before it starts happening.

I love Google’s products, but I hate feeling like “oh well, I guess they can have my data” just because their search engine is a little nicer sometimes.
Yasser

January 13th, 2008 at 2:58 pm

I find the second quote extremely sarcastic. It comes from a senior executive from TIME WARNER…. Aren’t they even more powerful? Seems like he’s worried about losing some of that power to Google.
Alex

January 13th, 2008 at 3:01 pm

Erick, great post. You’re spot on.
John John

January 13th, 2008 at 3:09 pm

conflicts happen, ethics is more than a buzzword. get over it.
Faramarz

January 13th, 2008 at 3:18 pm

Google has no hand in shutting the gate for opportunity seekers out there. there is no gate! capitalism and free market is appraised by all in this country, but suddenly when the rival company can’t keep up with innovation and genius of the top bull, they start poking at the rules of the game.

anybody can be the next Google. instead of bitching and moaning how Google came about to this, these ceo’s need to look at their own offerings today!
John John

January 13th, 2008 at 3:39 pm

Google for their part has more than lived up to their “don’t be evil” slogan.

With Sergey, Larry & Eric at the helm, I’m pretty relaxed about Google’s (un-tapped) potential for evil.

Just imagine if any one of the slimeball American telco’s/media-co’s owned google - that would be a whole new evil…..

ps Erick - what are you doing with the google sensationalistic posts? That’s Duncan’s job.
Boring Market

January 13th, 2008 at 4:08 pm

Well, they have to be partners…it’s only natural. If Google isn’t in Apple’s pocket then Apple will lose one of the most important and widely known app creators for the hottest product around. Is Eric doing the right thing? Maybe not. Is it the most legally correct thing. Yes. At the end of the day, its better to protect oneself then to join a important conversation. That is just sad.
templatestaff

January 13th, 2008 at 4:21 pm

This is a very boring article. I don’t know the relevance.
templatestaff

January 13th, 2008 at 4:22 pm

However, I agree with the one of the previous comments, why should he even be on the board if he’s at conflict and Google wants to dabble in this market with Android?
Fabian Schonholz

January 13th, 2008 at 4:22 pm

The government should stay off the subject and let market forces take effect. If it wants to get involved is to provide assistance to new companies in the form of tax breaks, access to information and potentially subsidies to worth while effords. But should not get involved in regulating free commerce or exert taxes on well executing companies. While monopolies are not good, good competition or lack of it is what creates them. Governments should not break monopolies but open up the markets to allow others to enter the arena. Basically the government should be another VC.

I know I will eat my words in the future. However, I feel very strongly about government staying out of the market regulatory business.
uyasar

January 13th, 2008 at 4:37 pm

I am afraid google might be god!
DJ Fazzioni

January 13th, 2008 at 4:45 pm

1. “With Sergey, Larry & Eric at the helm”

… why do I feel that these words have been echoed throughout business history many many times before, and most of those times, the result has been abuse of power? (I was going to be sensationalistic and write something like: Citizen 1: “With Adolf at the helm …” but I only add it in the parenthetical for fear of invoking Godwin’s law. Nevertheless, I think the point is clear: a few individuals at the helm of a huge source of power can NEVER be trusted - that’s why democratic republics thrive and monarchies / oligarchies falter)

2. “Concentration of power is not the same as abuse of power”

… no shit. But this is a misleading defense, as it doesn’t address the actual issue. Those concerned with google’s aggregation of power aren’t concerned with that in and of itself: it’s the increased potential for google to do great harm as a result of that concentration of power. This should be obvious and not require an extended argument. A parallel would be saying: “possession of nuclear weapons is not the same as use of nuclear weapons”. Bravo. That’s not the point. The point is that, once they’re around (parallel: once the power is concentrated) the potential for harm increases dramatically.

3. “conflicts happen, ethics is more than a buzzword. get over it.”

I agree - ethics is more than a buzzword. From an ethical standpoint, I actually applaud Schmidt’s move. But I think the blog author’s point was a good one: if this invocation of business ethics necessitates you sitting out from any discussions involving a CORE COMPONENT of the company’s business … what is the point of being on the board? More precisely, I think I would say: you’ve violated the point of being on the board. If your directors can’t engage in the very stuff that is your company’s business because of conflicts, its time to find new directors. Otherwise, they’re just warm bodies. Coming from Google doesn’t get you some sort of pass.

I’ll extend it just a bit more: I think the metaethical thing for Schmidt to do (if the claims in the nyt article are true) would be to remove himself from the board, in recognition of his inability to fulfill the director role. That’s being ethical. Simply sitting out and violating your duty as a board member in the process isn’t ethical - its playing the ethics card for another end.
Niyaz PK

January 13th, 2008 at 4:46 pm

Now that is certainly going to be interesting. But is this actually a news we must worry about? I think it is an internal matter of Apple.
lrd

January 13th, 2008 at 5:14 pm

Google: 0 phones
Apple: 5 million plus 200 patents & 150 million iPODs

I’d bet on Apple.
Jack Stahl

January 13th, 2008 at 5:32 pm

Erick and assorted commenters,

You’re completely off base here. (External) board members are brought on primarily to be experts in a particular field or come with connections. For example, Millard Drexler of J. Crew is obviously there for his retail-store expertise (and I guess he’s been doing a good job!). Do you really think that Drexler’s input on the iPod, when that was the hottest thing, was essential to his board seat? No, obviously not. Al Gore has obvious political connections, as well as some potential input on online TV or energy-related things. Gore has very limited no experience in the private sector and no techincal knowledge; surely this prevents him from having the ability to make informed decisions about some of the discussions at Apple board meetings, but that’s just fine. Some might say that the recent adding of Andrea Jung is for the NBC connections (through her board seat at GE). She knows a thing or two about sales, too. It really doesn’t matter how much she knows about operating systems, does it? Now there’s not necessarily a clear product reason for all of them — I think Arthur Levinson is just there because hes a complete badass — but the point is that is TOTALLY ok for Schmidt to not comment on iPhone-related issues; not every board member has to have input on every thing. And as you say, there is a huge conflict of interest there, and it’s only right for Schmidt to do so.

Apple has a lot of ventures and a lot of products. The iPhone may be the *hottest* one right now, but it’s not a core competency like software, their most profitable product like the normal ipod, their biggest growth (retail, music) or anything of the sort. It’s just one of many things that Apple is doing.

When it comes to designing an operating system or computer for the future, there aren’t many better sources of wisdom on what you might want to be able to readily serve than Eric Schmidt. And I’m pretty sure he knows a thing or two about handling a programming language (Cocoa) or scaling up a technology-focused business from doing great to absolutely dominant. Are you really saying that there’s no point to having Eric Schmidt on the board? Come on.

And Eric isn’t just “protecting himself”. He’s maintaining the integrity of the discussion. His leaving benefits everyone else involved not to have to worry about the conflict of interest involved and also helps him be able to go full force at Google without feeling like he might be violating some sort of agreement with Apple.
Tom Grubisich

January 13th, 2008 at 5:40 pm

The problem with what you’re thinking out loud about is what, exactly, should the federal government do as an enforcing regulator? Whenever the government tries to stop something that is not egregiously bad, it often goes on an “elephant walk” that can cause unanticipated damage that’s worse than the specific problems it sought to fix. I think that at this time, Google’s competitors should think about how they can bring together their strengths — through merger, acquisition, partnership, etc. — to do a better job. What I see is Google trying to be as creative as it can to meet basic needs, while competitors, at least some, chase after desperate, murky objectives.
Ron

January 13th, 2008 at 6:02 pm

I disagree with the contention that Goggle isn’t abusing its power.
But even if we were al to agree on that, it doesn’t mean you should give them a free ride until you feel they’re abusing it. Checks and Balances ensure a fair and open game and most important our rights.
Saqi

January 13th, 2008 at 6:45 pm

Google is not “God”, as posted early buts its a company pushing for innovation. More competition there is in the market better the products and service available to public.

Google is being questioned so much because big companies are loosing big bucks because what its doing. If you research you will find other companies out there do much worse. If government is out banning abuse of power Google is way down on the list, if you think they are on the list at all.

Its not what Google is right now, that is scaring people. Its whats its becoming. One thing people have to keep in mind is that Google employees best of the best. Most of its employees are Master or PhD of some sort. They add a lot of value to its products. Google is trying to take over a lot of things but is that bad if we get cheaper or free products?
jojo

January 13th, 2008 at 6:56 pm

Oh puhleez, just because most people, BY CHOICE NOT FORCE (get that through your thick skull you anti Google camp) use Google Search and just because more and more people are migrating to Google Search does not make Google a threat. You know why these companies consider Google a threat? Because people love using Google and they don’t like using other company tools and these inferior companies will continue to lose power and market share because they suck. Well BOOHOO, they cry, (get out the sad clown face and the violin string section) Google has too many friends, they say. What are they, a bunch of babies? Every time I hear this poor excuse of an angle on a great company like Google it just makes me laugh. These anti-Google guys don’t have a leg to stand on.
Viva

January 13th, 2008 at 6:58 pm

Reminds of me Sun’s whining in the 90s about MS. When you start looking to the gov’t to help you, it’s a sure sign you’re getting your ass kicked. On the other hand, business is war so why wouldn’t you employ every weapon at your disposal (i.e. gov’t) to win.
Paly

January 13th, 2008 at 8:47 pm

Can you honestly not see any point to him being on the board? The iPhone is a big product, but it’s not the ONLY product (ahem, iPod, and I hear they make computers?) It is just as beneficial for Apple to have him not involved in the iPhone as it is for Google. It’s the right move from both perspectives and a total non-story.
Paly

January 13th, 2008 at 8:50 pm

and @ Viva - don’t ever get into business with the “business is war” attitude. Believe it or not, ethics actually do matter to a lot of businesspeople.
Clyde Smith

January 13th, 2008 at 9:06 pm

Eric Schmidt should be considered a spy and removed immediately.

Google has way too much power. Right now they abuse the little guys with their lack of transparency and their increasingly weak algorithm tweaks that don’t seem to be improving things but regularly screw small fry.

Good to know some of the people who the government actually listens to are starting to push the issue.
Will Bea

January 13th, 2008 at 9:08 pm

First off monopolies are NOT illegal, immoral or improper and ARE the goal of all major capitalist businesses. Ethical use of monopoly power is nearly completely missing in America and the USA has absolutely no desire to even want to try and control their own thugs like Microsoft. Companies devoid of any common ethics are a true reflection of American values and Microsoft is the prime example of this. Google by example is the antithesis of Microsoft’s actions.

Pre-emptively acting against a businesses you think may in the future act improperly or illegally, because they have power, is completely illegal, immoral and unethical even though this is the way the USA conducts itself in the world, like a delusional half whited bully more commonly known as a thug. Preemption is the realm of the weak, totalitarian governments who act to control because they can’t lead and feel powerless to influence or present an example to be emulated
Nancy B.

January 13th, 2008 at 9:36 pm

To DJ Fazzion when you write about “With Adolf at the helm - a few individuals at the helm of a huge source of power can NEVER be trusted - that’s why democratic republics thrive and monarchies / oligarchies falter” I’d like to point out you have Hitler’s retarded clone at the wheel with the puppet master preemeptive war neo-cons thugs pulling the strings, how do you think the USA is doing in the world. Your answer will reveal whether your mouthing delusion from inside the American bubble or living the reality the other 95% of humanity is.
jojo

January 13th, 2008 at 9:36 pm

I guess Clyde Smith didn’t get the memo. You know with his genius logic, the government should regulate anything that is too popular, because to him popular equates to power and that’s oooooooo sooo evil. Yes Clyde, let the government also regulate Hannah Montana. She’s too popular and kicking everybody’s ass in concert ticket sales and revenue. I guess he hates the popular jock in high school who gets all the good looking girls that didn’t pick him for the prom. Your logic of the government regulating popularity and the popular use of Google is what we are talking about here because popularity is based squarely on favored choice by the majority and not force, is rather quite asinine. The government should not regulate a company because it’s power comes from the fact that the majority of the people choose to use the service of the company (Google in this case). So what even if Google gets to 100% market share. Who’s holding them hostage? People are free to use other services anytime they wish. The freedom of use. That’s democratic and you sir are an enemy of Democracy!
Boring Market

January 13th, 2008 at 11:39 pm

I think Jack Stahl (#15) is on to something very true, board members are not just tenure executives like it used to be. They are rather connectors, people who have the necessary connections for a business. Apple is a very diverse company, more diverse then Google in its income streams and projects. Apple surely needs different people who come from different fields to chip in on ideas in order to form a rounded idea in what to do. If it means a conflict of interest, and some uncomfortable waters….so be it.
EH

January 13th, 2008 at 11:49 pm

This story is an illustration of the problem of having knowledgeable board members. Once upon a time board members tended to be professionally disinterested with a purpose, but that was a long time ago.
Andy Gongea

January 14th, 2008 at 1:47 am

hey … what’s up with the url
googles-eric-schmidt-wont-talk-about-the-iphone-at-apple-board-meetings-wtf/
john

January 14th, 2008 at 2:17 am

how about mobile paymnet as i think Google already runs an online payments system, called Checkout, which competes with EBay’s PayPal.
Farhan Lalji

January 14th, 2008 at 3:57 am

I think everyone should be reading Jack Stah’s comment. Makes sense, great point Jack!
Ree Tanjuatco

January 14th, 2008 at 4:13 am

Do you have anything else to report other than speculate on corporate strategies?
Dale D

January 14th, 2008 at 7:36 am

Apple iphone and the Android alliance are paralleled.
The big G has quite a lot of other things to focus on.
The conflict of interest may seem to be difficult to realise.
The fact that it is an alliance composed of different members should help to allay some concerns.
Erick Schonfeld

January 14th, 2008 at 9:07 am

@Jack Stahl, Apple expects to sell 10 million iPhones this year. That is at least $4 billion in additional revenues, from a starting point of zero a year ago. There is no question that the iPhone will be the single most significant contributor to Apple’s growth this year.

Board members may have different areas of expertise, but they all share a fiduciary duty to shareholders (not management) to oversee the major strategic plans of the companies they serve. The iPhone falls into that category of things that all Apple board members should be concerned about (even Mickey Drexler).

And no, I wouldn’t equate the strategic importance of the iPhone with the Cocoa programming language.
warren

January 15th, 2008 at 4:12 pm

yeah…let’s get the government involved…THAT’S a good idea.
ONENERYNC

January 19th, 2008 at 12:42 am

Hello!
Not much on my mind right now, but it is not important. I have just been letting everything happen without me. I just do not have anything to say right now.