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This is FRESH AIR. I'm Terry Gross.

The planet has been Googled, writes Ken Auletta in his new book, "Googled." He said Google has eliminated barriers to finding information and knowledge, and its way of building its business, making it free and attracting users before figuring out a way to make money, has become the template for Web startups. But, says Auletta, for the many companies Google has encroached on - such as magazines, newspapers and book publishers - Google can be perceived as the evil empire. Any company with Google's power needs to be scrutinized, says Auletta, and that's what he's done in his book.

The subjects of his earlier books include "how the TV networks lost their way" and "Microsoft and its enemies." He writes the "Annals of Communications" column for the New Yorker.

Ken Auletta, welcome to FRESH AIR. Now, Google was first known as a search engine. Give us a sense of the many ways that Google has expanded beyond that.

Mr. KEN AULETTA (Author, "Googled: The End of the World as We Know It"): Well, what's happened is that Google expanded its definition of search. It began as searching text, and you got these instantaneous answers, and they were wonderful, and they became a very popular search engine. But they made no money. And by 2001, they figured out a way to do ads - to make money on ads. And today, in fact, they generate $22 billion worth of advertising revenues, over $4 billion worth of profits.

But as they got into selling ads, they realized, well, search could be - the definition of search could be expanded to include search advertising. And why can't we do a more efficient job of marrying the advertiser with the people who want to see the advertising, and charge them only when people click and rather than charging them on a shotgun approach, which is the way it's done in traditional media.

And then they said, well, why can't we expand search to books? So why don't we digitize all the books in the world? And isn't that a search function, people searching books? Well, of course it is. It's a wonderful search function. And then when they bought YouTube, they said, well, why can't we search television and put television on YouTube? And telephones and Microsoft and all these other businesses that they began to bump into were really, in their mind, an extension of search and an extension of the basic notion of an engineer, certainly a Google engineer, which is we assume that the way the world works now, the traditional media world, is inefficient, and so we're going to ask why. Why not be more efficient, and why can't we do it more cheaply?

And in fact, the free model that Google has created here is one that's very popular with consumers but obviously harms traditional media businesses tremendously.

GROSS: Now, let me get back to the basic thing, the basic function that Google started with and that it still is so good at - and that is being a search engine. There's always rumors about how searches are prioritized - the results are prioritized. Like who gets that top listing, who determines it? And there's always rumors like do you pay to get a better placement in the search that comes up?

And I know on the day of the IPO, when Google went public, they said they will not accept money for search results, ranking or inclusion. How does Google decide who gets those top 10 entries or those top five entries that come up when you do a search?

Mr. AULETTA: Google believes in transparency, but they're not transparent about what's in that black box of search. We don't know, no outsider knows, how Google comes up with what they call page rank -which is why a listing is at the top, or second place, or third place or 100th place when you do a search.

We don't know. What we do know is this: A, as you said, Google does not allow, does not charge for placement - so no one is paying to get placed higher up on that search; B, we know that Google, in part, makes a decision based on the number of people who have visited that Web site. So the popularity of a Web site boosts its ability to reach higher on the search results. But that alone does not determine it.

They then have other criteria. For instance, I know - and I asked them about this, and they confirmed it - that if an article appears, say, in a credible publication like the New York Times, it tends to be given some weight in that algorithm that Google's black box contains. But how much weight, we don't know; and what other weights they assign to other values, we don't know.

GROSS: Now, is that algorithm a secret because they don't want people playing it, in other words, like, doing what they know will get them a higher placement; or is the algorithm secret because it's valuable information, and they don't want anybody else to be able to duplicate what they do?

Mr. AULETTA: Both reasons. The algorithm is - they're very concerned that if the algorithm were public, people would game the system, as you suggest. They're also very concerned that competitors not get a hold of it. And Google has a market share of two-thirds of search in the United States and almost 70 percent in the world. They don't want to give up that lead, and they're afraid they would give it up if people knew their secret sauce.

GROSS: Is it hypocritical that Google wants to make everybody else's information free but is so protective of their own formulas?

Mr. AULETTA: Of course. Google is a company, it's a brilliant company, and they've done extraordinary things, but they're full of contradictions, which I try to outline and explain in my book, and that's just one of them. I mean, they are not transparent.

If you - when you're on the Google campus, as - I lived there for a good bit of time over two and a half years and had access to its employees -and one of the things you realize, if you ask a question - how many people are employed who are of Indian descent at Google, what do you pay engineers, simple questions like that - you may as well be talking to the CIA about how many undercover operatives they have. I mean, they're very secretive.

GROSS: Google has had a lot of, like, advertising breakthroughs that have been very threatening to the broadcast and print media, but very successful for Google. What do you know about their formula for deciding how to put - how to match advertisers to searches?

Mr. AULETTA: What they do is - this is actually an inventive thing that they did. They started, Google started as a company in a garage in 1998, and for the first three and a half years, they made no money. And their investment bankers were very concerned about this and were very agitated. And Google believed that if you build a good search engine, and you got a lot of traffic, you would figure out a way to make money off of it. And one of the ways they figured out how to make money, they came up with what's called a Vickrey auction system. They copied a Vickrey auction system, and it basically said look, what if we run little ads on the right-hand side of the page, like the gray box you see when you do a Google search, and the advertiser who pays the most for an ad would be ranked higher.

So if, for instance, you're doing a search on sneakers, the bet that Google made is that New Balance and Adidas and Nike would want to advertise. Well, what Adidas and Nike and New Balance and the other sneaker manufacturers do - what they do is they say on the following search words for sneakers, if someone wants do a search for sneakers, if someone wants to do a search for basketball or football or basketball courts or playgrounds - we would like to bid on those words, and we will bid the following amount anytime someone clicks on that search word.

And let's say - let's say that Nike bids 25 cents a search word, right? And let's say that New Balance bids 50 cents. Well, New Balance wins, right? They had the highest bid. But the Vickrey auction thing - system - and the way - why it pleased advertisers so much, is that New Balance only winds up paying a penny more than the second-highest bid. So instead of paying 50 cents, they're paying 26 cents. And so on down the line. And the second-place person, Nike, pays only a penny more than the third place - and so on down the line.

So this was very attractive to advertisers. Also attractive to them was they didn't have to pay - if you didn't open up one of those search boxes on the right-hand side - I rarely do - you didn't have to pay for the ad. But if you clicked on it, that's when the advertiser would pay.

GROSS: Now, the issue of invasion of privacy comes up with the email service, Gmail, that Google runs, where there are ads keyed to the email. Would you explain how that works?

Mr. AULETTA: Well, the way it works is that when you type an email message, and let's say you put the word in, "shoes," right? You may get a little ad that'll pop up on the side and say, you know, Johnson & Johnson has a shoe sale not far from where you live, if you're interested in shoes.

Now, no one is sitting there - a human is not sitting there at Google saying Ken just typed in "shoes," let's give him - shoot an ad at him. It's all done electronically. So no human eyes are looking at this. On the other hand, it means that Google has a repository of information about you they're collecting, and that opens the question of possible future abuse - which is why the issue of privacy, like the issue of copyright or the issue of concentration of power, are three issues that surface throughout my book and one of the reasons why the government is looking closely at that.

(Break)

GROSS: One of the things Google is famous for now is its mapping system. Google Maps, a lot of people turn to when they're driving to - driving or walking to a location that they're not familiar with. And now Google is also adding its own GPS system to a Smartphone that uses Google's software, and you'll only be able to use this GPS phone system on phones that use Google's software. What is their mapping system? How did they, like, map as much as they have?

Mr. AULETTA: Well, they have over 20,000 employees, and half of them are engineers, and they - Google Maps, Google Earth are wonderful services. They're free, and you can see many parts of the world and get directions to locations you're driving to or walking to; and you can see pictures, video of these locations. You can check out traffic patterns.

GPS is in every Smartphone, and it's not just Google that has GPS. The phone company has GPS in the hardware. And what it does is allow you to locate where you are and use that to navigate. But one of the issues that Google is trying to deal with here - and it's a very fundamental one, and it's one that not just Google is trying to deal with but the phone companies and the advertising community are trying to deal with -and that is how do you make money on a cell phone? How do you get advertising into that Smartphone, into that cell phone?

So they have - what they've begun to do - and the advertising community is talking to Google about this and the phone companies about this, and everyone is talking about this - let's stop thinking of it as traditional advertising, let's think of it as a service; and with GPS, we can give you more services.

So Google Earth or Google Maps is really a service, and if they could figure out a way to pay for it or charge somehow - either with advertising or with some kind of micro-payment system - then it becomes a way for the phone companies to make money and for Google to make money off what is now something that's free.

But this is a profound change of thinking, and it's one that emanates not just from Google but from the phone company and from a lot of other - and from advertisers, who are saying how do we - this is the fastest-growing digital instrument we have, a handheld device - how do we make money off of it? How do we get advertising into it? And the GPS is really a first public-fired shot in this larger issue of how do we think of it not as advertising but a service. That is to say, you're walking, Terry, by a mall in Philadelphia, and they know you happen to frequent this particular store because they have your records, right, and you leave a digital footprint of everything you do. And you've been to this store, it's on your credit card, and the phone company has a lot of that information - what you've called, what you've paid for maybe, or your cable company has that - and they say, excuse me, Terry, but we know you're walking by one of your favorite stores. Would you like to go in? They have a sale on some of your favorite items today.

And you walk in, or you're walking by, and they say you've been to this restaurant a lot - and this is a little text message that may come up -there are seats available if you'd like to come to lunch, and just press this button. Someone's going to pay for that, but that's a service. They're thinking of that as a service that you would find attractive as a consumer.

GROSS: Google has its street-view system in which you can actually see, you know, whatever destination you ask for, and you know, get a picture of the block, the corner, the building. How has it managed to do that street mapping that it has?

Mr. AULETTA: Google believes in investment. They don't pay dividends to shareholders. They announced right from the start when they went public in 2004 they would not pay dividends and that they would invest in the long-term business success of Google and not be concerned, as so much of Wall Street is, with short-term profitability.

It's one of the great attractions of this company - they think long-term. And one of the things they've done is they invest a lot of money -about $3 billion a year - in capital investment. And included in that capital investment are all these servers that will provide cloud computing and that speed up your search, but also their ability to map streets and the world. And they believe that long-term, this investment - even though it makes no money; it costs them now - long-term, they believe it will make money for Google, and their idea of using GPS tied in with Google Maps and Google Earth, and thinking of selling advertising not as advertising ads that you see but as a kind of a service, is very consistent with that long-term view that they've adopted.

GROSS: One of Google's innovations is a cloud computing system. Can you just briefly describe what that is?

Mr. AULETTA: It's - a cloud is basically a server. It's a computer that doesn't sit up in the sky, but actually sits in a physical plant somewhere. And Google has dozens of these plants located around the world, and they're huge, sometimes the size of three football fields. And they're air-conditioned, and they consume a tremendous amount of energy, and they're populated by thousands, hundreds of thousands of computers, and those computers are servers, and they store and receive and send information.

For instance, if you think of your email, whatever email system you use, that's cloud computing. You're - basically no matter where you are, if you move from city to city, from your home to outdoors, you can access that email because it's in a server somewhere, and they store that information of yours and keep it until you delete it.

And that's really cloud computing. So what Google has begun to do, and this is really aimed at Microsoft - but not just at Microsoft, it's also aimed at others who do cloud computing; like Amazon and like Apple and like Sun Microsystems and like Oracle - what they're doing is saying, instead of buying package software, which is expensive, and putting it in your computer, wouldn't you rather have the portability of cloud computing, which is much cheaper and maybe even free - right now it is free with Google - and you can store all your information, not just your email, but you can store your word processing needs and your spreadsheets in our cloud and access it from any device you have - be it your laptop or your desktop or your handheld computer. And wouldn't that be wonderful? It gives you that kind of portability.

What it doesn't give you is the security of - if you go down, as Google, as Gmail, Google's Gmail has gone down a couple times, as Google's YouTube went down at least once. If it goes down, then you lose that system, but on the other hand, if your computer crashes, you lose your software until you can get your computer back up.

GROSS: The city of L.A. just announced that it's switching its email system to Google's Gmail, which is a cloud system. So what do you think are the potential advantages and disadvantages for a major city like L.A. in going to cloud computing for its email?

Mr. AULETTA: Well, I'm sure what Google is - the sales pitch would be that we can do this much more cheaply. L.A., you can save money by doing this, and that's what Google is saying to companies. Why buy this expensive software from Microsoft and other software companies like Oracle? Why do you have an expensive IT department? Why don't you just outsource your computing to us, and we'll charge you a fee for it, but we're like your consultants. We'll be your experts, and you'll save money by doing that. And that is, Google hopes, a real growth business for them.

They're not the only ones doing this. IBM is doing this, and Amazon is doing this. So there are other companies who are - and Microsoft is now going to try and do it - because they see themselves threatened, as well.

That's the plus. It's a potential cost savings for companies and for governments. The minus is: do you trust Google? Do you want to store that information with a company? Will they guard your secrets, or will they share them with advertisers or with someone else? That's - Google says they won't - but that's the question. And Google can say they won't do that all they want, and say it's not logical for us to do it because we would undermine the trust we need to build this business - and that's true logically. But fears are not always logical. And Google is not so good at understanding people's fears and not so good at understanding why people would fear such a concentration of power in the hands of one company.

(Break)

GROSS: Let's talk a little bit about Google and copyright controversies. Let's start with newspapers. Google has its own news aggregation service. What are the objections of some newspapers and wire services to how Google uses their material?

Mr. AULETTA: Well, what happens is that Google has two ways of using their material. One is Google News, as you mentioned, which is -aggregates roughly 5,000 newspapers and magazines from around the world. And if you go, and you go onto Google News and it gives you the latest news you want to read, and you click on a story you're interested in, the latest event in Pakistan today, let's say. You click on that and you get basically two or three lines with a link to the newspaper or the magazine in which the story appeared. You click on that, and it actually takes you to the newspaper or magazine.

Google then claims, well, this is great for the newspaper or magazine, because we're increasing your circulation. We're introducing many more people to your stories and you can sell ads on your site off of the traffic we send you. The newspapers or magazines shoot back, wait a second. You know, what it means is that people don't have to read our newspapers. They can go to Google News and read articles they want in that. They can cherry-pick articles they want in our newspapers, A, and B, the ads we - you give us more traffic, but we can't sell ads at a very high price online the way we can in a newspaper.

Roughly 10 - you get roughly 10 percent for an ad online, as you would get in a newspaper. So they say you're really robbing us of readers for our newspaper, and therefore, harming our economic justification.

The other way that Google affects newspapers, when you do Google search, let's say you search for Pakistan today, right? You will get - one of the high choices you'll get is an article, say, in The New York Times. Again, you'll see that two or three lines and then a click to The New York Times, and you're back to the same issue.

So the newspapers are claiming that what Google is really doing - and what they really worry about is that Google is letting people read their information in the newspaper that they charge for, read it for free online A, and B, make a commodity out of newspapers because people don't actually know where they're getting information from and don't really care at some point. They just want, you know, they click on whatever it is that strikes their fancy. They don't say I want to read what The New York Times said. So newspapers...

GROSS: So the brand becomes Google and not The New York Times.

Mr. AULETTA: Yeah. It does. Absolutely. And so that's why The New York Times and the Wall Street Journal and a lot of other - the AP and a lot of newspapers and magazines are saying, wait a second. We may have to charge for contact and create a firewall. And if they do that, that means that when you do a search on Google News or you do a search on Google for an item, those newspapers will be closed to you. You won't be able to do the search on that.

And the danger for the newspapers and magazines, if they create firewalls, unless every newspaper and magazine creates a firewall, then people - then - and if news really is a commodity, then people will get information from the Christian Science Monitor, which is an online paper now and only prints one day a week, or the Seattle Times Intelligencer, which doesn't print anymore, but is online. So that - and wire services. And that's the danger for the newspapers if they create a firewall.

GROSS: Is it too late to change the model, do you think? Since people -I mean, a whole generation has grown up thinking things are free on the Internet and newspapers have been giving it away on the Internet, but charging for the actual print - the same with magazines. How do you change a model after it's established? Do you think it can be done?

Mr. AULETTA: You have to change the culture, and that's harder than changing a model. The culture is that - is one that expects things free. And I'm not casting aspersions on that. It's just a reality. That's what they - they have the habit; it's been free. So you're asking to change what has become a habit. That is not easy to do.

On the other hand, there is evidence that it can be done, and Apple's iTunes is a classic piece of evidence in this regard. I mean, the idea that music - I mean, just think about five years ago, the music companies were suing their customers on college campuses for what they called illegally downloading their music. And it was illegal, by the way. You know, they were breaking the law to do that, but it was so commonplace that no one thought it was against the law to do it.

Well, Apple comes along and they said we'll charge you only 99 cents and you can pick the music you want. You could listen to a little segment of it before you buy it, and you could buy individual songs. You don't have to get stuck with buying an entire CD for X many more dollars. And it took off like gangbusters, and it's been a great success for Apple and something that customers who were used to free music have accepted. So there are some models that suggest it can be done, but it won't be easy.

GROSS: Google would like to scan and digitize basically all the books in the world and make them available. What is their ultimate goal with their library system?

Mr. AULETTA: Well, they have several goals. At first, their goal -stated goal was to - by digitizing all the world's books at, by the way, a great cost to Google to do that, and no one's ever done it. And their estimate is that there are 20 million books in print or have been in print, published since the beginning of time. And that would be available to any one who does a search.

Now, as a researcher, as a journalist, as a writer of books, that's invaluable to me that I could search books. It's like going to a library, but it's a library in your home. But for the publishing industry, they originally sued Google, saying it wasn't so wonderful, that they were taking their copyrights.

Google came back and said no, this is fair use. We could take a certain amount of information. And they said no, you're taking too much. And if people read what you propose to take, they won't read the book. And that became a lawsuit, which was then settled, and in the settlement, Google then advanced some other ideas.

Not only have they agreed to pay roughly $120-some-odd million to publishers and authors to digitize these books, but in addition to that, Google announced - and this was not in the original plan - that they'll begin selling some books the way Amazon does.

So they'll be competing with Amazon and selling some books. And, but they're called orphan books, books that you don't know who the copyright owner is. But there are a couple of million of those, it's estimated. So Google will be in the bookselling business, as well as the search business with books.

GROSS: You know what I've been wondering? Google was founded by, from what I've read, pretty idealistic people who had a sense of, you know, a pretty visionary sense of what they could do in terms of organizing information in the digital world, and that they also figured out how they could make money doing that. But again, they came at it from a, you know, a reasonably idealistic perspective, and they've kept some of their idealism as they've also become this real moneymaker.

What happens when the idealistic people move on for whatever reasons and other people come in, or when the company's maybe bought by another company? At some point, the whole idealistic sense could change, and then you'd have this company that has a huge amount of information about us, maps of where you live, knowing your purchases because of all the advertising tie-ins that it has, and it can know basically everything about you. Do you worry about say, Google falls into the hands of people who aren't so idealistic, then where are we?

Mr. AULETTA: Well, I think we have to worry about that. I don't think that's about to happen at Google. First of all, no one could afford to buy Google. It's worth too much. Google is an acquirer, not about to be acquired themselves, A. B, these guys - Larry Page and Sergey Brin, the two founders of Google - are idealistic and really were. I mean, I did a book 10 years ago on Microsoft and spent time there and spent time with Bill Gates. And the difference between them - they're both are now, you know, an antitrust action was taken against Microsoft, and Microsoft lost in court and lost on appeal and were deemed to be - practiced monopoly practices.

And - but the difference, I think, is that Microsoft and Bill Gates were cold businessmen. They were people who really wanted to kill Netscape, really wanted to kill Oracle, really wanted to kill Apple and beat them and dominate. I don't think Google and its two cofounders are cold businessmen. I think they're cold engineers.

And the difference is that what an engineer does is just says how do we make things more efficient? They think they're doing wonderful things. By the way, Bill Gates thought he was doing wonderful things, but I think he did have a killer impulse in him. And I don't think these guys at Google have that killer impulse.

On the other hand, it doesn't matter whether they do or not. If they have so much power and they extend that power over many different industries and begin to acquire so much information about you - which they would argue will improve search and improve the ability of advertisers to target customers, all of which is true.

But on the other hand, it - they retain so much information, and if that information got in the wrong hands, or if Google decides one day that its customer's not the searcher, the customer who's searching, but the advertiser who's paying the freight and the advertiser's demanding more information and Google then is under pressure to provide that information that they retain, that is cause for concern.

And also, it's one of the reasons why the government is increasingly looking at not just regulating Wall Street because of the derivative and banking scandals that we've gone through here, but also because people are worried about issues like privacy.

People are worried about issues like copyright infringement, and people are worried about issues like the power of - corporate power of a Google. So there are lots of interests that converge on Washington and say hey, government, take a look at this, and Google has to worry about that.

GROSS: Ken Auletta, thank you so much for talking with us.

Mr. AULETTA: My pleasure.

GROSS: Ken Auletta is the author of the new book "Googled." And he writes about old and new media for The New Yorker.

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