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Google is starting to share more details about its high priority of making more money off YouTube's popularity, introducing an advertising product on Tuesday called buzz targeting.

The ad product uses an algorithm to find videos that are about to "go viral," when word of mouth (or IM, or blog, or e-mail) promotes a Web site to a phase in which it spreads like wildfire. In this case, ads are overlaid on the bottom fifth of viral videos supplied by YouTube partners who share ad revenue with the search giant.

Making more money off YouTube is Google's "highest priority," Chief Executive Eric Schmidt said in April. The company is working on new YouTube ad possibilities, he said last week.

Until now, YouTube ad campaigns have been more targeted to specific demographics. Buzz targeting adds a broader option, though the ads still are sold as categories such as entertainment or how-to, a YouTube representative said.

Lions Gate was the first advertiser to sign up, using buzz targeting to promote a film, The Forbidden Kingdom, on 500 different videos. "Buzz targeting allowed us to reach a very large, diverse audience," Danielle DePalma, Lions Gate's director of digital media, said in a statement.

MOUNTAIN VIEW, Calif.--YouTube users soon will see some new advertisements around their online videos.

Google Chief Executive Eric Schmidt said the company is working on new ads for the video site in a meeting here with reporters before Google's shareholder meeting, but he was cagey with details.

"We have new ad products that are not pre-roll and post-roll," he said, referring to ads that show up before and after videos. "We have new approaches. Think of them as ads that are in the context of YouTube. They use the page around YouTube in interesting ways."

The new ads will launch "over the next few months," Schmidt added.

Schmidt has made no secret of his desire to make more money from YouTube, the dominant video site on the Internet; Google acquired YouTube for $1.65 billion. In an interview last week with CNBC, he said about YouTube, "We're working but have not yet in my view gotten a breakthrough around monetization...We're working on that. That's our highest priority this year."

For what it's worth, Google last year experimented with overlay ads that pop up within the YouTube video player itself for a few seconds. They didn't go over too well with some viewers.

Google, which bought YouTube in October 2006 for $1.65 billion in stock, makes the vast majority of its money from text ads that show up next to search results, but in particular through its acquisition of DoubleClick, it's working to improve its business in display ads.

"We are not the leader in display ads. As far as I can tell Yahoo is," Schmidt said.

And of what will make Google's display ads different from the rest of the market, he said, "We always want to be the most targeted. Greater targeting leads to greater advertiser value."

Update 3:10 p.m. PT: I added more quotations from the Google executives

MOUNTAIN VIEW, Calif.--Google's top executives on Thursday gave a glimpse into how it might try to deflect antitrust concerns of a possible ad-sharing deal with rival Yahoo, advising observers to look at the overall ad market.

"You are narrowly focused on search advertising," co-founder Sergey Brin told reporters at the company's headquarters here before Google's shareholder meeting. "Advertising as a whole is much broader, and Internet advertising is much broader."

The observation has bearing on the issue of whether Google has a monopoly and whether a deal with a rival would therefore reduce competition.

"Advertisers always have multiple choices. It makes sense (for advertisers) to always use more than one," Chief Executive Eric Schmidt added. "It's incorrect to assert there's lock-in or opportunity for dominance in the ad space. Don't map (computer) platform economics to ad economics."

Schmidt wouldn't comment on whether a deal was imminent, but one source familiar with the situation expects an announcement next week.

Co-founder Larry Page also specifically said Yahoo is "strong" in the display ad market. Google's cash comes chiefly from text ads in the form of AdWords, which appear alongside search results, and AdSense, which appear on partners' Web pages; its acquisition of DoubleClick, though, is designed to improve its display-ad business.

When Yahoo and Google announced a two-week test under which Yahoo showed a limited number of Google text ads alongside search results, Microsoft raised antitrust concerns. The partnership also was a major factor in Microsoft's displeasure with Yahoo acquisition talks.

Yahoo-Google ad test a success
The two-week test with Yahoo went well, Brin said.

"We had a really good dynamic. We were able to implement it quickly. The technology teams got along well. They were able to get the protocols working very easily and able to gain a lot of insights," Brin said.

Page also discussed another issue that could come up in antitrust scrutiny, whether customers--in this case advertisers--benefit or are harmed by the partnership. During the test, Page said advertisers contacted him when they saw their ads showing up on Yahoo's search results.

"They were really excited about that," Page said. He added. "AdWords is an auction. We're not setting prices. Auctions are determined by supply and demand. Having more inventory avail to advertisers is really positive for them."

Criticizing Microsoft
Many have noted the irony that Microsoft is raising antitrust concerns. The famously aggressive company was largely unscathed by a years-long antitrust case involving whether it leveraged an operating system monopoly to dominate the Web browser market.

Page struck back at Microsoft's antitrust criticisms, pointing specifically to the company's MSN Internet portal.

"A lot of the traffic to MSN has come through bundling the operating system and the browser," Page said. Bundling is one of those hot-button words in antitrust

"When Microsoft pounced after Yahoo's earnings (report) with their letter, we issued blog post," Schmidt added. "Given Microsoft's history and the extreme market share that would result in some end-user-facing parts of the Internet, we were concerned. We were opposed to (Microsoft's attempt to acquire Yahoo) on that basis."

A helping hand for Yahoo
So perhaps it's not surprising also that Google wanted to help Yahoo withstand Microsoft's acquisition attempt.

"We really believe in companies having choices about their destiny. Certainly a (Silicon) valley company like Yahoo--we want to support their ability to have choice," Brin said. "They were under hostile attack and we want to make sure they have as many options as possible."

Schmidt sees Microsoft as a formidable competitor. "Microsoft is well funded, they're clever they're smart, and they have a number of advantages nobody else does," he said.

Google slowed its hiring because the company couldn't keep track of what everybody was doing, Chief Executive Eric Schmidt said Wednesday.

"We have slowed our head count growth for a couple of reasons, but the biggest reason is it began to feel like we really didn't have a good sense of what people were doing," Schmidt said in an interview with CNBC. "The systems in the company, literally who's doing what, what are they doing, seemed to lag our ability to hire these great people."

Though the company slowed hiring later in 2007, that doesn't mean the search and online advertising powerhouse is cutting back much, though. Google still will hire thousands of people this year, he said.

Google had 19,156 full-time employees on March 31, up from 16,805 on December 31, the company said.

And the company still plans to lavish benefits on those it has hired, thanks to Google's so-far recession-proof business and cushy profit margins.

"Every day I turn around, there's some new benefit that we've come up with for our employees," Schmidt said. "It's part of our culture. We're happy to do that. And, of course, we have gross margins to afford it."

Google topped pessimistic Wall Street profit expectations Thursday, reporting a net income increase of 31 percent to $1.31 billion for its most recent quarter.

Excluding various items, that meant earnings per share of $4.84, well above the $4.52 expected on average by analysts surveyed by Thomson Financial. Revenue, which benefited an "immaterial" amount from the acquisition of DoubleClick, was $5.2 billion in the quarter ended March 31, compared with $3.7 billion for the same period a year earlier, the company said.

Excluding $1.49 billion in partner commissions called traffic acquisition costs, Google's revenue was $3.7 billion. That result was 46 percent greater than the year-earlier amount and about $100 million more than the $3.6 billion analysts expected.

The company's stock surged more than $76, or 17 percent, to $525 in after-hours trading. That's a significant step back toward the company's all-time high of $747.24 in November.

"Our ongoing innovation in search, ads, and apps (online applications) helped drive healthy growth globally across our product lines, yielding another strong quarter for Google," said Google Chief Executive Eric Schmidt in a statement.

The report comes amid fears that an economic slowdown or recession could be hurting Google's paid-click results, the number of text ads that Web searchers click on.

Recession-proof? So far
Schmidt essentially called those fears baseless.

"It's clear to us that we're well positioned for 2008 and beyond, regardless of the business environment that we find ourselves surrounded by," Schmidt said on a conference call. "We've looked at this really carefully, and we do not see an impact as of this time."

And if economic conditions do deteriorate, Google expects to weather the storm fine, Schmidt added. "Our conclusion is we're well positioned should economics change. We continue to do well because our model is so targeted, and targeted (advertising) does well in most scenarios," he said.

Google's text ads are geared to correspond to search results, presenting ads at what the company calls the "magic moment" when a person's search can indicate interest in a specific subject.

Google has been concentrating on showing fewer ads but making them better-suited to search results, a move it hopes increases the revenue generated by each click. But statistics from ComScore released this week show that compared with the fourth quarter of 2007, paid-click growth slowed in the first quarter for Google and Yahoo and that paid clicks flat-out declined for Microsoft's MSN.

Paid-click growth
Last quarter, Google's financial performance fell short of Wall Street expectations, triggering fears that economic woes might be hurting the company. Schmidt pooh-poohed the idea, at least for that quarter, by saying: "We have not yet seen any negative impact from rumors of future recessions. We'll see what happens."

Google said paid clicks increased 20 percent over the first quarter of 2007 and 4 percent over the fourth quarter of 2007.

Google and ComScore use different methods to measure paid clicks--for example, Google reports global numbers compared to U.S. tallies from ComScore--so it's not possible to directly compare Google's 20 percent quarter-over-quarter increase to the 1.8 percent increase ComScore reported for Google for the same period.

But Schmidt was willing to take a potshot, at least indirectly: "Paid-click growth is much higher than has been speculated by third parties," Schmidt said.

Google kept expenses down to $1.5 billion for the quarter. "We've had good, disciplined management of our operating expenses," Schmidt said.

The Mountain View, Calif.-based company kept hiring down to a mere 800, excluding the 1,500 that arrived with DoubleClick. Total head count now is 19,156, Chief Financial Officer George Reyes said. Google cut DoubleClick's staff by about 10 percent after the acquisition, and "an additional 15 percent, approximately, are expected to leave the company in the U.S. in the near to intermediate term because they are in a transitional role as they move through the system," Reyes said.

New ad frontiers
Google executives had optimistic words for a variety of expansion plans:

• In China, Google lags Baidu.com as the top search engine but hopes to take the lead within five years. Schmidt said Google's made progress in that area.

"We are seeing market-share growth and good revenue growth as we have learned to operate in that environment," Schmidt said. "We have significant new products with respect to Chinese knowledge, Chinese language, Chinese search."

• Most of Google's business comes from text ads, but graphical "display" ads are a priority, particularly with the acquisition of DoubleClick. Where will Google employ such ads?

Display ads in video form are already used on YouTube and Google is evaluating other possibilities. "There are some other Google properties that might be good fits, though we haven't made clear decisions," said co-founder Sergey Brin. Those include "visual sites like Orkut. And there's some potential like Google Images."

• Mobile advertising looks good in areas such as Japan where there are devices with high-resolution screens and responsive networks, Brin said.

"The mobile ads work very well. There's nothing to dissuade me it would be any worse than traditional desktop search," he said.

•  Social networking is a challenge when it comes to advertising. Google ads appear on its own Orkut site and on News Corp.'s MySpace, and there's "a tremendous amount of inventory" to be sold, Brin said.

"It takes some time for some advertisers to realize they're there and target them effectively," Brin said.

Google is working on it. "Social-networking monetization (has) been an area where we applied a lot of new technologies," Brin said. Demographic targeting, which lets advertisers get some idea about what types of people use a site, "has been very successful," he said.

Not to put too fine a point on it, but Google doesn't want Microsoft to acquire Yahoo.

Speaking to reporters during a visit to Beijing, Google CEO Eric Schmidt said that his company "would be concerned by any kind of acquisition of Yahoo by Microsoft," according to a Reuters story published Monday.

Without citing specifics, Schmidt said his observation is based the "things that (Microsoft) has done that have been so difficult for everyone."

He added: "We would hope that anything they did would be consistent with the openness of the Internet, but I doubt it would be."

We can guess he was referring to, among other things, Microsoft's long history of antitrust battles both at home and with the European Union. The latter has continued to fine the software maker. Microsoft's intransigence on licensing prompted another EU fine, for $1.35 billion, just last month.

The irony here is that the EU's approval last week of Google's $3.1 billion purchase of ad services specialist DoubleClick has probably intensified pressure on Yahoo to consider Microsoft's offer. Microsoft's bid was initially valued at $31 a share, although informal talks said to be taking place between the two companies could reshape the terms of the proposed deal.

It's fair to say there are plenty of things to chat about with Google CEO Eric Schmidt.

Microsoft may be closing in on its whopper acquisition of Yahoo. Google's stock price has slid dramatically since its 52-week high in November. ComScore says bad stuff's a' brewing in Google's U.S. paid-click performance. And the economy, perhaps the only thing that can really slow Google, seems to be headed south.

Schmidt sat down with CNET News.com earlier Thursday for a brief interview at a medical-trade show Health Information Management Systems Society in Orlando, Fla., where Google unveiled its ambitious Google Health initiative. As is his wont as a billionaire executive with many things to do, Schmidt wanted to stick to the script there in the land of Mickey Mouse. For Schmidt, Thursday was all about health care.

In fairness, what Google is trying to do in health care is interesting and sure to stoke yet another round of privacy concerns. But let's face it: we want to talk about the other stuff, which Schmidt literally waved aside with a wisp of his left hand.

Oh well. We were hoping for a little "on the state of things" rumination in the vein of the older, more thoughtful Bill Gates. Who knows? Maybe he would have flashed some bravado a la Oracle's Larry Ellison, who once sat in front of about 1,500 people at a company conference, said "OK, shoot," and answered unrehearsed questions from the audience for more than an hour.

No matter, not every successful executive can be colorful. But this will most likely be the year that Schmidt and his Google gang have a chance to prove that they have the chops to manage a company through the bumpy times as well as the good times. Here's what they're facing:

• Microsoft. If Microsoft manages to land Yahoo, it will establish itself as the largest company in a number of Internet categories, including unique monthly visitors, e-mail, and instant messaging. Google will still be the big kahuna of search, with a 56.3 percent share to Microsoft/Yahoo's 31.5 percent share. But landing Yahoo could give Microsoft a better platform from which to launch Web applications and compete with Google in the Webware future.

This has to be just a little personal to Schmidt. After all, it was Microsoft that made his final years in the chief executive's office at software maker Novell miserable. Novell, some of you may recall, enjoyed a brief renaissance when Schmidt took the helm. But Microsoft, as it tends to do, caught up with Novell in that once-fascinating category of network operating systems. I say once-fascinating because Microsoft's utter dominance made it boring until Linux, not Novell's Netware, proved a worthy rival to Windows on the server.

• Trustbusters. It's with no shortage of irony that Schmidt, who was among many who complained about Microsoft's anticompetitive behavior, had to deal with federal and international scrutiny of Google's planned merger with DoubleClick. Payback's a you-know-what. Thankfully for Google, the Federal Trade Commission has signed off on the deal, and European regulators are expected to do the same.

But as Google grows more powerful, scrutiny from Washington is going to be routine. What seems like healthy competition to Google's YouTube today could be tanking competitors looking for a lifeline from their political friends tomorrow. The list of potential bugaboos goes on. When Al Gore was running for president, the rumor making the rounds of Silicon Valley was that Schmidt, an active Gore backer, was going to be his cyberczar. Now he may get that quality time in the capital.

• The economy. In 1965, Gay Talese wrote that a plain-old cold for Frank Sinatra can "send vibrations through the entertainment industry and beyond as surely as a president of the United States, suddenly sick, can shake the national economy."

As Sinatra in his prime was a bellwether for the music industry and all things swingin,' Google has become a bellwether for the Internet economy, and Wall Street is starting to worry that even the mighty search king could be impacted by a souring economy. The Federal Reserve chairman said Thursday that he doesn't expect the ugly "stagflation" of the 1970s, but he acknowledged the coming months could be difficult.

Where does that leave Google? Like Microsoft in desktop software, Cisco Systems in networking equipment, and IBM in, well, everything, Google has grown so big that its health is likely to be indicative of the nation's health. It will take terrific execution to continue to do great while everyone else suffers.

Schmidt's first go-around as a chief executive at Novell was ultimately a disappointment. When things got tough, he got going out the exit. He reportedly for 20 years. The challenges in the coming year and how he responds to them will likely prove whether that's a terribly good idea.

CNET News.com's Elinor Mills contributed to this post.

Updated at 7:40 a.m. PT with Schmidt's news conference comments.

ORLANDO, Fla.--Search giant Google launched Google Health and announced major industry partners on Thursday, aiming to be the Intuit for personal health care, where people can access all their health information in one spot.

"Why would Google be here?" Google Chief Executive Eric Schmidt said during a keynote speech at the Health Information Management Systems Society trade show, which he said was not one the company has normally attended. "What's the most important search I could do?"

The answer: health. Nearly one out of two Americans has a chronic health condition, he said. Meanwhile, people are already using the Web to get information, including one man, who told Google a search for heart attack symptoms on Google led him to call an ambulance and saved his life, Schmidt said.

"We're going to partner with leaders in health care to cross-connect...and apply the principles of the Internet" to improve the industry, he said. "The first principle is, it's the user's data. The data follows the consumer wherever they go" when they change doctors or insurers.

Currently, there are more than 200 personal health record systems that are closed or tethered to a particular health system, he said.

Google Health aims to untether the 2 billion X-rays taken in the U.S. each year, 62 million CAT scans, and other health data, and put them all online for the patients to access.

Future partners include major hospitals, pharmacies, and insurers, including Walgreen, Aetna, Wal-Mart Stores, the University of California at San Francisco, the American Heart Association, Quest Diagnostics, Long's Drugs, the American Medical Association, Cedars-Sinai Medical Center, and the Lucile Packard Children's Hospital at Stanford University.

Google turned to experts in the field in creating Google Health and formed a health advisory council that included Dean Ornish of the Preventive Medicine Research Institute, Molly Coye of HealthTech, Paul Tan of the Palo Alto Medical Foundation, and Sharon Terry of the Genetic Alliance.

A Google employee who is also an emergency room doctor demonstrated Google Health, which was previewed at Google's booth at the HIMSS show.

The system stores all the health records of a patient and enables users to import records from different health provider systems, as well as search for doctors and get information on conditions from Google Scholar, discussion groups, and other sources.

Third-party developers have created gadgets that can be embedded in iGoogle home pages for things like alerts to remind patients to take their medicine, and other developers have created interfaces for displaying a weekly view of all the medicines a patient takes.

During a question-and-answer session, a physician told Schmidt that he has "a pang about 'Big Brother Google' knowing so much about me." Schmidt assured him that the system would be safe and secure, and that no information could be shared with anyone without permission from the user.

During a news conference after the keynote speech, Schmidt said that if the government tries to subpoena Google for the consumer records, the company would have to comply, but he hinted in answering a follow-up question that patients could circumvent that by deleting their records.

"We are subject to U.S. law. In the case where we are forced by court to turn over information, we would do it," he said. "If the information were not there, it would be (hard) to subpoena it," he added.

Asked if insurance companies would have access to the data, Schmidt said that barring a law, the only way Google would share with insurers is "if someone were to force us with a gun to do it."

"We have taken a pretty aggressive position with regard to protecting (consumer) privacy in the U.S., but we are subject to U.S. law," he said.

Earlier, an attendee asked whether Google has a "monetization path" for Google Health.

"Not in the short term," Schmidt said, adding that the hope is that people using the site will also use other Google sites and ultimately click on ads there. Google News similarly drives people to search on Google.

Google Chief Executive Eric Schmidt has been named as chairman of the board to the New America Foundation, a nonpartisan think tank in Washington, D.C., that focuses on issues like health care, education, and foreign policy.

Schmidt joined the board 10 years ago when the think tank, which aims to transcend conventional party lines, was founded and before he joined Google. He will assume his new role June 1 and succeeds James Fallows, author and national correspondent of the Atlantic.

"We are thrilled about (Schmidt becoming chairman) and delighted that he's willing to carve out time from an obviously very busy professional life," New America Foundation President and Chief Executive Steve Coll said in an interview. Coll, a two-time Pulitzer Prize winner, is a staff writer at The New Yorker and former managing editor of The Washington Post.

Given his experience at Google, Schmidt is a perfect choice to help foster an entrepreneurial spirit at the New America Foundation, Coll said. "We are trying to innovate internally and be different from other think tanks and preserve a culture of creativity and independence in a Washington world of public policy where that can sometimes be difficult," he said.

New America Foundation has one big technology initiative, "Wireless Future," in which reports have been written supporting the principle of Net neutrality. Net neutrality is the general idea that Internet service providers should avoid discriminating against certain Web sites or types of Internet traffic.

Google has lobbied heavily in favor of Net neutrality, but Coll said Schmidt has "never intervened at all in policy work" at the institute.