1:36 — The canned music is off and we're starting with the disclaimers. 11-word version: Our lawyers say you can't hold us to anything we say.

1:38 — Schmidt's taken the line now. He's already talking about how well Google's doing in "uncertain" times. Which shouldn't be very impressive, because didn't these guys used to say the economy would have no effect on Google? Yes, they did.

1:41 — Schmidt is going on about Google's impressive international growth.

1:41 — Now Schmidt's talking about Google CFO Patrick Pichette. He's also going on about how much he'll miss former CFO George Reyes. What, that idiot?

1:44 — European growth was strong largely on automotive advertising growth, Reyes tells us.

1:44 — Reyes warns that traffic acquisitions costs are probably going to go up.

1:45 — 448 new employees came on, mostly in engineering, sales and marketing. Oh yeah, and a whole bunch of DoubleClickers. (Though not as many as there could have been).

1:46 — Operating cash remains strong at $1.77 billion. If you're curious. (In which case, you'd be better off looking at Google's press release.)

1:48 — Now we're listening to Google's chief economist, Hal Varian. He says that Google queries are strong, even in places where you'd expect them to be down — such as auto and home sales. Year over year auto ad spending is actually up, for example.

1:49 — Consumers are being cautious in their online spending. Advertising remains strong, however.

1:50 — Brin picks up the phone.

1:50 — He's telling us that Google's search index is much bigger now. Over 100 search quality improvements went through this quarter. "Roughly one a day." For example, now you can get blog results on the bottom of the search page.

1:52 — Brin says: "Many of you may use iGoogle, and we know that because we've seen such tremendous growth."

1:53 — Brin goes on: "If you're listening to me right now, you probably speak English. But if you're using Google translator to read this, you might not. Google translate now covers over 20 languages." Can you imagine taking a meeting with this guy?

1:55 — Brin says this without irony: "Most of you have probably had the chance to watch some YouTube videos by now."

1:56 — Now he's talking about mobile search.

1:57 — "One of the things I'm most excited to tell you about today is our progress with Apps. There are now more than a half million business using Apps. And that's just a tremendous number." Did you know that the government of Washington, D.C. uses Google Apps? That's 38,000 employees! "It's been a very exciting quarter for that." Indeed sir.

1:58 — What I love about Bring are his seques. Like this one: "We don't view Google Apps as a closed environment, by the way. We want to see more companies deploying cloud solutions. One of the things we've done to help that is the Google Appe engine."

2:00 — Now Brin's talking about the very successful app: Buddy Poking. "For those of you that like to poke." Proudly hosted on Google's App engine and available through Open Social.

2:01 — We're moving on to questions and answers.

2:01 — JP Morgan asks: UK growth seems to have decelerated. Why? Also: Will mobile search expand volume? What's the revenue impact going to be?

2:02 — UK deceleration is just typical seasonality — you'll see more of this now that we own most of the market share over there.

2:03 — Sergey answers the mobile question: "I think you'll see an uptick in volume because you always want to know something, but you aren't always on your computer to find it out."

2:05 — You've been lowering amount of ads served to increase quality. Will this lowering stop anytime soon?

2:05 — I don't see the focus on quality changing. We would just show one ad — the perfect ad — if we could.

2:08 — Goldman Sachs: If queries are down in a sector, do advertisers respond by bidding up to reach a smaller set of consumers?

2:09 — Hal Varian's answer: Sometimes, yes. When there's a scarcity of searchers, the cost to reach them sometimes increases.

2:10 — Schmidt: Culturally, YouTube is a far greater success than we ever-expected. On the revenue side, I personally do not believe the best ad product has been invented yet.

2:11 — With YouTube we're access advertisers like Footlocker, LionsGate, Lenovo

2:13 — How much did DoubleClick contribute to the quarter? How is Google changing the buying process in display?

2:13 — Schmidt: We're not going to break out DoubleClick numbers. The strategy is to develop a broad product line — for the large and small advertisers and publishers. Google: We're piecing together a highly fragmented market (and in the process killing all premiums everywhere! Yay!)

2:18 — Question about headcount. Schmidt responds: What you'll see going forward is prudent management of headcount growth. We're paying a lot of attention. We never want to misuse some of these talented employees.

2:20 — Question about YouTube. Schmidt: We're having a great deal of success with overlays. We're also having success with gadget ads. "When we find the holy grail, it's likely to very large due to the size and scale of YouTube," Schmidt says. Which plays right into Mark Cuban's claim that "YouTube has become the poster child for the old saying "we are losing money on every sale, but we will make it up in volume."

2:20 — A fifth all searches utilize some element of Universal Search. Yeah. The questions are getting boring.
2:34 — I just spared you about 14 minutes of blah. Grateful? We're done here.

2:02 Still waiting for our friends CEO Jerry Yang, CFO Blake Jorgensen and president Sue Decker to join us on the call. Meanwhile, I'm wondering if Yang will heed one Yahoo search marketer's call for more integration with Google.

2:04 The gang is all here: Yang, Decker and Jorgensen. First, though, a nice long disclaimer.

2:08 Yang: These results are are the more remarkable considering the economy and Microsoft's proposal. "Our strategy and investments are beginning to pay off." We have the capital we need to substantially grow revenue.

2:10 Yang: Let me talk about Microsoft. Microsoft's proposal substantially undervalues Yahoo and our one-of-a-kind global brand. Our board and management team continue to be open to any and all alternatives, including a sale to Microsoft. Take one thing away: our board and management are committed to maximizing shareholder value.

2:12 Yang goes over highlights from the quarter: We acquired Maven and previewed AMP from Yahoo. (Insiders tell us AMP needs more cash and manpower if it's going to live up to Yang's expectations.)

2:51 Yang says closing the gap in search marketing will depend on Panama. He doesn't mention the Google trial. He says Yahoo's greatest opportunity is in display advertising. The economy's weakness will drive marketers online, he says.

2:54 Question: Asian assets are a big part of Yahoo's value. What are they hypothetical things you could do with them? Yang's answer: We can't talk about our alternatives. We think the position we've achieved in China and Japan are second to none. It won't be able to be recreated in any form. We think of that as a scarcity value. We also think it's a way to provide transparency.

2:15 The call goes to Decker. Decker highlights progress in Q1: Giving users a consistent Yahoo, opening to third-parties and creating social connections. "We're not trying to be another social network."

2:19 Decker: We have a strong number 2 position in search. Last summer, we focused on catching up to the leader. Now we're going for differentiation. Our next advance will be Open Search, which we call search monkey. We'll allow third parties to improve our search. ComScore reports that Yahoo's search relevance rate was 72 percent versus the previous market leader's 69 percent.

2:23 Decker: Yahoo Buzz has 120 publishers already. "With more coming in every week." This model is self-reinforcing. "With our enormous scale this should make us the partner of choice for publishers." Video on Flickr has already quadrupled videos by Yahoo users across the entire Yahoo network.

2:25 Decker: Panama continues to make gains in click-through rates and user-experience. Search revenue was up 20 percent in the US, 15 percent Internationally. We have made progress on click-yield. The price per click upside is still significant. We believe we can make steady improvements. We just launched minimum bid changes, providing smaller business opportunity. The $.10 minimum bid is gone. This will help us achieve our three goal of 15 percent RPS gains.

2:27 Decker on outsourcing to Google: We see tremendous value in being a principle player in search and display. We've narrowed the search monetization gap. There may be more than one way to continue to do that. We've tested Google. That may continue.

2:30 Decker talks about Yahoo AMP: a web-based hosted application. The platform will standardize how operations are handled. We will "begin rolling it out in Q3." This should lead to a "meaningful" boost in revenues. Again, sources tell us AMP needs a lot more cash, hardware and engineering manpower if it's going to meet these expectations.

2:32 Jorgensen takes the call. Spouts numbers. Find them here.

2:34 Jorgensen said Yahoo spent $14 million for advice on how to deal with Microsoft.

2:34 Owned and operated search was up 15 percent. Display was up 16 percent. Finance, travel and retail advertising is down, due to a softening economy. Overall, Yahoo is fine.

2:43 Jorgensen says Yahoo's Q2 outlook ($1,730 - $1,930 million) excludes layoff costs and costs associated with Microsoft's bid.

2:44 The call goes back to Yang. Time for questions.

2:47 Question: What kind of economic outlook did you bake into your outlook? Street estimates expect lower online advertising growth. Answer, from Jorgensen: We believe the plan is based on market growth and Yahoo's growth relative to that.

2:48 Question: We've noticed that TAC is going down as a percentage of revenues. Are you getting better deals? Jorgensen: TAC decreased around 4 percent. There is upward pressure on TAC-rates as competition gets tougher. Competitors are also building out display networks. We're disciplined and you're seeing that.

2:50 Question: How much is Right Media helping remnant advertising? And which segments are weak and why? Decker's answer: We call remnant class 2 or non-guaranteed advertising. We are seeing significant growth in class 2. Revenues are close to doubling. Jorgensen: Some of the stronger categories in search are also strong in display.

2:51 Question: Owned and operated search is up. You just removed the minimum bid. Correlated? Decker's answers: Panama was up only 10 percent year-over-year this quarter because we're competing against Panama's first quarter now.

2:56 Question: How well will AMP work with other ad networks? Would it still work if you're using Google search marketing? Decker's answer: It's build on the RIght Media exchange, so any network in that exchange would work with it. As for the second question: AMP is a primarily a display advertising platform. It also involves content-matching advertising, which is sometimes considered search advertising. Over time, search will be integrated fully into AMP.

2:58 Question: International growth was up 7 percent. Was there a one-time event to drive this? And how much did Microsoft impact growth? Jorgensen's answer to the first question: There was not a one-time event. There's just more pressure on affiliates. Yang answers the second: I think our business performed robustly. We're keeping an eye on the ball. It's hard to say any impact at all. We ended up ahead of where we thought we would be.

3:00 Question: Please tell us more about the weak advertising categories. Decker's answer: We think the economic downturn makes online advertising more attractive.

3:03 Question: Do you think you're gaining ground on search monetization? And why is your year-long guidance higher? Decker's answer: We thought the gap was close to 100 percent when we launched Panama. In US sponsored search, we feel that we've narrowed the gap by 30 percent. There's 60 to 30 percent remaining. Jorgensen answers the second: We are seeing cost-savings.

3:05 Question: The focus seems to be on monetizing the ad inventory you already have. What are you doing to grow your inventory? Yang's answer: We need both inventory and better monetization. There's a higher focus on monetization because it's a very nascent stage. But we continue to invest in inventory on and off the network. We've seen robust growth in pageviews. Bye.

1:30 p.m. Pacific: Waiting for the call to start. I note that Eric Schmidt's promise to rein in hiring hasn't had much effect. Aside from the DoubleClick acquisition, which added 1,500 employees, Google itself hired 851 employees. Google's employee count, continues to expand at roughly 5 percent a quarter. As of the end of March, before laying off roughly 150 DoubleClickers, Google had 19,156 employees. At that rate, Google will have 27,000 employees by the end of 2009.

1:35 p.m.: The usual crew: CEO Eric Schmidt, Larry and Sergey, outgoing CFO George Reyes, and top executives Jonathan Rosenberg and Omid Kordestani. Sergey must have hightailed it back from Tahiti, where he was recently spotted consorting with blog mogul Arianna Huffington and Wendi Deng, wife of News Corp. CEO Rupert Murdoch.

1:37 p.m.: Schmidt says that Google is performing well "regardless of the business environment" and that its strategy is "transformative." See what I meant by "chest-thumping glee"? He addresses concern about Google's paid clicks, saying growth was "higher than third parties had speculated."

1:39 p.m.: Schmidt talks about its Web-based apps business, saying "all the pieces are coming together." He cites a partnership with Salesforce.com, but doesn't give any numbers. In other words, it's not a real business yet.

1:40 p.m.: Reyes, who resigned as CFO last August but still hasn't been replaced, recites the figures found in the press release. Is his sole remaining duty sparing Schmidt from having to utter a sentence with a number in it during this call? He's stumbling over simple phrases as he reads from a script.

1:44 p.m.: "Approximately 15 percent of the DoubleClick U.S. workforce" — another 200 or so — "are expected to leave in the near term," says Reyes, because they are in "transitional" roles.

1:46 p.m.: Sergey Brin takes the mic. He starts by talking about "almost 100 search improvements" made in the quarter. A lot of those, he says, are international — in other words, nothing that U.S. users will see. Google is increasingly showing non-website results, like books, images, and videos, in its search results. He claims mobile growth, but doesn't give any numbers.

1:52 p.m.: Larry Page starts talking about ads. He says Google has introduced demographic targeting for social networks, using gender and age information. The lack of this up until the recent quarter might explain why Google's social-network ads have performed so poorly. Until now, instead of fessing up to this basic technological shortcoming, Google has been blaming partners like MySpace for lower-than-expected revenues.

1:54 p.m.: Page says Google is "really excited" about YouTube ads. As he is about the acquisition of DoubleClick. As he is about the Salesforce.com partnership. Is there anything he's bored by? In a typical nerd mistake, he throws out terms like "wikis" and "cloud applications" without defining them for the Wall Street analysts who are listening, but not particularly caring.

1:57 p.m.: Schmidt wraps up quickly and goes to questions.

1:58 p.m.: Question on the search for a new chief financial officer. "We're very pleased George has remained," says Schmidt. "We have not made any offers yet." That, according to insiders familiar with the search, is simply a lie: Google has made two offers to prospective CFOs, both of whom have declined.

2:00 p.m.: Sales chief Omid Kordestani says that Toyota and Dunkin' Donuts, among others, have signed up as YouTube advertisers.

2:02 p.m.: Sergey Brin, who declared his hatred of Web banners years ago when Google launched its simple text ads, fields a question about putting banners on Google-owned sites. He notes that YouTube already carries banners, and other sites like Google Images and social network Orkut might also add them.

2:05 p.m.: Schmidt says the company hasn't seen any problems from the larger economy, batting away suggestions the U.S. is heading into an advertising recession. He says that in internal conversations, Google executives have concluded that it would do well even if a recession came, because its ads are so targeted.

2:10 p.m.: Brin fields a question about mobile ads. He says in markets where the devices and networks work well — "basically, Japan" — the ads perform well.

2:14 p.m.: Jonathan Rosenberg, who normally handles product management, is fielding a simple question about seasonality by offering a baroque explanation involving Easter's and a leap year. I suppose Google Calendar does fall under his purview.

2:17 p.m.: Talking about the failure of Google's ads to perform well on social networks, Larry Page turns to upspeak: "It's an area where we've applied a lot of new technologies?" He goes on to say that Google is "optimistic" and getting advertisers to embrace new tools "takes some time." In other words: Not our fault, and technology will fix everything once the Luddites die off.

2:20 p.m.: Kordestani admits that in retail, in the first quarter, Google has seen some "postponements" of budgets, but that other industries have made up for the shortfalls. As he flails, Jonathan Rosenberg, who's not actually in charge of advertising, jumps in. Schmidt finally cuts the answer short and goes to the next question.

2:28 p.m.: Kordestani fumbles another question about "integrated advertising" — campaigns which use search adds, display, and YouTube — with a rambling nonanswer.

2:34 p.m.: An analyst asks if U.S. revenues were flat quarter-over-quarter, not counting DoubleClick's contribution. Schmidt: "We know that it's not macroeconomic. It can have as much to do with the timing of deals." The classic excuse of enterprise-software companies, which Schmidt learneda t Sun and Novell: Blame laggard customers. And with that, Schmidt wraps up the call.

Strikeout! Mullenweg showed up at the last minute. One wonders: Was the recently minted millionaire dealing with fallout from his nasty Twitter fight with Six Apart's Anil Dash? Or was he just calling his broker? (Mullenweg later told me he just went to the wrong green room.)

Flickr's Cal Henderson says "fuck" a lot, which would seem to come with his job. "I'm Cal Henderson from Flickr, the kitten-sharing website" is how he introduces himself. He admits that one Flickr breakdown came about when he failed to use a basic Linux utility, df, to measure if he had enough storage available — a problem when you serve terabytes of photos. Still, it's a good problem to have. "A lot of people can ignore scale forever," he notes — because they never get enough users to bring their site down. "We serve 32,000 photos a second," says Henderson.

"One of the things I don't like about Web 2.0 is you as users want your data to be available, to stay up forever," says Digg architect Joe Stump. "As an engineer, I hate that."

Most of the panelists favor open-source software and cheap hardware. "Buying enterprise means they don't put their prices on the Web," says Mullenweg, the creator of blogging software WordPress. "It means you have to talk to someone with slick-backed hair for 30 minutes. It's uncomfortable."

If you can get over that, says Henderson, "the easiest way to solve scaling problems is to throw money at it. When you're a startup and you don't pay your engineers, then engineering is cheap and hardware is expensive. If you're paying for engineering time, that's expensive."

Stump takes a question from Pownce creator Leah Culver: "Where do you find your bottlenecks?" Stump's answer: "Bottlenecks never have to do with your [programming] language." Henderson instantly retorts: "Unless you're using Ruby." (Ruby is the language used by Twitter, among others, and some blame it for Twitter's outages.) Stump's comeback: "It's always your database or your file system."

StumbleUpon's Garrett Camp suggests testing new features on a small set of your audience, rather than everyone at once, so you test under real conditions but don't afflict buggy code on all of your users at once.

"When we look at the site, we ask, 'What don't we have to do right now?'" says Digg's Stump. Avoiding real-time updates helps avoid bottlenecks. Henderson says Flickr sometimes shows photo pages that are a minute old — again, to minimize load on the site.

That's a rare moment of agreement between Henderson and Stump. The two are back to sparring in minutes. Henderson's comeback to an obscure point Stump makes: "I don't want to work at Digg." Stump then ribs him: "So, Cal, you're moving over to Microsoft technology soon, right?" "Yes, we're moving over to .NET and SQL Server," is Henderson's deadpan response. That's the last zinger before the show wraps up.

4:34 p.m.: Zuckerberg offers a mea culpa for yesterday's interview: "We should have opened it up to questions earlier, and that's why I'm here."

4:35 p.m.: "Why do people spend twice as much time on MySpace as on Facebook?" asks an audience member. "I'm not sure that's true," says Zuckerberg, who then claims Facebook doesn't measure that statistic.

4:37 p.m: Zuckerberg confesses he wasn't able to get his grandparents to join the site until he introduced them to Scrabulous. "I don't talk to them much, but I do play Scrabble," he says. "Props to those guys."

strong>4:39 p.m.: "There are entire categories we didn't anticipate getting popular," says Zuckerberg. "We weren't even thinking about [that] before." He then admits that what he's saying is a "non-answer" to the developer's question about friends lists. Facebook evangelist Dave Morin answers the actual question: "There is an API to friends lists" — software which allows developers to write applications which make use of a Facebook user's friends.

4:42 p.m.: "A lot of the information that's going to be shared, and this is probably the largest category of information on the Web, is information that's shared only with some people," says Zuckerberg. "It's not a solution to all the world's problem, but it will help with efficiency and sharing information."

4:44 p.m.: Zuckerberg addresses Beacon, the controversial ad program. "Beacon is part of the platform," says Zuckerberg — in other words, while the rest of the planet thinks of it as a kind of advertisement, Facebook internally thinks of it as a tool for developers.

4:47 p.m.: On users' privacy, "we're not openly working with governments," says Zuckerberg. "But we have to follow the law. One of the things we're thinking about internally is China. One of the scenarios is that you don't have servers in China, in which case they make your servers slow and make it look like it's not a good service. If you put them in China and the government doesn't like what's on them, they come and arrest the people who administer your servers. It's not a great set of tradeoffs."

4:50 p.m.: Zuckerberg gives a non-answer on the fate of Parakey, the Web-operating system startup Facebook acquired from Blake Ross and Joe Hewitt. "So you're scrapping the product and just hired the guys, right?" I shout out. Zuckerberg gives another non-answer.

4:51 p.m.: "How has Facebook affected your personal relationships?" asks an audience member. "I did say you could ask about anything, didn't I?" says Zuckerberg.

4:52 p.m.: "We feel like we've aligned people's incentives personally," says Zuckerberg. Developers are rewarded just for getting people to install their app, he explains. That's why Facebook is now adjusting the limits to the number of invitations apps can send. What, no more zombie bites? "If users are finding them spammy, their distribution is going to be dialed way down," says Zuckerberg.

4:54 p.m.: Robert Scoble takes the mike, and confesses his sins personally to Mark Zuckerberg, seeking expiation for the incident which got him banned from Facebook. (He improperly used a program which exported data about his friends from the site.) Zuckerberg says Facebook's trying to figure out what to do about data portability, or making it easier to get data off Facebook.

5:00 p.m.: Last question, about Facebook's involvement in political campaigns. Zuckerberg says he expects other developers will build better applications for political organizing, but the company is going to keep doing what it's doing for now.

2:07 p.m.: Zuckerberg says now that Facebook's available in Spanish, people are using Colombia to organize resistance against guerrilla armies. Wait — does that mean it's actually a tool of oppression?

2:08 p.m.: Facebook is about communicating "efficiently," Zuckerberg keeps saying. Efficient? Does he even use Facebook?

2:09 p.m.: Lacy asks Zuckerberg about terrorism. "Facebook has a relatively large population in London," says Zuckerberg. "Terrorism comes ... from a lack of empathy and understanding. People are growing up, they're relatively poor, they spend a lot of time studying with their imam. At the same time, they'll go out with their friends and drink on Friday nights and try to meet girls. Then they take pictures of themselves with their religious leaders holding guns. There are people who are at a point in their lives, a crossroads, deciding whether they're going to pursue terrorism. And people have told me that Facebook has helped them maintain connections with friends in Europe, in America, and maintain that empathy."

In other news, Zuckerberg's shoe:

2:13 p.m.: Lacy recounts the first time she interviewed Zuckerberg. "He's wearing a white T-shirt, and he was so nervous, he was sweating through his shirt," says Lacy. "The first time I inteerviewed Mark, I kept asking broader and broader questions, trying to get him to talk. Finally he said, 'I don't know how to answer that question. It's too broad.' I said, 'Mark, I'm trying to get you to say more than two words.' Mark said, 'That's really hard.' I said, 'Three words.'"

Right after Lacy's tale, Mark said, "What was the question?"

2:16 p.m.: I think Zuckerberg is talking about how antipoverty activists used Facebook to organize protests at a senator's church, home, and office.

2:18 p.m.:"We're running the business at breakeven," says Zuckerberg.

2:19 p.m.: Sarah Lacy just totally stole Zuckerberg's line. "So you're launching in France tonight," says Lacy. "How'd you get to that before me?" asks Zuckerberg. "Sorry, Brandee," says Lacy. Anyway: Facebook en français, tout de suite. Chouette!

2:23 p.m.: "There's this sense that you have this revenue from Microsoft that's not sustainable," says Lacy. "Are they happy with the deal?"

"I'm very sure that they're very happy with it," says Zuckerberg.

2:24 p.m.: Lacy asks Zuckerberg about his infamous "once every hundred years, media changes" line. "We got a little ahead of ourselves," he says. "We hadn't figured out as much as we thought we had."

2:26 p.m.: "Let's talk about Beacon," says Lacy. "WTF?" Zuckerberg's long answer:

Beacon isn't even a part of our ad team. It's part of our platform team. We think these large social networking sites are going from large monolithic sites like facebook.com ... to social services. A lot of them aren't even things we're building. Some of them are going to be inside facebook.com. An increasing amount of that is going to be outside facebook.com. What we were trying to do with Beacon was taking the first step with letting people take actions on other parts of the Web and feed back into what their friends are doing. It also ties into the ad system, because it can be an endorsement — someone you care about is doing something, that's much more effective.

2:29 p.m.: Lacy makes the apt point — argued earlier in Valleywag — that complaints about News Feed were much larger than Beacon protests, but suggests the larger concern about both features is privacy. Zuckerberg points out that people are much more likely to put their cell phone on Facebook because they're allowed to control which people see it.

2:32 p.m.: Why do I feel a strong urge to take a nap whenever Zuckerberg talks about "platforms" and "ecosystems"? I think he's saying he's trying to reduce application spam with algorithms. Because that worked so well with email, right?

2:34 p.m.: Lacy asks about rumors in the Financial Times that Facebook is talking to the record labels about building an iTunes killer. "What's up with that?" "I don't know," says Zuckerberg, deadpan. He then concedes that Facebook is talking to several companies, but there's "nothing to announce."

2:36 p.m.: "So you're Forbes's youngest billionaire," says Lacy. "We're just not focused on that," says Zuckerberg. Can't he just play a recording of the soundbite? That seems easier. The $15 billion valuation, he says, came about because the company wanted to raise the most money with the least dilution. "High expectations are tough," he concedes. "Having such a focus on money in the business can be tough for us, because it can self-select for people who are interested in that. We don't want people to join the company because they're going to make money very quickly."

2:39 p.m.: Ah, the IPO question. "It's not that we're opposed to going public," says Zuckerberg. "[The $15 billion valuation] throws down the gauntlet" to potential acquirers, observes Lacy. "For certain companies, that's the goal, to go public" or get sold, says Zuckerberg. "Yahoo offered us a billion dollars a few years back. The primary analysis that we were doing wasn't, 'Are we worth $1 billion?' We said, we have a chance to build a platform that fundamentally changes how people connect or communicate. How many times in your life do you have that chance? So we decided to go for it."

2:43 p.m.: "Did you get rid of some people who wanted to [sell to Yahoo]?" asks Lacy. "We made some management changes," says Zuckerberg. Is that a reference to recently departed COO Owen Van Natta? Or former CFO Mike Sheridan, who was replaced by Gideon Yu?

2:45 p.m.: "Let's talk about Sheryl [Sandberg]," says Lacy. "She's been called the token grownup." "We just passed this mark where we have 500 employees," says Zuckerberg. "That's crazy. I feel really lucky to have her."

2:46 p.m.: "How do you think she's going to negotiate that male-dominated environment?" asks Lacy. "She has a great track record of doing that. I don't think that will be an issue," says Zuckerberg. I note that Zuckerberg didn't dispute Lacy's observation.

2:48 p.m.: "Is it hard from you to step back from product management? Because you'd really be working on the product, right?" asks Lacy. (Zuckerberg recently tapped longtime Facebook executive Matt Cohler to run product management.) "CEO is more of a full-time job than I'd admitted," says Zuckerberg. "The CEO sets the tone for the organization. Being CEO is a good way to make sure the company focuses on that — that people keep their eyes on what's important."

2:52 p.m.: "You're a computer guy and you write longhand on paper," observes Lacy, who reveals that Zuckerberg takes notes in bound books. "Fantastic question," quips Zuckerberg, which provokes howls of laughter from the audience. Zuckerberg then takes away Lacy's glass of water, just to be safe.

2:57 p.m.: Audience questions. First one up is your typical privacy-and-sharing paranoiac. "I think the reason we don't have a lot of that stuff yet is that we haven't come up with both controls and good default settings so people don't have to do a lot of work," says Zuckerberg. "Facebook is still relatively constrained as a company. Things take time. We've realized that it's an issue."

3:00 p.m.: "Other than really rough interviews, what are the toughest obstacles Facebook faces?" asks a wiseacre. "Is he making fun of me or of you?" Zuckerberg asks Lacy.

3:02 p.m.: "Do you think Google's pissed that you have so much data trapped on Facebook?" asks an audience member. "They don't get pissed," says Zuckerberg. "They're nice guys." Then he gives some incredibly boring answer about "semi-private" and "semi-public" information. Five-word version: Good luck with that, Google.

Additional Coverage:

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• Twitterati lashes out at interviewer after Zuckerberg keynote
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5:41 a.m.: Johnson is discussing operational "redundancies." Translation: When it comes to layoffs, Yahoo ain't seen nothing yet.
5:42 a.m.: Ray Ozzie, Microsoft's CTO, is giving a high-minded speech about how the Web has "transformed society." Derides search as "10 blue links," says the Web has evolved to "social media." Which would sound less like sour grapes if Microsoft were successful in either field. He ends with reference to "magic of software."
5:45 a.m. Microsoft CFO Chris Liddell says the company hopes to close the deal in the second half of the year. For Yahoos, that means at least 5, up to 11 months of uncertainty. Should be a field day for Valley recruiters.
5:47 a.m. Questions are starting. Why buy Yahoo, since you already bought aQuantive? Answer: Scale.
5:49 a.m. Question: Revenue synergies have been elusive in software deals. Kevin Johnson fields this one. Answer: Revenues are from advertising, not traditional software. "Scale economics" drive yield in both search and display advertising.
5:51 a.m. Ballmer: "We've been losing money. Our plan is not to lose money in the future."
5:53 a.m. Johnson: Advertisers have been giving Microsoft "unsolicited" praise for the offer. They want a No. 2 in the market, he says.
5:55 a.m. Microsoft-Yahoo can be "more efficient" with engineers working on search. Translation: More layoffs!
5:57 a.m. Question: Why not just spend more on R&D? Answer: Time to market.
5:58 a.m. Question: Why not wait until it could be a friendly offer? Answer: "We look forward to the dialogue."
5:59 a.m. Question: What happens to the MSN and Live brands? Johnson: "We love the Yahoo brand." Microsoft will "go through a process" to determine what to keep. Ballmer: "There will be a Windows Live. There will be an Office Live.... Yahoo those are all powerful brands." Sounds like MSN might be dropped.

1:31, It's just you, me, and a symphonic orchestra so far. Beats Yahoo's smooth jazz, that's for sure. For detailed numbers go here.

1:34, Schmidt, Reyes, Page, Brin, Rosenberg, Kordestani are on the call. Here are their pictures and bios.

1:37, Schmidt: "We're very very please. Strong financial performance across the board. In both growth and profitability. I want to call out international growth. It's still very nascent." But that didn't stop us, now did it?

1:38, Reyes lists the numbers. For detailed numbers go here.

1:45, Page tells us he's hear to talk about search. Did you know that Google launched universal search in all languages? Behind the scenes improvements to improve quality. Should be an improvement.

1:48, Brins turn. "I want to talk to you about ne

2:09, Another question about monetizing social networking.

2:09, Reyes. We're still learning about monetizing social networks. "Any idea who's replacing you." Maybe. Schmidt: Ha ha. He's hard to replace.

2:10, How's Healthcare looking? Schmidt: No new products. For social networks, which monetizes better text or video ads. Sergey: Dunno. Big opportunity here.

2:17, How are AdSense partners going? Minimum guarantees seemed to have hurt you.

2:17, Reyes answers. Sometimes we make big bets to better understand the site we're partnering with. We're confident that our innovation model will allow us to catch up with wealthy promises we make to partners.

2:18, Are your future investments going to effect the bottom line more in the future?

2:19, Schmidt: We invest where we see opportunity.

2:20, Explain why we more deceleration in AdWords as opposed to AdSense. Larry, is licensing revenue up due to the Postini acquisition?

2:20, Reyes: We already explained that. "I'm not sure we can offer you any more color."

2:21, Page: It's not financial, but we've got great partnerships with the social networks. We launched Open Social. Even though Q4 was a disappointment in terms of revenues, Q3 and Q2 were really good. Schmidt: Remember the Google model is to experiment. We try new things. Try. And Try. And Try.

2:24, We have not seen any impact from RUMORS of future recessions, Schmidt says.

2:24, Brin says that Google is the place to be in a recession anyway. For the best ROI, duh.

2:25, Schmidt. There's reason to optimistic. The DoubleClick merger. Hello. Remember that?

2:26, How's the local advertising business?

2:27, We have a new plus box where you get a local advertisers phone number and a map all in the ad.

2:28. Last question. The 889 new staff, where are they? Why did the TAC rate go up?

2:29, Six months ago, we hired ahead of ourselves. Now we're fine. 50/50 technical and non-technical. We're going more international. It's very difficult to get a job working for us. That's going to continue.

2:30, The TAC rate going up has to do with our AdSense partner sites and having to make guaranteed payments.

2:05, Jerry Yang, Sue Decker are on the call. Marta Nichols takes the lead.

2:07, Yang's talking. In october we announced big changes. We're making good progress. I'm confident we're headed in the right direction. We announced three objectives. To become the consumer starting point. To make Yahoo a must buy for advertisers. And to be attractive to developers.

2:08, Yang says you can't see it, but we're building momentum in owned and operated sites.

2:08, We're taking an agressive investment posture in 2008. In advertising and starting points. To allow us to compete and to differentiate. In advertising: the market is young. As an Internet leader we can get ahead of the curve if we invest correctly. Formula: to internally build a leading ad platform with acquisitions like BlueLithium and Right Media.

2:11, Second investment priority: Improve front page, My Yahoo, Mail, search and mobile. Increased investment is the only way we can build more market share.

2:12, We're also working with broadband partners to transition consumers to broadband. ANNOUNCEMENT: AT&T expanded its Yahoo deal. Mail, portal and mobile.

2:13, We expect our core business, excluding the broadband deals, to grow in the teens. To conclude: We feel urgency. Announcing new CTO: Ari Balogh

2:14, Thanks Yahoos around the world for their "fighting spirit."

2:15, Now it's Sue Decker's turn. On user experience improvements. They're gravitating toward simple starting points that allow broad roaming. Yahoo wants to bring home page, search, mail, My Yahoo, and mobile into one starting point.

2:17, We're deemphasizing opening to third parties. Like Brand Universe. (Confirmed.) Also, we're moving Yahoo Answers development to Europe.

2:19, Search is getting more visible on Yahoo front pages. Ambition: to change the game and win query share. There's a long way to go. Most users don't get what they want on their first search. On the back end we've made a major investment in algorithmic search.

2:21, We're still tops in mail and we want to stay that way.

2:21, In mobile, we announced Yahoo Go 3.0 at CES. We've also got a new widget developer platform.

2:22, We want to be a "must buy" for advertisers. Here's how that's coming. Panama financial gains in Q4. 20 percent improvement. Search rev. growth: over 30 percent.

2:24, As for display, which is about 90 percent of Web and Yahoo advertising, we went live faster than we expected with Comcast.

2:25, BlueLithium's products and sales teams are fully integrated.

2:25, Display advertising is up 20 percent.

2:26, We saw declines in finance, travel and retail advertising. But overall growth has offset "pockets of weakness."

2:27, We needed to catch up. Panama does that. For more revenue, we've restructured biz-dev deals. Renegotiated TAC rates.

2:29, To differentiate and innovate we're focused on key starting points and a scaled exchange.

2:29, While competitors are buying eyeballs. We're doing it through P&L.

2:30, We're moving from a catchup mode to one of true differentiation.

2:31, Now its on to Blake Jorgensen, the CFO. Lots of numbers. Want 'em? Find them here (PDF).

2:33, Revenue ex-TAC (excluding traffic acquisition costs) is up 14 percent year over year.

2:34, Revenue ex-TAC through search affiliates continues to decline. But we're expecting off-network display to grow throughout 2008. The Right Media Exchange should help.

2:35, In the fees business, paying customers are up 17 percent year over year.

2:36, Profits? Operating cash flow $527 million. $1.927 billion for the year.

2:36, Now we're to the business outlook. Reminder: We sold Overture Japan to Yahoo Japan in Q3, 2007. We're collecting service fees. So GAAP revenue will decline.

2:37, Our outlook reflects that broadband deals are about ad revenue sharing now. GAAP revenue should decline modestly. $300 million to $400 million payment expected from AT&T, though.

2:39, Sneaky Layoff announcement? Our outlook is that 1,000 people will be reallocated in the coming months.

2:41, Our outlook reflects strong underlying growth. Excluding the broadband partnerships and Yahoo Japan we expect rev growth in high to mid teens.

2:42, Call goes back to Yang. Recaps the call. We're confident we'll be "stronger and more competitive in 2009"

2:44, Time for questions.

2:44, What was your organic growth excluding the acquisitions?

2:45, They collectively only added 2 percent to growth.

2:45, JP Morgan. Considering selling Asian investments and buying back shares? Also a question about revenue per employee.

2:46, Yang: No.

2:46, Revenue per employee: We compare ourselves to similar competitors. We think our cost structure is lower than our two major competitors.

2:47, Citigroup: What kind of impact would a recession have on display and search? In search, how would that go? A decline in demand or user behavior?

2:48, Mark: We can't predict the economy. We predict solid growth for our company. Sue: We've seen pockets of weakness. The challenge is that secular trends in online advertising are overwhelming the cyclical environment. It's early to tell whether or not the housing problems will effect us. We're encourage by offsetting strength.

2:50, Morgan Stanley: What gives you the conviction display growth will improve? Also, online display ads are exposed to finance, retail and travel. What's your exposure?

2:51, Yang: We're not prognosticating the economy. We don't know. Why are we convinced? We saw 20 percent YoY growth in display last quarter. We think that'll continue. We're already seeing the growth as a trend. The challenge is that we have broadband revenues we need to cycle through. We're looking to have that falloff hit this year.

2:53, We believe investments in the platform will differentiate us in the market. With Newspapers, Telcos and the ISPs. It's not a transformation year. You're going to see progress in the first half of the year.

2:54, Bank of America: Are Panama clickthrough rates continuing to improve? Also, are spenders' overall ad budgets up, or just the online portion?

2:55, Panama continued to grow at the same rate. Display ad budgets are growing around 20 percent. We don't about overall ad budgets. Other than conversations.

2:57, Investments seem aimed at advertisers. How are you going to build inventory? Like in Finance and Entertainment, Where we've been seeing share losses. Hmm?

2:57, We're investing in starting points: front page, Mail, search, My Yahoo, and mobile. Finance, Sports and News. We're leading in all those positions. We want to make our sites more social. You know with the "social graph."

3:00, What was headcount at the end of the quarter? We didn't disclose it. But it's 14,300. As a reminder: we closed two acquisitions that added 200 heads.

3:01, Why were search affiliates weak? Price, Decker says. The TAC rate for the last two years has gown from 72 percent to 80 percent.

3:02, LAST QUESTION. Jason Post from ML. How's query volume growth?

3:02, Search revenue is up 30 percent plus. Query growth itself is up about 10 percent.

3:03, Yang: Thanks!

CFO Peter Oppenheimer and COO Tim Cook are on the call. No Steve Jobs, of course.

2:05 Pacific Time: Revenue grew 35 percent year over year.
2:06, Mac products and services were 42 percent of revenue. Shipments grew by over 2.5 times the industry average.
2:07, Leopard revenue was about $170 million in the quarter. Tiger only pulled $100 million in its first quarter.
2:08, 22 million iPods surpassed the last quarter.
2:09, iPod Touch came out at a higher price point than usual. This was a challenge. "We succeeded." NPD says iPod's market share in digital video players remained the same as last year.
2:10, Apple stores posted record quarterly results. 53 percent year over year growth, actually. The new store in Manhattan is "off to a great start." Average revenue per store was $8.5 million. Compared to $6.6 million in the year ago quarter.
2:11, 30+ million visitors came to the stores in the quarter. Up over 10 million from the same quarter last year.
2:12, Outlook for the next quarter. Targeting $6.8 billion, or 29 percent growth over the same quarter last year.
2:13, "We expect a decline in software signs as Leopard enters its second quarter." iLife is entering its second quarter as well. Lower revenue should come due to the seasonal change, too.
2:14, Time for questions.
2:15, Morgan Stanley asks: Over the last two years, this coming seasonal decline was pretty consistent. Your outlook is lower then usual. Why's your outlook is suggesting worse seasonality?
2:16, Oppenheimer: our guidance, that we're up 29 percent, is pretty good you know. "We remain very confident." Macs are up 40 percent year over year. 29 is actually up from a year ago quarter, when we grew 21 percent.
2:17, Analyst is asking about Macs.
2:17, Tim Cook: The Mac business is on fire. The Pro segment is up "very significantly" year over year.
2:18, Bill asks, did the $100 iPhone rebates effect earnings?
2:18, Oppenheimer: Nah, most of that's behind us now.
2:19, David Bailey from Goldman asks, give us detail on where you're unable to meet demand.
2:19, Tim: Our target is to be within 4 to 5 weeks of inventory. We didn't do that. Oops. Sales were much higher than we anticipated. We're trying to remedy that situation now.
2:20, Are we reaching a saturation point for music players?
2:20, The iPod market is bigger than music players. The iPod will be the first mainstream wifi platform.
2:21, Any cannibalization between iPod and iPhone?
2:21, Tim Cook: It could have been one of the factors in the US. Not in Germany and France.
2:23: Next question. Talk about linearity of sales of the iPod compared to seasonal downturn you expect. I ask cause I'm wondering if you have too much inventory.
2:24, Are you concerned about the US economy? And have you factored that into your guidance?
2:24, Cook: Um. We're focused on our business. We'll leave the economic forecasting to others.
2:25, Tim says we remain confident in our business. (Will you people stop asking questions?)
2:26, Stock buy back programs are being discussed by the board. But our preference remains to continue to have a strong balance sheet. For acquisitions, etc.
2:27, UBS asks about last year's similarly conservative guidance. Your guidance isn't good, he means to say. It feels like you're tricking us.
2:28, We give you guidance that we feel we can achieve. Then our focus is on the business.
2:28, Will the MacBook Air cannabalize businesss or be additive.
2:29, Cook: It's way too early to tell.
2:30, UBS: iPod sales were flat in the US during December. Why's that?
2:31, Oppenheimer: Woah. You're making that sound like a bad thing. We held our share. Also, we wanted to sell as many iPods as we said we would in our guidance. We did that. We grew iPod revenue 17 percent year over year. The highest growth rate over a year.
2:32, UBS breaks it down. The Touch sacrificed unit growth, but overall, Apple's happy about their iPod sales.
2:33, What's your goal for iTunes rentals. Drive sales or profitability in itself?
2:34, The objective is to break even. It helps us to sell iPods and Macs.
2:34, Is the MacBook Air a niche product?
2:34, Tim Cook says: We create beautiful things for all types of people. "Travelers, professors."
2:37, Tell me about the revenue sharing agreement with carriers. Does Apple share in the incremental revenues Orange gets in France on an unlocked phone?
2:39, Oppenheimer: sorry can't answer that.
2:40, You guys aren't economists. But people are freaking out. How should Apple investors take all that?
2:40, Oppenheimer: Well, we grew 27 percent in the US last year and 46 percent outside the US. We're very confident in our strategy and our products.
2:42, Bear Stearns asks. When you said iPod sales were flat, did you mean it?
2:42, Yes, they were flat in the US.
2:43, With all this traffic coming into the store, what can you tell us about what kind of money it made for you?
2:43, Mac sales were 504,000 in stores, up 64 percent year over year. Half of them went to first time Mac owners.
2:43, We're opening 35 to 40 stores in fiscal 2008.
2:47, Comment on the number of unlocked phones sold in the quarter?
2:47, Oppenheimer: We believe the number was significant, but we're unsure as to how to measure it. We don't know how long people will wait to activate their phones. We see this as expression of strong interest.
2:49, At Macworld Steve said you sold 4 million iPhones. But now you're saying only 2.3 million?
2:50, Silly, the 4 million was to date. The 2.3 million were just in December.
2:50, Would you say that sales accelerated?
2:50, We'll leave that analysis to you. But, frankly, duh.
2:52, The wireless phone business is seasonal. Should we build in an expectation of down shipments?
2:53, Aw shucks, we don't know much about all that, just getting into the business and all.
2:54, Your guidance is implying seasonality. But give me a little help. What do you make of iPhone seasonality?
2:54. Oppenheimer. Hm. Like I said. We don't know. We'll report later.
2:56, Tell me about your relationship with stores that sell the iPhone.
2:56, We have 2,000 or so stores in the US selling them. No plans for expansion.
2:56, Do you have any plans for in store marketing?
2:56, We have a plan but nothing to say about it.
2:57, That's it! Thanks everybody for asking questions we didn't want to answer!

The last thing the world needs is another logorrheic liveblog transcribing every last word out of Steve Jobs's mouth. (Gizmodo, Engadget, and many others, will be providing those.) Inspired by CNET's Rafe Needleman, I am embracing the discipline of Twitter. Anything important can be said in 140 characters or less, right? And fitting, too, since Twitter's Jack Dorsey and Evan Williams are rumored to be taking the stage on Tuesday. Check back here Tuesday morning, or follow "vwag" on Twitter. I'll be liveblogging the livebloggers, and Steve Jobs, in a mercifully brief way.

Boutin checks Facebook by Blackberry.

I'm blogging, and yes, my cheeks are already a little red.

2:11 p.m. Eastern: "Security's crazy. Looks like Facebook brought their entire executive team. No sign of Zuck yet, but Gideon Yu and Owen Van Natta are around."

2:37: "No adidas." No Adidas? Does that mean Zuckerberg's not here yet? Or that he's here, not wearing his trademark sandals? Did he actually slap on a pair of loafers?

2:42: "Diff shoes." Zuck is in the house! Without Adidas sandals!

3:03: Seems our mole's gone quiet for the moment. S/he's a smart one so maybe our tipster is playing it safe for the moment.

Meanwhile, we'll fill you in on some details from Facebook's press release.

More details on landmark partners, which include Blockbuster, CBS, Chase, The Coca-Cola Company, Microsoft, Sony Pictures Television and Verizon Wireless and another "60 major consumer and Internet brand partners highlighted at the launch of Facebook Ads."

"Facebook Ads represent a completely new way of advertising online," the release says Zuckerberg will tell the audience in New York.

For the last hundred years media has been pushed out to people, but now marketers are going to be a part of the conversation. And they're going to do this by using the social graph in the same way our users do.

One way they'll do that is through Facebook pages. They're like user profiles for companies, something MySpace has been doing for a while now.

Another way is through "Unique Ads with Social Actions." These are the Social Ads. They seem to be ads that force users to spam each other. "Social Ads combine social actions from your friends - such as a purchase of a product or review of a restaurant - with an advertiser's message."

Facebook's wary of privacy concerns. "No personally identifiable information is shared with an advertiser in creating a Social Ad." Here's a whole new disclaimer:

Facebook has always empowered users to make choices about sharing their data, and with Facebook Ads we are extending that to marketing messages that appear on the site. Facebook users will only see Social Ads to the extent their friends are sharing information with them.

Why all the worry? Behavioral targeting, which Facebook is calling "Facebook Insights" is the big pitch.

Facebook Insights gives access to data on activity, fan demographics, ad performance and trends that better equip marketers to improve custom content on Facebook and adjust ad targeting. Facebook Insights is a free service for all Facebook Pages and Social Ads.

3:29: And our tipster returns to life! "advertisers are drooling. I think users will find it weird"

That, apparently, about wraps up the show. Did our tipster miss any telling details? Let us know.

"This is the highlight of my life — the birth of my children, and meeting Woz," says Lyons, like some pathetic starstruck fanboy. This is the man who called me "Bigglesworth"? I'm wondering who the real pussycat is.

Lyons starts by explaining how he got the "Secret Diary" moniker from the British magazine Private Eye. The whole idea, he explains, was just to learn more about blogging and figure out how tools like Blogger works. The blog spiraled from there.

"I don't know anything about Steve Jobs," Lyons says. "This is as close as I've ever gotten," he adds, pointing to Wozniak. He recounts how he closed down the blog, and a reader actually reposted his archive, which prompted Lyons to continue.

Lyons then makes a gaffe: "I've written a lot of books, which are still available on Amazon.com." The owner of Keplers coughs and glares at him. "Sorry. In a brick-and-mortar store, you never say the 'A' word."

Now Lyons is retelling the story — familiar to our readers — of how Forbes publisher Rich Karlgaard got in on the hunt for Fake Steve Jobs, offering a reward. But Lyons adds this tidbit: Karlgaard sent him an email, unaware of his identity, offering him a column in the magazine. Another email he got came from a partner at Elevation Partners, the private equity firm which owns a large stake in Forbes, offering to invest in the blog.

And the rest is history: Timesman brad Stone's expert outing of Lyons. Lyons then segues to questions. Gizmodo editor Brian Lam asks Lyons if he thinks that Apple had a hand in uncovering his identity, pointing out that Google owns the Blogger service Lyons uses and Google CEO Eric Schmidt — "Squirrel Boy" in Lyons's blog — is on Apple's board. Lyons turns to Wozniak and asks, "Could Apple do that?"

"Yes," Wozniak deadpans.

Lyons then offers to let Wozniak guest-blog on the site. "I'll give you the password," he says.

An audience member asks what Lyons thinks of the real Steve Jobs. "I actually really admire him," says Lyons. "I wouldn't want to work for him, I wouldn't want to live next to him, I wouldn't want to be in his family. What he does requires a hardness that I don't think I could have. I feel affectionate toward him."

Affectionate? I never expected Fake Steve would be such a softy.

Finally I get to ask a question. "When on the blog are you Steve, and when are you Fake Steve?" I ask. It was the best I could come up with, but Lyons runs with it.

"It's this third personality that evolved, something like Triumph the Insult Comic Dog," he explains. "Fake steve is not really like Steve Jobs, and it's not really me. Like EMC. Real Steve would never write about EMC. Or [Robert] Scoble. Once you start thinking about Scoble, you can't get Scoble out of your head. I'm sure Steve Jobs doesn't think about Scoble at all."

Truer words were never spoken. Especially by a fake blogger.

1:36: Schmidt's saying that Google didn't see the same seasonal slow-down it usually does.

1:38: Schmidt turning the call over to departing CFO George Reyes. He's giving him credit for all the financial success. Nothing to do with search ads, of course.

1:41: Lots of numbers from Reyes. You want them? Get them yourself you lazy bastard. We're here for color, OK?

1:44: Turning it over to Larry. He's holding his nose as usual. He's here to talk about search improvements. I'm excited, you?

1:45: Page's impressed that he can get California weather from his iGoogle page.

1:46: Larry's on to Maps and Mapplets. Those are the little widgets that aren't as popular as Facebook apps.

1:47: Sergey talking now about ads and apps. Google's philosophy is to create a "win-win" for advertisers and customers. "Win-lose" didn't pan out, apparently.

1:50: They're making Sergey talk about a Nissan gadget ad. "It's fun for users and it helps Nissan build their brand. Uh. Anyway. We are really excited about these."

1:52: He's on to Google TV ads. Interest and bookings are up. The remarkable thing about television advertising, is that it is almost as accountable as online advertising. Almost. Sort of. Okay, not at all. But it sounds semi-believable when Brin says it.

1:56: Google Gears, you'll recall, allows you to develop applications while you fly on an airplane. Where there is no Internet.

1:56: Eric again. "It's obvious to us that our model works very well."

1:57: We're on to questions and answers. Hey you. Turn on your mute button.

1:58: JP Morgan wants to know what Google's learned from the MySpace deal.

1:59: Sergey answers. Advertising on social networking isn't as good as advertising on search. Shh. OK, it's an opportunity. Shh.

2:01: This analyst wants to know Google can take applications from the Facebook platform. The answer is no, FB apps are written in FBML. And it's illegal, Schmidt said. We're encouraging them to build it for iGoogle instead.

2:03: A UBS analyst asks a questions with his mouth full.

2:04: Google traffic acquisition costs went up, Reyes tells us. And then there's a long pause. Probably because he called it TAC and no one knows what that is. It's what Google has to pay publishers and popular web sites such as MySpace to embed its search engine and inflate search growth.

2:05: Page's answering a question about the 700mhz spectrum auction. He's pleased about the openness put into the rules. The ones that mean the winner of the auction will have to allow anybody's device to access the spectrum.

2:07: Any update on when DoubleClick will close, an analyst asks.

2:07: Schmidt says Google is following procedure and that it will result "in a very good outcome for us. Our next question?"

2:09: This smartass analyst wants to know why Google thinks its required to build a mobile OS. One of the geek founders answers. "There are opportunities available." And do you know how much money we have?

2:10: Analyst wants to know: You said you were going to watch headcount. Instead, you added more new people in the third quarter than you did in the second. WTF.

2:11: "You should be comfortable that we're paying a lot of attention to the headcount," Schmidt replies.

2:13: An analyst asks, With your ability to monetize better than others, will your TAC rates go down?

2:14: Answer: We have more academic traffic, unlike other players in the market, so we have more traffic that goes unmonetized, alas.

2:15: Jeffrey Lindsay from Sanford Bernstein wants to know where Postini sales force is located. Also, he wants to know why Google thinks it needs more sales people. Didn't you people say you were watching headcount?

2:16: One of the things we're trying to avoid is having multiple sales forces for different sales products. Named customers get one voice from Google. I am not going to answer your question. How dare you doubt us. Gawd.

2:18: This guy just asked "when do you expect to turn up the monetization dial on YouTube?" Douche.

2:19: Brin, "we have fantastic technology."

2:19: To what degree are brand advertisers evaluating their online advertising along with their offline advertising as a single message?

2:21: "We are very confident in terms of the future, especially the video, as well as TV. Search will continue to remain a very strong focus."

2:21: This analyst is on a speakerphone. And he's getting AIM pings. How is Google Checkout going?

2:22: Brin: "I personally use it all the time."

2:23: Merchants who are using Google Checkout are getting a higher click-through rate and decreasing cost-per-click.

2:25: Oppenheimer & Co wants to know the breakdown between mobile and PC searching.

2:27: Schmidt answers, saying that mobile searches are still a small percentage of total searches. But it's growing faster than anything else. We wish all devices could run our software.

2:28: Time for only one more question!

2:28: Analyst: Just two questions here.

2:29: He asked about growth rates in China and India. And privacy standards.

2:29: "Our growth there is quite significant," Schmidt says. In India, we have majority share. In China there is a local player. A local player run by the government, capable of blocking us entirely. Us and everybody else.

2:30: "On privacy: Our ultimate success is based on the success and happiness of users." Not our fantastic profits. No, no. Though yes, they are nice. "So with that, we've run out of time. Come back for a financial analyst meeting next week."

For more gloating? Bah!

2:57 p.m. Pacific Cook says sales were "skewed" to the $599, 8GB model of the iPhone for early sales in June. And with that, the call wraps up.

2:49 p.m. Pacific And an adjective from Cook on Mac sales: "blowout." Adobe's shipment of Creative Suite 3 and a new version of Apple's Final Cut video-editing software helped Pro line sales.

2:45 p.m. Pacific I really should catalog all of the adjectives Oppenheimer uses: "tremendous," "outstanding," and "landmark," among others. You can tell he's running short of them. I wonder if he's using a lawyer-approved list of adjectives and trying very hard not to stray from it.

2:42 p.m. Pacific No cannibalization of iPod sales by the iPhone in June, says Cook, but Apple's watching to see if there will be any this quarter.

2:40 p.m. Pacific Cook dodges a question on whether iPhone prices will drop over time. No vindication for American Technology Research analyst Shaw Wu yet!

2:35 p.m. Pacific The surprise in earnings came from lower memory prices, says Cook, who adds that he believed they "bottomed" in the quarter. He now expects memory and LCD prices to rise as supplies tighten.

2:30 p.m. Pacific An analyst asks if there's a "tech nerd ... bubble" in iPhone sales. COO Tim Cook sticks by his prediction that it will sell a million total by the end of the current quarter — in other words, another 730,000 iPhones from the begining of July through the end of September.

2:30 p.m. Pacific Oppenheimer does it again, hinting at "some product transitions I can't get into." If you can't get into them, Peter, why mention them at all?

2:22 p.m. Pacific Ouch. An analyst questions Oppenheimer's guidance given for this quarter, given how badly Apple's guidance missed this quarter's actual result. Oppenheimer defends his conservative guidance for the September quarter, citing back-to-school discounts, higher parts prices, and — oooh! — "product transitions." That means some new products, people. You heard it here first. Anyone else smell new versions of the iPod coming?

2:20 p.m. Pacific Looking forward to the September quarter, Oppenheimer reiterates that the company expects revenue of $5.7 billion.

2:19 p.m. Pacific Oppenheimer says Apple is regaining its position in education sales. Those who have been watching Apple remember that a few years ago, it had badly fumbled in this market thanks to poor sales management.

2:18 p.m. Pacific Six years in, Apple is starting to remodel some of its older stores — 15 this quarter. More than half of customers buying Macs in stores continue to be switchers from Windows.

2:16 p.m. Pacific Apple is tweaking its retail-store accounting to make it more comparable to how third-party retailers report sales, as well as with other Apple operating segments. AppleCare and .Mac subscriptions are also being accounted for over the life of the service.

2:15 p.m. Pacific Deferred revenue from iPhone and Apple TV sales: $180 million. That will be accounted for over the next eight quarters, under what Oppenheimer calls "subscription accounting."

2:14 p.m. Pacific Apple's plans for Europe, including its wireless-carrier partner or partners will be announced in the current quarter — that is, by the end of September. Launch is still on for the fourth quarter of the calendar year.

2:12 p.m. Pacific iPod sales were 9.8 million. Music sales exceeded Target's, bringing Apple ever-closer to current music king Wal-Mart. Oppenheimer acknowledges that some iPhone customers had activation problems.

2:11 p.m. Pacific Sales of Mac notebooks accounted for 64 percent of all Macs sold. Anyone still use desktops out there?

2:09 p.m. Pacific Call has started. "Landmark quarter," says Oppenheimer. Operating margins continue to be high at 19.2 percent, and a "favorable" cost of electronic parts. Apple had cautioned Wall Street that margins would drop as parts prices rise, but that seems not to have happened.

2:08 p.m. Pacific Must be a lot of interest — they're still trying to get people on the call. Whoa! Stock is down more than 3 percent in after-hours trading. Were the iPhone sales not spectacularly high enough for forward-looking Apple investors?

2:02 p.m. Pacific Dialed in, waiting for the call to start.

1:50 p.m. Pacific I'm musing on the difference between Apple's report of 270,000 iPhones sold, and AT&T's report of 146,000 iPhones activated. I think the difference comes down to that: sold versus activated. There were widely reported problems with activations over the first weekend the iPhone was on sale, and not everyone necessarily activated their iPhone right away.

1:45 p.m. Pacific Apple always provides a useful data summary (PDF) to accompany its earnings release. Every region and sector's doing well, except for Japan. An interesting stat: Apple sold 270,000 iPhones, but only recorded $5 million in related revenues. You mathletes out there might think that, at $500-plus a pop, that seems a bit low. Where'd the other $130 million go? Remember that Apple accounts for iPhone sales over the course of 24 months after a sale. That adds up to a hefty chunk of deferred revenue to boost future quarters.

1:36 p.m. Pacific Earnings are in. 92 cents a share, 20 cents above expectations, and $5.41 billion in sales, $200 million more than Wall Street's consensus. Mac sales up 33 percent, iPods up 21 percent year-over-year. In the release, Jobs says he expects Apple to sell 1 million iPhones by the end of September.

1:30 p.m. Pacific Still waiting for the earnings release. In the meantime, reading Nick Wingfield's (subscription-only) story in the Wall Street Journal about why Jobs hates buttons. Apparently, he doesn't have to bully his underlings into following his whims; Apple's designers just fall in line with Jobs. "More royalist than the king," quips former Apple executive Jean-Louis Gassee.

2:27 p.m. Pacific Gene Munster of Piper Jaffray, the analyst who's drawn a fake blog of his own, gets the last question, asking about Google's efforts in China. Schmidt uses his favorite word, "accelerating," to describe Google's place in the market. He also mention's Google's "tenacity." Translation: It's going to take years for Google to improve its market share in China significantly. And with that, the call wraps up.

2:19 p.m. Pacific "There are lots and lots of rumors, which is always very exciting," says Eric Schmidt. He's talking about Google's wireless plans, of course, but I'm strongly considering repurposing it as a Valleywag blurb.

2:16 p.m. Pacific Was the headcount cost primarily driven by sales hires? Kordestani talks about a reorganization of the salesforce to get them to sell more than just search ads. That's got to be expensive, and a reorganized salesforce is usually less productive. This might explain some of Google's overhiring and the resultant earnings miss.

2:11 p.m. Pacific Omid Kordestani, Google's top sales executive, appears to be a convert to the cult of "conversational marketing," claiming that YouTube allows for "two-way conversations." Sure, if you consider juvenile YouTube comment threads to be a form of conversation.

2:08 p.m. Pacific Did a Google executive on the call just belch? Seriously, people. It's an earnings call. Have some respect.

2:02 p.m. Pacific Schmidt dodges a question about why paid clicks are flat, dumping the question in SVP Jonathan Rosenberg's lap. Rosenberg claims that paid click growth was hurt by seasonality. Which is it? Seasonally flat, or accelerating? Brin pops in and adds that tweaks to make ads more targeted also kept the growth down.

2:00 p.m. Pacific Eric Schmidt takes over again, trying to wrap up by claiming that Google's growth is "accelerating." Really? Even for a Ph.D. in computer science, apparently, math is hard.

1:58 p.m. Pacific Page starts talking about how Google works with software developers. Sadly, unlike manic Microsoft CEO Steve Ballmer, he does not start yelling, "Developers, developers, developers, developers, developers!"

1:56 p.m. Pacific Cofounder Larry Page takes over from Brin. Even he can't resist teasing Brin about searching for 1960s IBM equipment. He's talking about YouTube's partnership to put videos on the iPhone, and he says, "You can waste very many hours and also enjoy useful content like mainframe videos [on the iPhone]."

1:54 p.m. Pacific Just as Google started disclosing "paid clicks," a measure of the size of its advertising business, Brin reveals that it's now allowing advertisers to buy pay-per-action ads — in other words, paying Google for ads by the lead or sale. Curious if the company will start disclosing the number of actions, too.

1:51 p.m. Pacific Brin talks up two of Google's worst-named products: iGoogle, a personalized homepage, and Gadgets, customized content modules that appear on iGoogle. (Most people in the industry call those modules "widgets," which makes Brin's peculiar parlance for them annoying.)

1:48 p.m. Pacific Now Sergey Brin takes the horn. He talks up "universal search," which is the technology by which Google gives its own products — YouTube, Google Maps, and so on — privileged positions in Google's search results. He describes how he found a YouTube video about a 1960s IBM mainframe as an example of how mainstream consumers will benefit. Rrrrrright.

1:46 p.m. Pacific It almost sounds like CFO George Reyes is breathing a bit heavily. Everything okay, George? I didn't think things were that bad. A deep breath right after he gives Google's new headcount figure: 13,748 Googlers.

1:41 p.m. Pacific Schmidt fesses up: Google has overhired, causing costs to rise. He says the company is going to be watching headcount going forward. Google, no longer Silicon Valley's hiring machine? That's a frightening thought. Or perhaps comforting for startups trying to recruit engineers. Sure enough, Schmidt wraps up his comments in record time and hands the call to Reyes, who has to dissect the bad news for analysts and investors.

1:39 p.m. Pacific Eric Schmidt begins his comments. He's hesitant and stumbles a bit before trying to claim that the results were "strong." The most positive thing he says is that Google's main search website performed well. What he doesn't get to right away: Paid clicks, the way Google makes moeny from advertising, were stagnant from the first quarter to the second quarter.

1:37 p.m. Pacific Call is starting. On the call: CEO Eric Schmidt, CFO George Reyes, cofounders Larry Page and Sergey Brin, and top executives Jonathan Rosenberg and Omid Kordestani. It's the usual crew for a Google earnings call.

1:35 p.m. Pacific Want to know why Google missed earnings? Look no further than its operating expenses, which mostly consist of payroll and data-center costs. They're now 31 percent of revenue, up from 27 percent in the first quarter. That's a big jump, percentage-wise. Operating expenses grew by about 25 percent, while revenues only grew 6 percent quarter-over-quarter. Scary. Expect Wall Street analysts to start talking about how Google needs to get its costs under control.

1:27 p.m. Pacific Waiting for the call to start. Google's revenues? $3.87 billion. Or as Dr. Evil might say, "Three point eight-seven BILLLLLLION DOLLARS!" Of course, I'm not comparing Google to Dr. Evil. Google actually paid out more than $1 billion to its AdSense distribution partners. You know that's funding a lot of Web 2.0 keggers.

3:00 p.m. Pacific Yang says that Yahoo is trying to "redefine" its relationship with AT&T, which splits broadband subscription revenue with Yahoo. Back when the company was known as SBC, it made sense to rely on Yahoo's stronger Internet brand — but now, AT&T, which thinks highly of its own brand, is no doubt wondering what it needs Yahoo for. With that, and a quick question on monetizing social-networking ad inventory, the call wraps up.

2:55 p.m. Pacific One surprisingly tough question: "How do you get more value out of your assets in Asia?" Yahoo does not fully own its websites in both China and Japan, which makes the question surprisingly pointed. The usual way to get value out of such partial ownership stakes is to sell them. Yang seems to hint, in an exceedingly oblique way, at the possibility of an IPO for Alibaba, the company which owns Yahoo's Chinese portal.

2:46 p.m. Pacific A mostly light question-and-answer session. "Activating an ecosystem in a very fast way is what we're focusing on," says Yang at one point. Well, that clears things up.

2:42 p.m. Pacific Yang takes the call back, sounding a bit more confident than when he started. "There are no sacred cows," he repeats — meaning some longtime properties may get cut. (Yahoo Photo and Bill Pay come to mind.)

2:41 p.m. Pacific "Our financial performance is not what we would like to see long-term," concludes Jorgensen. You don't say? Yahoo's new CFO has already mastered the art of the conference-call euphemism.

2:34 p.m. Pacific International websites are growing more slowly than Yahoo's U.S. properties, because they haven't yet gotten the benefit of Yahoo's new Panama ad system.

2:32 p.m. Pacific I think Jorgensen, misspeaking in trying to say "revenue per search," just invented a really great new metric: "revenue per suit." All companies ought to measure the productivity of their MBAs in this manner.

2:27 p.m. Pacific Jorgensen is debuting on this call as Yahoo's CFO after being in the job only six weeks. He promises "a fresh look" at Yahoo's operations. Translation: Bend over, product managers — here come the bean-counters! He's now promising to "dive into the numbers," which usually means, on these calls, that it's a good time for a nap, unless you're really into share repurchases.

2:25 p.m. Pacific This is just bizarre: Decker describes Yahoo Mail, the email product, as "a dormant social network." Between Yahoo 360, Yahoo Mosh, and the social-networking components of sites like Flickr and Del.icio.us, how many social networks does Yahoo actually need?

2:24 p.m. Pacific Decker says, yet again, that Yahoo wants to be the "partner of choice." Troubling, then, that its third-party advertising sales — ads placed on sites Yahoo doesn't own — actually fell in the quarter.

2:22 p.m. Pacific Yahoo is rolling out extremely targeted "smart ads" first to Yahoo Travel and then to other Yahoo properties later this year. It's also going to be integrating Right Media, an online-advertising marketplace whose acquisition it finalized last week.

2:20 p.m. Pacific Finally, some good news: Yahoo's revenue per search, a measure on which it has long lagged Google, is up "15 to 20 percent," says Decker.

2:14 p.m. Pacific Sue Decker uses a geeky term: "legacy issues." Usually that refers to old, outmoded software, but here she seems to mean management decisions made by former CEO Terry Semel. That's how Silicon Valley execs deliver the shiv — in jargon-laden code. She points specifically to the slow integration of Overture, now Yahoo's search-marketing arm, a hesitation to push laggard executives out, and the establishment of multiple ad salesforces. Could she be obliquely referring to the ungraceful exit of Wenda Harris Millard?

2:12 p.m. Pacific Yang says that he wants to set "a new bar" for Yahoo culture emphasizing "teamwork" and "leadership." Translation: Yahoo's culture currently lacks such things. With that, he turns the call over to president Sue Decker.

2:10 p.m. Pacific While delivering his prepared remarks, Yang badly stumbles over the phrase "a Yahoo that can win." Does that reveal that he doesn't really believe in such a thing himself? He also says that Yahoo is "in investment mode." A translation for shareholders: Hold onto your wallets as Yahoo ramps up its spending on speculative projects.

2:09 p.m. Pacific Yang says Yahoo needs to do more with "insights" — meaning the data it collects on users' behavior. Guess what, Yahoo customers? Your privacy is an illusion.

2:07 p.m. Pacific Yang bemoans that Yahoo's share of activity on the Web is getting smaller. Help, I'm shrinking!

2:05 p.m. Pacific "What's clear to me is so many people want Yahoo to win," says Yang, speaking of his warm welcome into the job. Not sure that that's the best spin, since it just highlights Yahoo's failure to do just that. "Yahoo is too often defined by the competitive landscape," he continues. You don't say?

2:02 p.m. Pacific Yahoo CEO Jerry Yang, president Sue Decker, and CFO Blake Jorgensen — a good buddy Decker hired to fill in for her — are on the call.

1:44 p.m. Pacific Yahoo has performed poorly, but as expected. Like a mediocre student whose parents are happy that he's getting Cs, not Ds or Fs, Yahoo met Wall Street predictions of an 11-cent-a-share profit for the quarter. Sales of display advertising — supposedly an area where Yahoo has the upper hand in the battel against Google — hurt results.