Exclusive Interview With Google's Eric Schmidt

Bartiromo: How will you respond if Microsoft goes hostile?

Schmidt: Well, a lot will depend on whether their strategy is
successful. In the short term, we have pointed out the possibility of a bad
outcome, but it really depends on what happens in the hostile.

Bartiromo: Do you have any sense of how these things go? I mean, can they go
in the open market, buy the stock, and then just create a proxy battle?

Schmidt: All I know is what I've read in the press, which is that
essentially you replace the board and you force--you force the deal.

Bartiromo: Let me ask you about YouTube and MySpace. YouTube has these
phenomenal growth rates. What do you think is behind that?

Schmidt: Video is powerful. And it's amazing. You know, we started off
with Mentos and the other sort of fun videos, and now people, because they
have so many digital cameras, are essentially uploading everything.
Furthermore, we're beginning to see glimpses of significant professional
content on YouTube. People are using it--because there's such a large reach,
they're learning how to reach that audience. We're working but have not yet
in my view gotten a breakthrough around monetization. So while we have lots
and lots of traffic and we have lots and lots of interesting and creative
people and all sorts of controversies--we're blocked in countries, so on and
so on--I don't think we've quite figured out the perfect solution of how to
make money, and we're working on that. That's our highest priority this year.

Bartiromo: Which is a huge priority, clearly. A lot of people feel like this
is an amazing opportunity for you. So, as far as monetizing that business on
YouTube, do you think that takes a year? Does it take the next five years?
What's your time frame on that?

Schmidt: We believe the best products are coming out this year. And
they're new products. They're not announced. They're not just putting
in-line ads in the things that people are trying. But we have a number--and,
of course, Google is an innovative place. The Yahoo! team are trying various
new forms of advertising, ones which are much more participative, much more
creative, much more--much more interesting in and of themselves. Google
believes that advertising itself has value. The ads literally are valuable to
consumers. Not just to the advertisers, but the consumers.

Bartiromo: They want to look at them.

Schmidt: When they're targeted. When they're the right ad for what
you're doing or what you care about.

Bartiromo: Mm-hmm. But, you know, it gets me to MySpace. Some people feel
like, when you look at the MySpace part of the business, that's really where
people are looking at, or feeling a bit of an economic downturn. Let me ask
you about that. The deal involving revenue promises, is that going to impact
margins in the coming two years?

Schmidt: Not materially in that sense. We have pointed out, and I'll
repeat again, that the whole social networking space has been harder for us to
monetize--that is, develop advertising businesses again--than some of the
other--than some of the other spaces that we're in. It has to do what people
are doing. When you think about it, you're in a social network, you're
looking at people's photos, you're figuring out where your friends are.
You're not as likely to be purchasing a new car at the same time or purchasing
clothes or purchasing a book or what have--whatever business that you're in.
So the development of the advertising tools and techniques, literally the
platform, has been more difficult than we have thought. But we're working on
it, and we're hopeful.

Bartiromo: You've got $12 billion in cash right now?

Schmidt: A little more than that.

Bartiromo: What are your plans for that money? A lot of people say, `Look,
the company's doing well. Growth is still continuing very strongly, global in
particular. Why not pay a dividend out? Why not buy back stock?

Schmidt: We love watching that cash sit in a well-managed bank and not
get lost.

Bartiromo: So you could categorically rule out, no dividend coming?

Schmidt: Well, first this: We never rule anything out. But right now
we're happy to let the cash accumulate. The cash represents a strategic
option for the future. As you know, we had the luxury of entering the
wireless auction. And we did not win the auction, but our financial resources
allowed us to credibly and seriously enter an auction for 4.65 billion.
Couldn't have done that without the cash.

Bartiromo: What did you get out of that, though, Eric?

Schmidt: Well, from a corporate perspective, we participated in
something important. From a consumer perspective, we know that our
participation helped in making sure that the networks remained open. So
consumers get choices. What's better than that?

CONTINUED : Mobility Is Where It's At

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