Google's Chief Looks Ahead

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Google CEO Eric Schmidt at Google's headquarters in Mountain View, California.

Google wants new friends. After signing a series of new partners, CEO Eric Schmidt says the Web giant's spate of recent deals is just a start. Schmidt talked to TIME about changing the company's philosophy and planning its next steps.

TIME: You've done a series of recent partnerships with eBay, MySpace, MTV and others. What's driving these deals?
Schmidt: Toward the beginning of the year, we recognized that we needed to get good at partnerships. I'm just going to try to be blunt here. It had not been a core part of how we were trying to run the company. So we tried to pick partners that represented different initiatives that we wanted to work with for a long time.

I think that to some degree when you're a small company you sort of have to do everything yourself, and as you get more established you begin to realize you'll never get everything done by yourself. You're fundamentally going to be a better player, a better solution, if you can share in the success, and get the benefit of the hard work these other people have done.

What does Google gain?
In most cases what I'm describing is distribution: they have a way of reaching customers that we do not on our own. And also the combination solves a new problem. So it wasn't particularly financial, although the financials are all good in these deals, it was really more reach; distribution. It was really strategic. My point is you don't just do partnerships to do partnerships. You do partnerships for a reason. We came to the conclusion that we needed this much bigger collection of companies. With more more coming, I think. I think it's reasonably well thought out for the company. It had not been a priority before, I think we were probably late to doing it, so we pursued it with great fury. It was really important.

What was the thinking in picking these particular partners?
Each of them represents a different strategic thrust. In Dell's case, if you look at the demographic of who they sell to, they're heavy Google users, so they were a logical big partner for software distribution for us. In the case of MySpace, it's generally well known that they are the breakout in social networks. Everybody's moving to MySpace, basically. And all the numbers say that their growth rate is much higher than anybody else's. They're much, much larger than the others. Intuit has something like 80% or 90% market share of the stage that they're in. Adobe has somewhere between 80% and 90% of their market space.

MTV was very clever. They wanted to be the launch partner for building the following: putting ads in front of their video content and jointly serving the resulting product off third-party sites, which is a huge distribution network for us. So you notice that each one of them is the leader in their category and wanted to do something that was really neat, really innovative from the standpoint of the end-user. Each of them solved a new problem.

Who do you see as your primary competitors at this point?
Well, today we compete with Yahoo all the time because they are the other company that has a targeted advertising network. And Microsoft continues to claim to enter the market, but we really haven't seen them yet, they're just getting started. I'm sure eventually Microsoft will be a competitor. So it's really those three companies, Google, Yahoo and Microsoft.

What about the smaller niche search engines and startups?
They seem to do well in their spaces. A good example is They're doing well, and they're also a partner. So, are they a competitor, yes, but they're also a big partner.

You recently joined Apple's board. What interests you about the company?
This is a personal thing. If you're a director, it's a personal commitment. Apple is an innovator in its own space. Apple is engaged in probably the most remarkable second act ever seen in technology. Its resurgence is simply phenomenal and extremely impressive.

Would you like to see more partnering between Google and Apple?
Well of course, but we're already partnered with them.

What's your process for planning strategy?
We say we run the company chaotically. We run it at the edge. But the truth is the company is pretty thoroughly planned financially. We have a three-year financial plan that we're submitting to the board. We have data center plans for 2007, 2008 and 2009. We modeled our financials, cash flow. And it's possible for us to predict reasonably accurate cases there. We have a one-year strategic plan, so we have a plan for 2007, about what we want to be next year. What are the markets we want to enter.

Is that part of the legendary list of 100 things Google wants to accomplish?
It's a little more formalized than that. We run the company by questions, not by answers. So in the strategy process we've so far formulated 30 questions that we have to answer. I'll give you an example: we have a lot of cash. What should we do with the cash? Another example of a question that we are debating right now is: we have this amazing product called AdSense for content, where we're monetizing the Web. If you're a publisher we run our ads against your content. It's phenomenal. How do we make that product produce better content, not just lots of content? An interesting question. How we do make sure that in the area of video, that high-quality video is also monetized? What are the next big breakthroughs in search? And the competitive questions: What do we do about the various products Microsoft is allegedly offering? You ask it as a question, rather than a pithy answer, and that stimulates conversation. Out of the conversation comes innovation. Innovation is not something that I just wake up one day and say 'I want to innovate.' I think you get a better innovative culture if you ask it as a question.

In what ways are all the new tech startups — the so-called Web 2.0 companies — changing the competitive landscape for Google?
Web 2.0 is a marketing term, and it's not a term that I use, but the underlying rationale technologically is correct, which is why it's really happening. The basic argument is, if you think about it: it would be better for you to have all the data and all the applications that you use on a server somewhere, and then whatever computer or device you're near you would be able to use. Let's say you have a PC or a Mac at home and at the office, and you have a BlackBerry and a portable and so forth and so on. You're constantly moving files around. What happens if you drop your ThinkPad and break it?

It's just a better model to have the computation and the applications use what we call a cloud, somewhere in the Internet. I, among other people, have been talking about this for 15 years, well before Google was founded. It turned out to be really hard to pull off. But now finally these broadband networks are fast enough that you can actually do it. You just don't need to always have everything on your local computer. So what I like about Web 2.0, as it's called, is that it's really the popularization of all this different technology. The other thing that's interesting about Web 2.0, as it's expressed, is that there's another way of making money, which is the advertising model.