.  .  .  .  .

The Bottom Line!:     In this environment, the fundamentals are so favorable for biotech stocks, that even a laggard play like Vertex Pharmaceuticals (VRTX) that's been underestimated by the Street is going to look plenty sexy to most money managers. 
I say get in.  Use the 3.5% decline to buy some VRTX.

.  .  .  .  .

On Google, Inc. (GOOG)...
Jim:   Now, I interviewed their CEO, Eric Schmidt, on my 1:30pm special, Mad Money at the Half.   You may have caught it, which suggested that the stock belongs well above $500 a share.  And, remember, I recommended this stock at $80 when it came public.
 

.  .  .  .  .

Complete Interview with Google CEO, Eric Schmidt:

Jim:  All right, let's get right to it... You have a stock that's at $500 bucks. I get stopped all the time by people who know I love Google, and they say, will you get the guy to spit the stock? I can't afford $500 bucks. Why don't they split it? Right away... tell me how stupid that is?...

Eric Schmidt:   This is New York. They can afford $500 dollars...

Jim:   I like that, but I actually get this question when I go to, say, North Carolina too...

Eric Schmidt:   Well, that's more serious... but we're not going to split the stock... at least not for a while. It's just better... people think that the value of a stock is really the dollars, so we'll keep it higher.

Jim:   All right, good. I think that's right. I like individuals to buy one share. BRK-B did the same thing.

Eric Schmidt:   It worked really well for him.

Jim:   A lot of people feel that you don't provide enough guidance... enough management share...

Eric Schmidt:   We don't provide any guidance... that would be the same thing as "none"...

Jim:   True, and that's because you...

Eric Schmidt:   Because we don't want it to get in the way of running the business... All right, if we starting giving quarterly guidance, all of the sudden, the whole company would start focusing on the quarter, rather than trying to change the world.

Jim:   Totally true. I wish other people would do it. Now, there are 31 out of 33 people (i.e., analysts) recommending the stock so clearly it may not have mattered that you're not hand holding us.

Eric Schmidt:   Well, these are the smart people...

Jim:   Right. No, it's true. Now, information technology and advertising. I think you guys have revolutionized everything. Could you tell me... a lot of people... Goldman Sachs is using a percentage of the GDP (i.e., gross domestic product) that you are... I think that that's a little too... they are... right now, you're 0.7% of the GDP of the United States... yeah, 7 basis points... actually .07%...

Eric Schmidt:   That's quite a difference...

Jim:   Hey, catch me... Here's what I want to know... There's $600 billion in advertising. Isn't it fair to think that, one day, you'll capture 10% of it?...

Eric Schmidt:   Well, we could... And, by the way, the number's larger than the $600 billion. It's about $1 trillion globally... And it's perfectly possible that the online world will be half (i.e., $500 billion), and Google could be 8% of that (i.e., $40 billion). We won't get 100%. And then we don't know how long it will take, but we know that everybody's moving from these traditional mechanisms to more targeted, more measurable ones, and online is where the measurements are.

Jim:   Right now, predominantly desktop, but we know that, in countries that are more advanced than us, like Japan, mobile computing... Is your mobile computing going to be up to snuff, and can you make us much money in mobile computing, because the cell phone companies have historically taken too much of a toll?

Eric Schmidt:   Well, we can make more money in mobile than we do in the desktop eventually. And the reason is, the mobile computer is more targeted. Think about it. You carry your phone. Your phone knows all about you, right?

Jim:   Oh, everywhere.

Eric Schmidt:   It knows exactly what you're up to, so we can do a very targeted ad. Over time, we will make more money from mobile advertising. Not now, but over time.

Jim:   Okay, now... there are questions that I'm reading about you in the paper. There's a lot of stuff about you guys in the paper every single day... You're competing against the original content players, like The New York Times said earlier this week.

Eric Schmidt:   Well we think we send a lot of traffic to them. What actually happens is, people come to Google, and they look for information, and they immediately go to the content provider. And we don't want to disintermediate them out. We want to take them... because we need their content... we need them to be successful. We build advertising products for them, and so forth. So, very much, we maintain that separation.

Jim:   Okay, so when I read those kinds of articles, I should just think twice about whether they aren't... Uh, there is a kind of a bias... You know, you guys have gotten so big, I feel that, when I pick up an article... Yesterday, there was an article about how you didn't have (the Republic of) Georgia in the map...

Eric Schmidt:   Well that turns out not to be true. We had the same amount of Georgia before the war as after the war. And we're adding more Georgia going forward, because it's such an interesting place.

Jim:   Well, I've got people complaining. I do all my show back and forth with GMail. You were out on Monday, GMail.

Eric Schmidt:   Well that was just a screw-up... ...and we fixed that. We're not perfect.

Jim:   Well, there you go...

Eric Schmidt:   ...and we fixed that. We're not perfect.

Jim:   Okay, now... I want talk about philosophically... I know we've got some real time here... philosophically... when my daughter got her 5th grade assignment... the first thing that happened was, at the top of the assignment... "you are not allowed to Google it"...

Eric Schmidt:   Really?...

Jim:   Yes, you're not allowed to Google...

Eric Schmidt:   It's like the old thing, "you can't use a calculator"... now you can't use Google?

Jim:   Yes, well I was thinking slide rule, but you can't... Talk about the impact...

Eric Schmidt:   But kids use Google all the time, because it's a new way of learning. When I was in... when I was growing up, they made me - in Virginia - memorize the names of the capitals of every county in the whole state... completely useless information. It took me a week.

Jim:   Completely and utterly...

Eric Schmidt:   Today, you just look it up. So people are going from knowing everything to learning how to search very quickly... The kids need to learn how to search, because they're going to have search everywhere. They're going to have little devices that they're going to carry with them like an iPod, that will have all the world's information with them, for their whole lives.

Jim:   So you're not worried about intellectual laziness...

Eric Schmidt:   No...

Jim:   ...because you guys have basically absorbed what it took me four years of college to do, which is how to do thorough research to be able to do a paper, to be able to...

Eric Schmidt:   But what's interesting is now, when you walk down the street, there's a question... You can say, wow, that's interesting... you can have the answer. I'm riding the train between here and D.C. and, all of the sudden, I read the history of the train line. I could never have done that before.

Jim:   Okay, well... A lot of times I just think that what has happened is that Google has become so powerful that we have taken it for granted, and wouldn't know how to do a lot of things that we...

Eric Schmidt:   But see I don't believe in this sort of lazy people, dumb people idea... I think...

Jim:   But you've thought about it. Clearly, you had to have thought about it.

Eric Schmidt:   No, no... but I actually think people are smarter, because they have access to more information. Google just organizes it. The people are still asking the questions, their still acting based on it, and they have so much more information available to them.

Jim:   All right, okay... Now, a lot of people feel... and I know that we're going to spend the next segment talking about what really drives the stock... that, with the 26% growth that you hit for domestic this quarter, that you've tapped out domestically, and that your growth is going to almost entirely have to be international.

Eric Schmidt:   Well, by the way, most people would say 26% growth is pretty good...

Jim:   (laughing) I agree, but there's 31 analysts who say, listen Jim, you ought to focus on this...

Eric Schmidt:   Well, first place, we don't really know what's going on with the global economy, and Google will do better in any kind of slowdown than non-targeted advertising, but we might be affected by it... you never know. The important point is that our model continues to work, as people are shifting from offline to online. And that shift is inexorable. It's going to happen no matter what.

Jim:   Do you think that we're going to see, and I've got a picture of it I believe... Let me do this... Google home page... (pointing to a monitor of the live Google website home page)... Let me do this before we get to the break. If we can get the Google home page up for a second? I think you've revolutionized advertising and I think you know it too... Why can't you sell, "as presented by Anheuser Busch" right here? (pointing to where a advertising banner could be placed at the bottom of the Google home page)... Why don't you sell the home page?

Eric Schmidt:   We absolutely could.

Jim:   And how much do you think people would pay to be on that page?

Eric Schmidt:   Some number of billions of dollars.

Jim:   Well, why not do it?

Eric Schmidt:   Because people wouldn't like it. We make the decisions based on what the end user wants. We prioritize the end user over the advertiser.

Jim:   You're willing to throw away potentially...

Eric Schmidt:   We absolutely...

Jim:   ...what I believe would be a half a billion dollars in revenue right now by selling that page?

Eric Schmidt:   We absolutely are not going to sell that page.

Jim:   But, but wait a second. If I'm a shareholder, what kind of attitude is that?

Eric Schmidt:   Because you want to be a shareholder for 20 years, and you want every one of those users to come back to Google over and over and over again.

Jim:   But the domestic (i.e., revenue numbers) would be jump started like you wouldn't believe...

Eric Schmidt:   You could take a magazine and you could print nothing but ads in it and, eventually, people would stop reading it.

Jim:   Well, right now, you're far from that. Do you think that we will see, within our lifetime, the international business dwarfing the United States business?

Eric Schmidt:   The world is a really big place, and advertising is global. We're already in a majority international, and I think eventually it's going to be 65/35... something like that.

Jim:   Right now, it's about, what?... It was 52%...

Eric Schmidt:   52/48... But it's clear to me that the world is... And, by the way, look at the growth of India, look at the growth of China... Big deal...

Jim:   All right, stick with me. I've got granular questions about what's going to happen, that the Street needs more than my global, "my kids are lazy because of Google." All right? Stay here...

[commercial break]

Jim:   We're talking with Eric Schmidt. I have to tell you, I'm going back with a $750 price target...

Eric Schmidt:   I've never seen a Google employee with than many tattoos...

Jim:   Well... 'toos are big... 'toos are big. You guys've got to get a little more hip. I would show you my ring here too (pointing to his belly button). I've got a nice ring here... Uh, what do you... I know we were talking in the break. I know you've got some stuff that you wanted to ask me.

Eric Schmidt:   Well, I have a real simple question, right... You think the market's going to turn pretty quick here.

Jim:   Yes I do.

Eric Schmidt:   But when's business going to turn in America, right? Because Google will do well I think as this turns but, you know, things are kind of rocky right here.

Jim:   Well, I've got to tell you, the market has always anticipated between six and nine months, in terms of business. For instance, housing right now... I don't mean to get too far afield. I have the CEO of Google here. But the housing market I think is nine months away from a turn... you see those stocks turning. The stocks tell me more. In your particular case, I believe that you will get back to your old prices, because inflation is coming down, and I'll pay more for the out-year earnings. Let me tell you the things that keep me up at night about Google, and what I'm really worried about. It's different from what the analysts are worried about. First of all, I think... when I first started trading... IBM... I never thought anybody could touch them. Big, big, big... and then flat. MSFT... Big, big, big... and then flat. I worry that there's a price... there's a level... where Google just simply can't get any bigger. Your concern on that?

Eric Schmidt:   Well, you know, all these tech companies hit something called... they hit the "S curve" and the S curve is basically... they go like this (motioning upward on a climb) and through this very, very rapid growth period, and then slows... and it slows because of laws of large numbers, basically... Just, you know, you're growing, you're adding billions of revenue... You just can't put enough numbers on the board. So the way you solve that problem is by having new businesses. So we're busy working on new businesses. The display business, which is a huge opportunity, which we should become a significant player, but we're not today. We're working very hard on that. Mobile should be a large one. So the way you address that S curve slowdown, in any technology business, is you keep adding other businesses that are growing. And there's enough in advertising...

Jim:   But didn't Ballmer think of that?... And Gates?... (from Microsoft) And it didn't seem to work?...

Eric Schmidt:   Well, that's a different generation. This is an advertising generation, and advertising is a very, very multi-sector thing. We can do these kind of ads, which we do really well, but there's a lot of other opportunities for us, and they'll organize themselves as the technology allows. Some of them will grow faster than the others, but that's how we address that question.

Jim:   Okay... Uh, I used to manage money for INTC executives. In the late 80s, when they decided to switch from a commodity product, to the 86, which became the Pentium, the thing that they saw and recognized was that they're only enemy would be the government. They literally believed that, one day, they could have 80-90% market share. They were the 20th largest semiconductor company. I worry that, at a certain place, the world... well, certainly the U.S. government... will come down on you, because you're just too darn powerful. Each month, I see your share go up. At a certain level, people are going to go to Washington and say this isn't right.

Eric Schmidt:   Well, we've actually talked about this, because our algorithms are doing better, it appears that we're gaining share... Certainly our advertising business... we have the best technology in the business, and so forth... So, how do we behave, right?... We shouldn't behave the way Microsoft did, all right... I think everyone agrees with that. Certainly, I would never do that.

Jim:   You're not going to say those nasty things about the Attorney General?

Eric Schmidt:   No, no... We're just not going to do that. So how do you be big without being evil, is the way we need to say it. Well, one of the things is that we don't trap end users. So, if you don't like Google... for whatever reason... if we do a bad job for you, we make it easy for you to move to our competitor. We're trying to make sure that a competitive market is maintained by everything that we do.

Jim:   I know the Yahoo deal (to work in conjunction with Google for distribution of advertising) which, on the surface looked anti-competitive, isn't.

Eric Schmidt:   But look at it. The Yahoo deal is non-exclusive, text ads only. It's a classic outsourcing deal for some of its advertising. They can choose to implement it or not. It's a good deal for them, it's a good deal for us. That's the kind of deal... And, by the way, they're free to work with whomever else they wish.

Jim:   Now, one of the things that's been brought up repeatedly in all the analyst reports - and it was mentioned in conference call - is that you must be seeing some cyclicality. We know the airlines are in trouble... we know that travel's in trouble... we know the autos are in trouble. That has simply been completely and utterly wrong, hasn't it?

Eric Schmidt:   Well, it's bizarre because, while autos are in trouble, because the automobile dealers are really smart, they move to more targeted advertising to sell the inventory that they have. So we can do well, if people transition to more targeted, more measurable, more ROI-based advertising. The ones that are being hit, unfortunately, are these non-measurable advertising things. There's no reason to put money there.

Jim:   You should explain... that's newspapers and magazines...

Eric Schmidt:   ...and traditional display ads.

Jim:   When my kids... when I tell them to read The New York Times, they have no idea what I'm talking about. What they say is they go to Google. That's what The New York Times is. What do you say to the executives at The New York Times, using that as an example, who have a $500 million ad budget, that you are... Why are you not just the parasite?...

Eric Schmidt:   Well, in fact, we have a big deal with The New York Times, and with a bunch of other newspapers, for precisely this. And what we do, when people come to Google looking for news, we send them to The New York Times, and we also show some of our ads on their sites, and they get the majority of the revenue. So they make money, both on the traffic coming to them as well our ad system, along with their own advertising.

Jim:   All right, now let's speak about the... a question that, again, I'm trying to address all the questions that are holding the stock down in my view. You've got a tremendous... the amount of downloads in YouTube are extraordinary. But over the...

Eric Schmidt:   Do you know it's up to 1.3... let's see... 1.3 million minutes ever 10 minutes of upload. In other words, every minute, we're putting that many videos in. It's unbelievable.

Jim:   But, at the same time, what advertiser wants to put a 30-second advertisement on YouTube?... Who wants to look at that, versus the advertisements we're using at the Olympics now, which are just gigantic... $1.7 billion in revenue. I mean, isn't it true that people just don't like ads on YouTube?

Eric Schmidt:   But we haven't figured that model out yet, right... You're comparing a 50-year-old mature model, which worked really, really well once every four years, right... in the Olympics... or once every two years... versus something which is completely beginning. We know we have enormous amounts of traffic. Literally hundreds of millions of people watching those videos...

Jim:   So you're just saying that somebody will figure it out in your organization?

Eric Schmidt:   And hopefully, it's going to be us that figures it out. So we're trying different things. We tried pre-roll and post-roll and so forth. Not any one of them is really got it... we've got a couple of new ones coming out in the next month. We'll give them a try.

Jim:   You're making so much money that we don't have to worry about it, right. It isn't like it's going to hit your bottom line here...

Eric Schmidt:   It does hit our bottom line big time right now... but, eventually, we'd like to make some money at it. But, even if we don't... even if, ultimately, it's a loss leader... let me tell you that the fact that so many people come to YouTube means that they ultimately go to Google and do Google searches and click on ads. So don't be too worried about all that traffic going to YouTube. I'd be worried if people weren't using YouTube... Since it's an enormous success globally, we know we will eventually benefit from it.

Jim:   All right, last question to Eric Schmidt, the CEO of Google... I want to know... The press, everyday... It's kind of like the iPhone... Everyone says the Android is coming, the Android... you'll never see anything like the Android... There could be a September release... Here, I'm talking about mobile computing which... Remember, Google is dominating, taking big share from Yahoo, for AOL, from everybody, when it comes to desktop... but owning mobile may be up to you guys developing Android and being successful. Where is it? How big it can be? Can you give me a Steve Jobs' "10 million this year" kind of thing?

Eric Schmidt:   No it can't.

Jim:   Why not?

Eric Schmidt:   Because it hasn't shipped yet.

Jim:   Okay, but tell me...

Eric Schmidt:   It's going to ship between now and the end of the year. It's software...

Jim:   No, no, no... I need "September"... I need "October"...

Eric Schmidt:   ...between now and the end of the year, and it's going to be software...

Jim:   Well why don't you just take away my ratings, and give them to some other show?...

Eric Schmidt:   And, by the way, it's software, so it's really going to be other people... And our goal is to get lots of people to use the software to build a new platform... a completely different kind of platform than anybody else...

Jim:   Well, like cloud computing...

Eric Schmidt:   Absolutely.

Jim:   Oh, by the way, your last... There was a Pacific Crest speech that one of your guys gave that just basically said that cloud computing is interesting, but that Microsoft should be terrified. Should Microsoft be terrified by cloud computing?

Eric Schmidt:   I never worry about Microsoft.

Jim:   Very smart. Eric Schmidt, you are a delight... CEO of Google... and where's my pen? I want to write Google $750... Well, whatever, you get the point!

[NOTE!  What follows below are the comments from an additional interview that same day, later aired on Jim's 11pm full Mad Money show on August 13th... ]

Jim:   Before Google... After Google... After Google, the world has changed... A lot of people feel that maybe we've seen what could be the peak, or peaking, of Google... although I totally disagree. But let's get it from the man, Eric Schmidt, Chairman and CEO of Google. Eric, I'm looking at the world and thinking, okay, desktop... you've got about 60% of it. It could go to 80%. But there are two other aspects of Google that I think are - from 2010 to 2020, and then 2020 to 2030... I'm talking about YouTube and mobile...

Eric Schmidt:   But where does this "peaking" thing...?

Jim:   Because I read all... I'm stuck! I have to deal with the canon as presented by the analysts who were trying to justify why your stock fell from $530 to $480... peak, peak, peak!... That's what they do!

Eric Schmidt:   But don't they study the growth of the internet? The internet is getting bigger, right...

Jim:   No they don't. They try to justify stock moves after, because they're like baseball reporters, trying to explain why the Phillies lost last night.

Eric Schmidt:   This makes no sense to me. Look, the internet is getting really big. It's going to be really big in the U.S. It's getting even bigger outside the U.S. People are moving more and more from offline to online... everything we do. And not just Google, but all over the place, whether it's your communication devices, your phones... talking about the way people view things on YouTube... it's an enormous transition...

Jim:   How big YouTube... how big?

Eric Schmidt:   I don't know... it will eventually... it's certainly more viewers today than the national...

Jim:   Give me a sense of where we were last year versus where we are now.

Eric Schmidt:   I don't know it's growth rate, but it's, you know, doubling fairly quickly.

Jim:   How many people are down... what are people downloading?... Just in the last hour... in the last hour, while you and I were talking, what's happened?

Eric Schmidt:   Well, people upload... upload... 13 hours of video to YouTube in 1 minute. I sit there and go, oh my God, what is that stuff?

Jim:   And how much time is consumed say, on average per day, by people watching it?

Eric Schmidt:   Well the average person watches three minutes, and we have hundreds of millions of viewers... so think about how much time is being wasted, or learning is being created... God knows, all right... It's a big, big phenomenon... It's so much larger than any of the other video things that we've seen, that we know that YouTube will have a significant cultural impact.

Jim:   So, even though we're talking about only $100 million, right now, in revenue, you don't feel you overpaid for it?

Eric Schmidt:   Oh, no, no, no. Not at all. Because, remember, every one of those people who uses YouTube is a big Google user, so they're more likely to use Google. So, from our perspective, whether you come in from YouTube, or you come in through News or through mobile, as long as you're going to end up using Google, and you're going to touch some of those ads, we're going to make some money from it.

Jim:   All right, a little Narcissism... I had a YouTube video about a rant that I had about the Federal Reserve that had about 3 million uploads... If I get an Android... actually more than 3 million but, you know, at a certain point, I have false modesty... If I get an Android, which I will, will I be able to call up that YouTube video?

Eric Schmidt:   Absolutely. And you'll be able to call it up on all the other mobile devices as well. We're not favoring one or the other. We want you to watch you everywhere you can.

Jim:   Okay. Well, I like that. I certainly will take that. Now, is there...

Eric Schmidt:   And, finally, doesn't it make more sense to watch it on a device?... You know, the three minutes...

Jim:   Oh, completely.

Eric Schmidt:   Because it's personal... then anywhere, you can tell the device, hey, all I care about is Jim Cramer... then all it's going to do is everything that shows up on YouTube is going to show up on the device, and be right there. It's like a Jim Cramer channel.

Jim:   Can you tell me about this bar code feature, where I might be able to be in a window and do comparative shopping?

Eric Schmidt:   Yeah... somebody wrote an application... it's really, really neat. Because, you know, these cameras... If you think about it, phones are computers with a GPS with a camera. Oh, and by the way, you can use it to talk. So somebody wrote an application which it take a picture of a barcode and then it compares what's in the store to what's online. Think about it.

Jim:   So I know on the spot whether I'm going... I don't have to bring in a receipt from Best Buy to show Circuit City that I could get it cheaper...

Eric Schmidt:   Yeah, really interesting...

Jim:   Well that's going to change retail.

Eric Schmidt:   Again, you wonder... why are people using all this internet stuff? Because it's really, really helpful. It lets them have a better time, they save money, they learn more, they're better educated, they entertain themselves better. The internet is just the right answer.

Jim:   Okay. Two things that had concerned people that has seemed to have gone away completely. One is that you were spending too much hire people, okay... And the second is that there is a belief that, at a certain point, you would outspend just for cap ex (i.e., capital expenditures). You've got cash building so big.

Eric Schmidt:   Well, the good news about Google's business is that it's got very, very good cash flow. And we focus on cash flow. We look at sort of absolute cash that we can generate, and we're doing fine there. Uh, we're absolutely investing in capital, because we think one of our competitive advantages is these very large, very sophisticated data centers that have all of this information that are very difficult to reproduce. With respect to hiring, you know Google is a fast-moving company and sometimes we sort of run a little ahead, and we ran a little ahead a couple of quarters ago, but I think we got that under control.

Jim:   Uh, young people watch my show in incredible amounts. We have a demographic that's about 28 years old.

Eric Schmidt:   That makes sense.

Jim:   There's a lot of people who want to work at Google. I saw in your conference call, you literally mention the fact that there is a hiring bump after kids graduate. How, if I wanted to be... I'm watching the show right now... I'm at UNC, or I'm at, uh... we had a lot of callers this week from the University of South Carolina... from Sun Devils out at Arizona State. How can I get a job?

Eric Schmidt:   Well, in the first place, you've got to have the right criteria and you have to pass a whole bunch of tests. We send people to universities. We actually interview them, and the people we're looking for are very unusual. They're very smart, very creative... technical, non-technical... and there's usually something interesting about them. We hired a rocket scientist, even though we don't build rockets. We hired a doctor, even though we're not medical people. You know, we love people who are Olympians, speaking of the Olympics. We like people who are exceptional.

Jim:   Okay. Are there other... I mean, I use Wikipedia. I go to different sites and Yahoo... Are there things with your cash horde that you can just say, okay, you know what? Tomorrow, I want Google to be better than Wikipedia.

Eric Schmidt:   But why would we want to do that? But Wikipedia, by the way, is a tremendous success. In fact, if you look at Google's results, Wikipedia is often one of the top 2 or 3 results (from any given search on Google). It is a remarkable testament to volunteerism, management... you know, the founder of Wikipedia and so forth... it's so successful. Why would we want to compete with that? We want to partner with everybody who's creating great content and changing the world.

Jim:   I think one of the reasons why you are not going to run into my worry, which is about anti-trust and the government is that you are not trying to wipe out the competition, are you?

Eric Schmidt:   Well, certainly not in the content area. We are an advertising and distribution company. So we have direct competitors there, but we need every bit of high-quality content, including your show, right?...

Jim:   Okay, thank you.

Eric Schmidt:   No, including CNBC, the whole bit. We need all of that content all throughout Google and YouTube, whatever. We need it because people watch it.

Jim:   There are a lot of websites that could have a lot of advertising that can't hire a lot of ad sales people. What's your advice to websites that are really starting to explode, but would love to team up with Google, in order to be able to get more advertising?

Eric Schmidt:   Well, here's a way to think about it. Let's say you're going to found a new company... you know, you founded TheStreet, which is hugely successful...

Jim:   Right, thank you.

Eric Schmidt:   Let's say you decided to found another thing. What would you do for sales? The first thing you'd do is you'd use Google. The second thing you do is you'd use Google. The third thing you'd do is you'd use Google, and then you might use Yahoo or Microsoft or so forth. And that's before you'd hired your first salespeople.

Jim:   That is the model.

Eric Schmidt:   So, that is the model going forward, because it's so inexpensive to get customers, because it's literally cost per acquisition. So, what I think you want to do is you want to look at an existing business and say, well, maybe I should have mostly Google and the other online services, and then the minimum number of sales and service people that I need to finish that out. Maybe I have too many, sorry to say... But, with the new business, if you're going to found it, you founded it using online first.

Jim:   Right, right.

Eric Schmidt:   And, by the way, you will need some. You won't be perfect. It won't be just... it's not just computers. You will need some people... some service people and so forth. But it's so much more productive, so much more profitable.

Jim:   Now, there are very few chinks. But, anytime you have a chink, I know you talk about it, which is really pretty amazing versus what companies do. In the last conference call... Maybe I'm reading through the tea leaves, but it made me feel like maybe, right now, you're not thinking you're getting... that either side should be happy with the MySpace relationship right now.

Eric Schmidt:   Well, we said that the MySpace deal, which we entered into voluntarily, and in an excited way... that social networking uses are not monetizing at the same level as products. And, if you think about it, if you're on a social network, you're less likely to click on an ad to buy something than you are if you're looking for a product. It makes sense. So we have not yet, in my opinion, developed the killer product for that space, but we're working on it. And I said before, in YouTube, we've not yet quite developed the right product there. YouTube is different than television... different ways of advertising... different ways of reaching users... but it will be developed, and hopefully it will be by Google.

Jim:   One year ago... It seemed impossible, the things that have happened. Give me a perspective... one year ago versus where you are now... If you can, again, not talking earnings per share, but one year from now where you could be.

Eric Schmidt:   Well, Google is growing. And we're growing globally. We have a lot of new products coming. You've already talked about Android, right, which I know you're very interested in. There's a lot more stuff coming. But I would tell you that core search is not solved yet. We still have too many answers. The web is getting so much larger. We've got to introduce all of these other technologies and content and so forth into it... So I think there's a lot of new search coming. In ads, we have some new ideas about how to do ads' targeting that are even more... more precise... than what we have today, and those are coming into development.

Jim:   The last concept that I want to talk about, because it was it was right at the top of your last conference call, and a lot of people are buzzing about it is, what is cloud computing, and what does it mean to people that currently charge a lot of money per seat for software now?

Eric Schmidt:   It's like we were talking earlier about in a company. If you were to found a software company today, you would not build a heavy piece of software, and try to sell it for thousands of dollars a seat.

Jim:   No, but you did say in the same conference call that people thought that IBM would go away, and it never went away.

Eric Schmidt:   But IBM has turned itself into a tremendously-talented services company.

Jim:   Right, right...

Eric Schmidt:   It's not a software company anymore of that kind. So, today, if you were to found a company, you would not try to build a $10,000 per seat software. You'd have a web service, and you'd monetize it using other ways... with a subscription, or ads, or so forth. That's the new model. The problem for existing companies is that they have those kinds of businesses...

Jim:   Right...

Eric Schmidt:   ...and they have to find a way to bridge that gap. It's called "crossing the chasm"... It's incredibly difficult... it's incredibly difficult for you to make that transition. And, by the way, Microsoft is an example of a company that's facing that issue. But it's clear to me that the future is cloud computing, and apps that are resident on the cloud.

Jim:   It's one of the reasons, by the way, that I like Marc Benioff at Salesforce.com. He clearly gets it.

Eric Schmidt:   And, by the way, Salesforce.com is a very good example.

Jim:   Eric Schmidt, thank you so much. Really great to talk to you. Congratulations on all the work you've done. Really fabulous.

[ End of Interview ]