Conceptually that sounds easy to duplicate; technically it is mind-numbingly complex and remains a huge barrier to competitors. The program was the basis of co-founders Sergey Brin's and Larry Page's Ph.D. work at Stanford University before they dropped out in 1998 to start Google. But what kept the company in business long enough to let its software catch on was its low-cost infrastructure.

It used to cost an arm and a leg to build and run a network like Google's: Linux didn't exist, and the price of computer parts and bandwidth, which Google consumes like a phone company, was high. The founders' genius was recognizing that a network could be built with off-the-shelf parts, something others thought impossible. To get the company off the ground, Brin and Page raised $1 million from family and friends at the end of 1998, $25 million from Kleiner Perkins and Sequoia Capital six months later, and another $10 million from Yahoo in 2000. They haven't needed another cent.

Okay, we know how the company saves money. But how does it make money? By selling its search technology to companies like Yahoo, AOL, and the Washington Post so that they can incorporate Google searches in their Websites. And it sells online advertising. That is the part of Google's business that's caused the most skepticism. Why? Because of the perception that online advertising doesn't work very well. And until Google and rival Overture started doing it, there was a lot of truth to that. But the two companies discovered that it was the way online advertising was sold and displayed, not the concept, that was the source of advertiser dissatisfaction.

Overture and then Google started selling something called sponsored links, which is a fancy name for a classified ad with an Internet link. Sponsored links cost nothing to produce, load easily through a narrowband connection, and make a more subtle pitch than banner ads. They're also more popular with advertisers, which pay based on how many times people actually click on the ad. With banners, advertisers have to pay based on how many times the ads were displayed, which gives no indication of how the ad is doing. Google took the model a step further, marrying the text-based ads with its search results, something Overture did not have. In other words, if you do a search on Google for, say, Botox, an ad and link for Laserlightrx.com comes up alongside your search results. The upshot was something that Website operators had been trying to accomplish since the beginning of the Internet: meaningful search results accompanied by relevant advertising.

With Schmidt at the helm, Google is aggressively trying to leverage its reach, technology, and advertiser base. It already sells its search services to 130 companies and governments; now it is allowing software developers to incorporate its technology into their applications. In February it started selling a search "appliance"--a computer case with Google's hardware and software inside--to help companies search their own Intranets. In hopes of starting a referral business, it has scanned thousands of catalogs so that people looking to buy anything from Cuisinarts to scalpels can locate what they want. The ultimate goal? "To enable you to find anything you are looking for anywhere," Schmidt says.

Many things could still derail Google's plans. A big challenge will be to keep the company's wacky culture intact while growing the business. To outsiders, that may sound like a waste of time, but because of his 14 years at Sun, Schmidt knows that a business culture like Google's plays a key role. One of Google's strengths is its brainy team--15% of its employees are Ph.D.s, and the staff is encouraged to come up with ideas and run with them. People like that don't work well in a militaristic corporate hierarchy. To that end, Schmidt has taken great pains not to push founders Brin and Page aside, but instead to make them visible at his own expense.

The AOL deal exposed changes that will be necessary as Google grows. Brin and Page hate keeping secrets from their staff. At Google's end-of-the-week meetings, for example, they freely share things like financial results. But no business can be completely truthful and open with employees all the time. When negotiations with AOL were at a sensitive point, the staff knew something was up and asked Brin about it. His answer was truthful on its face, but misleading.

Another daunting issue is how Google will deal with companies or organizations that object to search results that may violate copyright laws. When the Church of Scientology complained about a Website called Xenu.net, Google acceded to its demands, but Schmidt says he doesn't know what he will do if this happens a lot.

The one thing Schmidt says Google doesn't need now is an IPO. It would obviously be the most sought-after tech deal in a long time, and eventually it will become a necessity because Google's investors want to cash out, and the company needs money to expand. But as Schmidt points out, "We don't even have a CFO. You'd think we'd want to get one of those before we did something like that, right?" Hey, how about doing a search on unemployed CFOs?

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