Google CEO Eric Schmidt has hinted that his company - or at least its partners - will one day subsidize the purchase of extra-low-cost Linux netbooks in an effort to promote the use of its myriad cloud online services.

"What's particularly interesting about netbooks is the price point," Google's Willy Wonka told a room full of financial types this afternoon at the Morgan Stanley Technology Conference in downtown San Francisco. "Eventually, it will make sense for operators and so forth to subsidize the use of netbooks so they can make services revenue and advertising revenue on the consumption. That's another new model that's coming."

Schmidt called netbooks the "next generation" of the low-cost machines produced by Nicholas Negroponte's One Laptop Per Child (OLPC) initiative. "Products today are not completely done. Things are missing. It's perfectly possible that operating systems that are Linux-based will become a significant player in that space, whereas they have historically not been a significant player in the PC space."

In other words, Schmidt believes the US is going back to the future. The subsidized-PC model famously failed in the late 90s and early aughts, with outfits like PeoplePC and emachines. In the UK, mobile operators are already offering free laptops with wireless contracts.

If Google taps into this plan, you'd have to assume that Googlicious netbooks will be sold by someone other than Google. As the company has shown with its open-source Android mobile stack, Google prefers to keep the direct-sales biz at arm's length.

Developers have often said that Android is already well-suited to netbooks as well as mobile handheld devices. And rumor has it that motherboard-maker ASUS is already hard at work on an Android-based netbook, set for release at the end of this year or early 2010.

Such devices could rule the world, Schmidt said, because cloud online apps are the future. "Cloud computing is one of those changes that are going to happen - regardless of whether or not companies in the ecosystem want it to," he said. "IT systems today are so slow in the way that they evolve...We now have an opportunity to build a whole new generation of applications that cycle much faster."

Just as predictably, Schmidt began his Morgan Stanley Q&A by insisting that Google's search monopoly could vanish at any moment. He pointed to a recent snafu where Google's search engine blocked access to the entire internet.

"We had a bug recently where we put a malware statement out for users, and in that time, Yahoo! searches gained very, very quickly," he said. "It looks like people will move very quickly from one search engine to another, for any number of reasons. We've looked at this very carefully."

But even a cursory examination would show that Google's February snafu knocked out its search engine for less an hour - and that it promptly reclaimed over 60 per cent of the market.

In Google's mind, Google is not a monopoly - but Microsoft certainly is. When asked whether he was at all concerned about a possible search tie-up between Yahoo! and Microsoft, Schmidt said "The problem has to do with Microsoft's ability to use its Windows monopoly to restrict a user's fair choice...Anything that Microsoft would do that would eliminate user choice with respect to the way search engines and internet browsers are distributed - for which it was previously found guilty - would be of concern."

But at one point during his chat - which was broadcast live over the net, but was not open to reporters - Schmidt's typically extreme Google arrogance subsided. At least a tad. In recent months, Google has all but called itself Meltdown-proof. But today he hedged those claims.

"I don't need to talk to this audience about the state of the global economy. The situation is pretty dire," he said. "During this time, what's happening is that people are using the internet more. But it obviously will affect the online advertising markets as well - simply because our systems are so tightly tuned that if customers are buying less it will eventually be reflected in [cost per advertising click]...

"We are not immune - 'we' Google and 'we' the online-advertising industry. But we may be better positioned than other advertisers."

Google's ad system isn't as "tightly tuned" as Schmidt would indicate. And in the fourth quarter, the company pumped its revenues a cool 18 per cent. But perhaps he's hinting that Q1 isn't going quite as well as the company might like.

After conversations with countless "CEOs and customers," Schmidt predicts that the global recession won't subside until 2010. But when it does, he says, Americans will still be Americans. "What we have to do in our country in solve the credit problem. We have to get the job situation at least stable. And we have to do something about the housing crisis," he said. "All of those things are being worked on now. When those things are done, it's a reasonable bet that Americans will go back to what they do best, which is spend money." ®