When Eric Schmidt became Google's chief executive in 2001, he didn't make the mistake of trying to take over the company.

Instead, Schmidt, a seasoned tech executive, manages Google with founders Sergey Brin and Larry Page.

The arrangement gives Brin, Page and company engineers the freedom to continue to improve the company's leading search software while developing new services.

Today, Google is the Internet's heavy hitter. The firm continually beats analysts' estimates. It delivers record profit and revenue to shareholders.

And it has widened its lead in the search business ahead of rivals Yahoo and Microsoft.

Google hovers near 460 a share. It debuted at 85 in August 2004.

Schmidt's deft but light touch is one reason for the company's success, says Ellen Siminoff, a former Yahoo executive and now chief executive of Efficient Frontier, a search marketing company.

"Google has the philosophy that they will continue to be innovative," she said. "What's impressive about Eric's leadership is that he has done nothing to stifle that."

That leadership is why Schmidt is IBD's CEO of the Year for 2006.

Google makes nearly all of its revenue from paid search, the fastest growing segment of online advertising. With paid search, text ads appear near Google's paid search results. Advertisers pay only when a consumer clicks on their ad.

Advertisers have flocked to Google in droves. Total revenue in the third quarter jumped 70% to $2.69 billion vs. the year before.

Schmidt has fared well. With a net worth of $5.2 billion, he ranks among the top 400 richest Americans, Forbes magazine says.

Speaking of billions, Google makes money from selling ads on its own site and on partner Web sites.

The company, based in Mountain View, Calif., has become the search and advertising provider for some of the Web's leading sites.

In 2005, Google renewed its agreement with Time Warner's America Online Web portal.

It also bought a 5% stake in the company for $1 billion.

In August it paired with News Corp.'s MySpace.com, the Web's leading social networking site.

Schmidt recognized that providing search and ads to the Web's most popular sites would help Google grow faster, says Scott Kessler, equity research analyst for Standard & Poor's.

"Schmidt saw the opportunity to take the technology and leverage it," he said.

From Lawns To Computers

Schmidt was born in Washington, D.C., in 1955. His father was an international economist. His mother was a homemaker.

While growing up in Blacksburg, Va., young Schmidt mowed lawns for spending money.

While in high school in 1970, Schmidt got his first taste of working with computers. His father rented a terminal that Eric could use at home. The youngster responded by rewriting the software.

"I was always very industrious," Schmidt told the Computerworld Honors Program in 2000. "So they were always impressed by how quickly I would try to disassemble and reassemble new things."

An avid builder of furniture, Schmidt at first wanted to be an architect, but later switched to engineering.

He earned a bachelor's degree in electrical engineering from Princeton University in 1976. By 1982, he had earned a master's and doctorate in computer science from the University of California, Berkeley.

The next year he joined Sun Microsystems as a software manager. He became chief technology officer in 1994 and led the development of the firm's Java software.

Schmidt considered Java to be the best challenge to Microsoft's grip on business software. He then needed a new challenge, he told Computerworld.

"Whenever you do those (projects), there is a point where your primary contribution is done and it's time to re-up or do something else," he said.

Schmidt joined Novell as its CEO in 1997 to pursue an interest in the problems with computer networking and network services.

That year, Novell posted a loss of 12 cents a share and sales of just over a $1 billion.

Schmidt helped the company adopt an Internet strategy. A year later, Novell earned a profit of 29 cents.

Directing rebounds is like a doctor tending to a patient, Schmidt told Computerworld in 2000.

"Turnarounds are done by putting the patient in the intensive-care unit;, you administer shock treatment," he said. "You make everybody focus very much on the short term. You get the business model right. You become profitable. You serve your customers."

The way he saw it, Joining Novell was risky, but worthwhile.

"I learned a lot about quickly turning a company around by taking the job," he told Computerworld. "In hindsight, had I known what I was getting myself into, I would not have taken the job, which would have been a great mistake."

Schmidt has extended his risk-taking philosophy to Google. In the last few years the company has worked to find new sources of revenue.

New markets include online video and radio ads.

In November the firm acquired YouTube, a video-sharing Web service, for $1.65 billion.

Google has developed many of its services such as e-mail internally. But the firm must consider acquisitions for faster growth, Schmidt wrote in a column for Newsweek magazine with University of California, Berkeley, professor Hal Varian in 2005.

"We have to focus on those projects with the biggest payoff," they wrote. "Sometimes that means going outside the company for products and services."

Google is also getting into new areas such as wireless services, where the company has little experience. That's consistent with Schmidt's aggressive leadership, says Robb Hecht, a marketing and media consultant in New York.

"He encourages risk taking and even encourages people to fail at the company," he said. "It's usually the opposite at other companies."

Google has been growing rapidly. It ended the third quarter with 9,378 workers worldwide vs. 4,989 the year before.

The CEO is a believer in business strategist Peter Drucker's methods for handling "knowledge workers" — who are paid to be effective, not to work 9 to 5.

"The ongoing debate about whether big corporations are mismanaging knowledge workers is one we take very seriously, because those who don't get it right will be gone," Schmidt and Varian wrote.

No fewer than six managers and workers interview prospective employees, thus helping the firm.

"If you hire great people and involve them intensively in the hiring process, you'll get more great people," they wrote.

It helps that Google provides such perks as a gym, food, haircuts, dry cleaning and massages — all in the name of focused employees.

"Let's face it: Programmers want to program; they don't want to do their laundry," Schmidt and Varian wrote. "So we make it easy for them to do both."

Nearly every Google worker shares an office with a colleague. The design fits the company's product development strategy.

"Almost every project at Google is a team project," the duo wrote. "Because all members are within a few feet of one another, it is relatively easy to coordinate projects."

Google also encourages workers to spend 20% of their time on pet projects. The company has a suggestion box where workers can submit and rate new ideas.

"Basically, we want to allow creative people to be creative," Schmidt and Varian wrote.

The strategy lets Google evolve faster than other companies, says Phyllis Ezop, a business strategy and marketing consultant.

"The advantage is that you are not starting from scratch, so there's more ability to take that idea and be successful," she said.

Hearing Them Out

Google strives to solicit viewpoints from workers before making decisions.

That produces a healthier workplace, Schmidt and Varian wrote.

"At Google, the role of the manager is that of an aggregator of viewpoints, not the dictator of decisions," they wrote. "Building a consensus takes longer, but always produces a more committed team and better decisions."

Google's most famous edict is its "don't be evil" mantra.

The company strives to practice this at company meetings where some people can become passionate about their views, wrote Schmidt and Varian.

"Nobody throws chairs at Google, unlike management practices used at some other well-known technology companies," they wrote. "We foster to create an atmosphere of tolerance and respect, not a company full of yes men."

BY PETE BARLAS