Good day and welcome, everyone, to the Google Inc.Conference call. Today’s call is being recorded. At this time, I would like toturn the call over to Ms. Krista Bessinger. Please go ahead.

Good afternoon, everyone and welcome to today’s thirdquarter 2007 earnings conference call. With me today are: Eric Schmidt, ChiefExecutive Officer; George Reyes, Chief Financial Officer; Larry Page, Founderand President of Products; Sergey Brin, Founder and President of Technology; JonathanRosenberg, Senior Vice President ofProduct Management; and Omid Kordestani, Senior Vice President of Global Sales andOperations. Eric, George, Larry, and Sergey will provide some thoughtson the quarter and then Jonathan and Omid will join us for Q&A. This call is being webcast from our investor relationswebsite and our press release, issued a few minutes ago, is now also posted onour website, as well as the slides that accompany today’s prepared remarks. Please note that a replay of this call will be available onour investor relations website in just a few hours. Now, let me quickly cover the Safe Harbor statement. Some ofthe statements we make today may be considered forward-looking, includingstatements regarding our investments, seasonality, traffic acquisition costs,increase in the cost of sales, plans to continue to invest in personalization,international growth, growth in headcount, and our expected level of capital expenditures. These statements involve a number of risk and uncertaintiesthat could cause actual results to differ materially. Please note that theseforward-looking statements reflect our opinions only as of the date of thispresentation and we undertake no obligation to revise or publicly release theresults of any revision to these forward-looking statements in light of newinformation or future events. Please refer to our SEC filings, including our quarterlyreport on Form 10-Q, for the quarter ended June 30, 2007, as well as ourearnings release posted a few minutes ago for a more detailed description ofthe risk factors that may affect our results. Copies of these documents can be obtained from the SEC or byvisiting the investor relations section of our website. Also, please note thatcertain financial measures we will use on this call, such as EPS, net income,operating margin, and operating income, are expressed on a non-GAAP basis andhave been adjusted to exclude charges relating to stock-based compensation.We’ve also adjusted our net cash provided by operating activities to removecapital expenditures, which we refer to as free cash flow. We report our GAAP results as well as provide a GAAP tonon-GAAP reconciliation in our earnings press release. With that, it is my pleasure to turn the call over to Eric. Eric E. Schmidt: Thank you very much, Krista and thank you all again forjoining us. We are very pleased with such strong results in what is seasonallyone of our weaker quarters. When we look at it, revenue growth of course very healthy,both in google.com and also in our AdSense businesses. And the seasonalweakness in traffic was milder than we expected on google.com, which was a verypleasant surprise from our perspective. It is obvious to us that the searchquality investments that we are making are paying off, particularlyinternationally, as we do better and better in almost every country. Along with that, of course, we are working on expanding ourbreadth of ads offering with all sorts of new types of ads -- gadget ads, videoads, others coming -- and each of these initiatives gives advertisers new andinteresting ways to build relationships with their customers. So by building these deeper ad solutions, we really candeliver more value, especially in markets and industries where they’ve notreally had these kinds of tools before. These are highly measurable and ROIdriven campaigns and Sergey is going to talk a little bit more about this interms of the steps we are taking in ads. Looking at it as search, ads, and apps, on the apps side, weare now seeing a massive transition to web-based cloud computing at a consumerand enterprise level. We talked about this for a while and we now see not onlythe progress but also the future products, both from Google and from the otherfolks in the industry to make this really happen. In our case, of course, we launched the presentation productas well as closing Postini, which is central to our enterprise push. We are really on the cusp of a world where everyone cancreate, share, collaborate and find their content in the cloud anytime andanywhere. Before I turn it over to George for all I think the goodnews, let me say something about George. George announced his retirement. I’vehad the privilege of working with him from almost 20 years. I’m going toembarrass him now. And everything that I can think of financially that’shappened at Google has really had George in the middle, whether it’s goingpublic, building the infrastructure of a multi-billion corporation, our largecash position, the secondaries, the financing, very, very good investorrelationships, the openness that we are now seeking, the financial disciplinethat exists in the company and also amazingly, our ability to deal with Section404 and Sarbanes-Oxley -- all driven not just by George but people he broughtinto the company. With that, George, and hopefully an even better introductionto come -- go ahead, George.

Thanks, Erik and good afternoon, everyone. We had a verystrong quarter across the board, with continued impressive growth in ourbusiness. Gross revenue increased 57% over last year to $4.2 billion. OurGoogle.com performance was strong at $2.7 billion, representing year-over-yearrevenue growth of 68% and a 10% increase over last quarter. As was the case in Q2, Google.com traffic was stronger thanexpected, reflecting a milder, seasonal affect than we’ve experiencedhistorically. Consistent with past summers, we also saw strong growth inmonetization, supported in part by healthy pipeline quality improvements. We are particularly pleased with our AdSense performance,which grew 8% over the second quarter and 40% over last year to $1.5 billion.Both the AdSense for content and AdSense for search businesses were strong aswe experienced continued increases in traffic and improved our ability tomonetize our newer partner relationships. Let’s now take a look at aggregate paid clicks growth.Aggregate paid clicks include clicks related to ads served on Googleproperties, as well as ads served on our partner sites. Aggregate paid clicksgrew approximately 45% over Q3 of last year, and increased approximately 5%over Q2. Let me now discuss our international performance.International revenue grew to just over $2 billion, or 48% of revenue. The U.K.reported revenues of $661 million, and 10% sequential growth, led by thestrength in the finance vertical. The region consisting of Belgium, TheNetherlands, and Luxembourg also experienced notable growth in Q3. The travel vertical was a contributor of growth acrossFrance, Italy, Spain and Portugal, and helped drive monetization growth. And in Asia and Latin America, where we are still buildingour presence and investing heavily, we continued to experience strong growthrates in countries such as Brazil, China, and Korea. Let’s now turn to operating expenses. Traffic acquisitioncosts were $1.2 billion and 29% of total advertising revenue, down from 30% inQ2. AdSense TAC was $1.1 billion, while TAC related to distribution partnersand others who direct traffic to our website totaled $105 million in thequarter. As we have discussed previously, as we grow our AdSensepartner network and embark upon new initiatives, we may see pressure on TACrates going forward. Turning to other costs of revenue, other costs of revenueincreased $29 million over the prior quarter, primarily as a result ofincreases in costs related to our data centers, including depreciation,equipment, operations, content acquisition costs, data licensing fees, andamortization. We anticipate that our cost of sales will continue toincrease going forward. Let’s now turn to operating expenses. Operating expenses inQ3 other than cost of revenue included approximately $200 million ofstock-based compensation and totaled $1.3 billion. Expenses related to payroll and facilities increased $34million to $659 million. During the quarter, we added 2,130 employees, themajority in engineering and sales and marketing. At the end of the quarter, wehad a full-time employee base of 15,916. Consistent with previous years, a large portion of ourstarts in the third quarter were related to university hires. Approximately1,000 employees had accepted offers earlier in the year but started in Q3,after the end of the academic year. Included also are approximately 300 employees from thePostini acquisition which closed in September. As we have previously discussed,we are continuing to take a careful look at how we can more efficientlyallocate resources across functions and globally. Let’s now turn to non-GAAP operating profit, which excludesstock-based compensation. This was $1.5billion with non-GAAP operating margins of 36%, up from 35% in Q2. As we havestated previously, margins may decline as we continue to make investments inour business. Now, turning to cash, operating cash flow was $1.6 billionand CapEx for the quarter declined to $553 million. The majority of our CapExwas again related to IT infrastructure investments, including data center, construction,production of servers, and networking equipment. We intend to make similarinvestments going forward as we continue to build a global infrastructure andresources necessary to serve and improve our product for our users and ouradvertisers. Lastly, free cash flow, a non-GAAP measure which we defineas cash flow from operations less CapEx, increased to $1.1 billion. Now, we will turn it over to Larry for more comments on thequarter.

Thank you, George. I am really excited to talk to you alittle bit about search and our improving search quality this quarter. We had alot of improvements we made to search quality for users and markets outside ofNorth America and I am very excited about that. It’s a big part of our trafficand we launched several dozen search quality improvements in specificparticular international markets and we are especially happy with the resultsthat we had in Russia, Thailand, Japan and Arabic speaking markets. In mobile search, our search traffic there increased bothdomestically and internationally and the mobile apps traffic is growing well,particularly in maps. YouTube also launched their public site to stream selectYouTube content to mobile devices, of course, sporting the [inaudible] edition,which we launched last quarter. Mobile ads are really doing well, especially in Japan wherewe had strong revenue growth and we also launched mobile ads in Korea. Let me tell you a little bit about our user experienceworldwide, and especially about personalization and some new features. iGoogle,which has just been growing tremendously, expanded up to 43 domains now. We’rereally excited about that. We also made it easier for users to set up their homepage oniGoogle, and that increased retention and usage. I love looking at some ofthese -- the weather, even though in California isn’t such an issue for us,still good to know what’s happening, and I can very easily get that on myhomepage now. The number of available gadgets are increasing significantlyand the developer ecosystem there is really growing. Now in book search, we really increased funding of relevantbook results a lot this quarter, and we think that has a significant effect onimproving quality. Our book search index is also huge now. It’s over a millionbooks. You think about trying to stack those up on your desk, it would takequite a bit of space. We also added several new partners there with a total of 27partners now involved in that product, and we introduced a number of newfeatures. Now, let me switch gears and talk to you a little bit aboutmaps and Earth, our geographic products. In maps, we really opened up an [outlookAPI] that makes maps a developmentplatform and it makes it easy for people to put their own functionality intomaps. For example, you can get real estate listings just when youare looking at maps, or real time updates to gas prices or ski and snow reportsright on your Google maps provided by third parties. In street view, which is a feature that lets you see a viewof a particular street or house or business, we added five cities in Q3 and sixmore just in the last week, so we are very excited about that. There’s a totalof now 15 major cities where you can see street level views of almost anywherein the city. In Earth, last week we actually launched a YouTube videolayer on Earth. You can go to different areas and see videos users have postedabout that area, and I looked at a few from Brazil that are very interesting.And companies like the Hidden Bay Lodge in Ontario posted a fishing video aboutgoing fishing there, so we are very excited about too. So I will turn it over to Sergey now to talk to us aboutprogress in ads and apps.

Thanks, Larry. I am really excited to tell you today whatwe’ve done over the past quarter in ads and apps. As you all know foradvertising, our real philosophy is to create win-win between advertisers andcustomers by presenting users with really relevant information which isinteresting to them that’s likely cause a transaction to commence, we arereally helping out both. But it is also important that it is not just what we say,but we can actually prove it, and so measurements of our return on investmentand the ability to optimize the investment is really important for advertisers. We have a lot of tools now available for advertisers to dothat but I want to highlight a couple of new ones and a couple of updates forthis quarter. In beta testing right now, we have the conversion optimizerand this lets advertisers adopt an ROI driven financial model even more easilythan just going straight with a kind of a cost-per-click type bidding.Basically, clients specify, advertisers specify how much they want to pay for acustomer and then we automatically optimize for them in each auction how muchthey ought to be bidding in order to accomplish that goal. We’ve also launched a new release of our website optimizer,and this is where advertisers can run and create these AB kind of splitexperiments. You know, they can change their website layouts, they canrearrange their content, and this is very important because there is tremendousvariance, even once you get a user on your website how likely are they toreally understand what they are seeing, how likely or how easy is it for themto use, and ultimately what percentage of those users do actually perform atransaction? And this was a really great way to optimize that, to make a reallybig difference in the business. Next I want to talk about some new app formats that I amquite excited about. And this does not mean that really flashy, in-your-facestuff. For example, we’ve launched our gadget ads and this is a global betathat we are running now. And for gadget ads, you can actually put functionalityinto the advertisement so it is more than just something to look at and clickbut something you can really interact with. We have a Nissan gadget ad running right now that lets youpunch in your zip code, you get local traffic. It’s fun for users, it helpsNissan build brand. We also have gadgets that are actually really function towhat the company does. For example, if you are trying to book a flight or whatnot, you can punch where you are flying from and to directly into the ad.Anyway, we really are excited about these. Of course, you’ve probably heard about our in-video ads, aswell as the AdSense video units. So basically, instead of trying to dosomething, say a pre-rollout for video where you would have to watch acommercial before watching the video, that would really not make sense,especially the kinds of several minute type videos we typically show onproperties such as YouTube. It would be very distracting. Instead, we have a really nice ad that shows up in thebottom 20% of the video that just overlays for a few seconds after the videostarts playing and in fact, the initial user response rates have -- well, theuser responses and feedback have been positive and we’ve had betterclick-through rates than we anticipated. So I’m very optimistic about this adformat and this is the kind of thing that we have to do when we develop new adprograms. You have to experiment with different kinds of things until you canactually find formats that really work for users and for advertisers. The AdSense video units of course are -- the YouTube videoscan be embedded on sites in the AdSense network, and this certainly providesmore distribution for the videos. They allow us to have contextually targetedads in the video player and this creates this three-way revenue share, which isreally a win-win-win between the publisher, the video’s producer, and Google. I also want to, just while on the subject of video ads, justmention TV ads, which we of course have been running now for a while. We’vereally been getting a lot of interest and bookings from advertisers. And theremarkable thing about television is, it’s surprising, but in fact of theoffline advertising, it’s the one that’s closest to Internet levelaccountability and we feel we can bring much greater ROI type accountability totelevision advertising, much as we’ve done online. Let me take a moment to talk about apps and what we’ve beendoing there. We’ve been growing. We’ve been seeing a lot of adoption of certainapps for your domain, apps for your university. The University of Phoenix, which is up to about250,000 accounts now, students, faculty, employees and so forth; Northwesternis now offering it to all students, that’s on the educational front. For companies, we have a partnership now with Capgemini,which integrates Google apps into their suite of offerings and then Capgeminiprovides the systems integration support. And we are really excited aboutworking with third parties like this because there are just so many greatcompanies in the enterprise space that really know how to work with thecustomers and can plug our technologies in where it makes the most sense. We also closed the Postini acquisition and not only did weclose it, but we already have deployed some of the Postini functionality onGoogle apps for domain and this was just an automatic upgrade for our appscustomers. Now, in the apps suite, we now have rounded it out a bit.For example, we launched Presentations, so you can create a presentation, youcan import one, edit them and share them, and what this basically means now,for my usage, whenever I get e-mails or I need to work with somebody onsomething, I don’t really have to leave the web browser. And for Presentations,it’s great because you want to collaborate on a presentation. If there’ssomething you’re presenting, you want to get ready ahead of time. You can also,as you are even watching a presentation, you can make comments on it and whatnot. You can even just go to the URL of the presentation as you are beingpresented to and page through it forward or backward without having to havereceived a large attachment or having a big printout or something like that. It is really convenient and I think has the potential tochange how people really work together. Now, these apps support a total of 27 languages now. Weadded six more this quarter, so it is a very international product and we aregetting adoption worldwide. An important piece that we are working on has to do withoffline functionality because of course, you don’t want to just have access tothese things when you are on -- if you want it in an airplane, you want itsomewhere where you just don’t have Internet or your Internet connection goesdown or is flaky. And the Google Gears was launched in Q2 to address that. Ourreader, as you all know, is our first geared application, as we call it, andthe fact that it is very nice. I encourage all of you to try this product. Itis very fast. It obviously downloads all the items, so they are pre-fetched.They show up quickly. But you can expect more and more of Google's applications toshow up in geared versions so that you can work untethered. Anyhow, I’m very excited about the progress we’ve made onboth fronts. Thanks for your time and now back to Eric. Eric E. Schmidt: Thanks a lot, Sergey and looking back at the quarter, it isobvious to us that our model continues to work very well. It is a systematicapproach that we have to innovation and the way in which the company isexecuting speaks for itself. The strategy of search, ads, and apps seems to resonateperfectly with this worldwide transition, if you will, to the use of theInternet on many, many difference devices, so all very exciting from a Googleperspective and again, thank you for listening so long to us. Why don’t we go ahead and get your questions and see whatpeople think? Krista.

Operator, we would like to go ahead and poll for questions.

(Operator Instructions) We’ll take our first question fromImran Khan from J.P. Morgan.

Thank you for taking my questions. Two questions; numberone, if I look at your network revenue, Google network website revenue, thatimproved significantly in Q3 after being roughly flat in Q2. I was trying tobetter understand what is driving that growth. Secondly, you have been working with MySpace for a while andto get a better sense of what you have learned, how monetizable these socialnetworking sites are out there and as these social networking sites engagementsare growing so quickly, are you concerned that that could be a point of entryon the web? Eric E. Schmidt: Thank you very much for your question. When we look at thenetwork revenue, a lot of the benefit we think is simply coming from greatertraffic to our partners and then also strong monetization gains and the way ourad networks work. Omid, can you give us some color on how the partners viewthis?

Sure, Eric. We look at basically both seasonality of thepartners and their distribution strategy. Some of our partners benefited lastquarter from having greater distribution of their services through their ownefforts of syndicating their search and advertising or using our services, andwe have been ramping up partnerships in the UGC space and we’ve seen nicegrowth in that space from partners, like MySpace. I’ll let Sergey maybe add to the monetization angle here.

We’ve been very pleased with our partnership with MySpace.We’ve been pleased with the advertising performance. It has been a lot of workand innovation, actually. I know you might not see it from kind of a the userinterface point of view that you see, but we are developing really newtechnologies and I think these social networks are going to require a differentkind of targeting technologies, difference concepts of advertising. We’ve already made big strides. It’s obviously a challengebecause there is so much inventory, people can be distracted by very manydifferent things and it is very personal, so there are a lot of things thatmake it hard. But our technology, our targeting, all those things areactually coming along very well and we are really happy. We view it as a greatopportunity. I mean, it is just so much more inventory that if done correctlycan create that kind of win-win I was talking about between advertisers andusers.

We’ll go next to Anthony Noto from Goldman Sachs. Anthony Noto -Goldman Sachs: Thank you very much. You talked on the call about iGoogleand the positive feedback you’ve gotten from user metrics and I was wonderingif you could comment a little bit about improving that product even further.It’s a great application to allow me to more efficiently use Google. I don’thave to enter in searches for all the information I want to have on a dailybasis. And there’s two things I think that could make it a lotbetter, and the real root of my question is, is there a technology limitationto doing the following two things, or a legal limitation -- the first is other,pulling in other applications that are popular on in the Internet, specificallythose that have been written to Facebook and others. Second, you’ve also talkedabout advertising being a form of content and in many of the verticals that Ihave on iGoogle in my account, such as movies, would really benefit fromdisplay advertising as an additional form of information. So is there atechnology and/or legal or other considerations that have limited you puttingdisplay ads on a the page or pulling in other applications? Thank you. Eric E. Schmidt: Thanks very much, Anthony, for your good productsuggestions. There are some legal limits as to what we could do. We obviouslyhave to get permission of the partner and content in so forth and so on. Thereis no intrinsic reason why the vision that you painted can’t occur and in fact,part of our developer strategy is to get people to build what we call iGoogleGadgets, and we encourage the site that you name and others to make themavailable. We need to work with them. We obviously can’t do it withouttheir permission. Jonathon, do you want to talk a little bit about the displayads?

In particular with respect to gadgets, Anthony, we arecertainly going to be offering a lot more functionality through the gadgets.The current focus with them really is the user experience. We’ve done somethings with themes which we think have been a pretty big success, but reallywhat we are trying to do is figure out how to integrate much of what we aredoing with iGoogle and also the concept of these gadget ads, which Sergeymentioned. What is so powerful there is that the gadget ads just don’tserve up your simple brand impression. What they do is they get people toengage with the brand and then we can actually empirically measure the level ofengagement, which is much more powerful than the things people havetraditionally done with display. One of the things that I would suggest you do, Sergeymentioned one of the gadget ads, the Nissan ad, I think if you type into Googleeither Honda gadget ad campaign or the Six Flags gadget ad campaign, you’ll getsome examples of some campaigns that have leveraged this technology to reallydeliver. Eric E. Schmidt: Our next question.

We’ll go next to Benjamin Schachter from UBS. Benjamin Schachter -UBS: If I’m reading the TAC rates right, it looks like thepartner TAC went down pretty meaningfully, and then the TAC associated withGoogle.com went up as a percentage of revenue. I’m wondering if you couldcomment on those trends. Also, you mentioned in the prepared comments about the levelof accountability on TV ads. At a high level, can you talk about the learningsthat you are getting from targeting ads on the search side, how those will workwith both video and display, possibly offline and on? Thanks. Eric E. Schmidt: Jonathon, do you want to talk about TV ads first?

Sure. I think TV ads could actually really beunderappreciated for the reason that you mentioned, in terms of our offlineefforts. This is really one of the few places where you can bring the same typeof Internet level accountability to offline advertising, so with searchadvertising, obviously our customers see real-time how their ads performed. The same thing is really true with the feedback mechanismthat we get with set-top boxes. We are bringing the same level of granularityto the offline TV format. The trials that we have right now are with EchoStarand Astound Cable. And what we are able to do there is we are able to show theadvertisers when their spot is playing and look at the viewing levels of usersactually during the course of the spot, so we are very excited about how thatis playing out and we think it bodes very, very well for our progress in TV. Eric E. Schmidt: Why don’t we talk about TAC rates? George, do you want tostart that?

So our AdSense TAC went down slightly, but on the otherhand, Google.com TAC went up, and primarily driven by the partner mix. Eric E. Schmidt: Our next question.

We’ll go next to Robert Peck from Bear Stearns.

I had a question on future use of capital here, and as Ithink of any large expenditures going forward -- first of all, I was wonderingif maybe you could comment on Google's desire to maybe put a large investmentin Facebook or a large social network? And then I was wondering if maybe Larrycould talk about the importance of 700-megahertz going forward. I mean, itdoesn’t look like [inaudible] will probably codify what Google wants for the700-megahertz, so does it come to a point where Google has no choice to notonly put a token bid in but to also sort of bid to win, whether it be with aconsortium or what not? Eric E. Schmidt: On the question about specific investments, as you know, Ican’t really comment on any specific investments. I want to assure you all thatthe cash isn’t -- it’s not burning a hole in our pockets. We don’t feel somegreat need to spend it right now for any particular reason. We would do aninvestment that is capitaled if we thought it was incredibly strategic. Many ofthe partners we’ve been able to work with, we’ve not needed to do such aninvestment. They are happy partnering with us simply because of our technologyand our ability to monetize. Larry, do you want to comment about 700-megahertz?

Sure. I think we’ve been actually quite happy with theopenness provisions that have been put into the 700-megahertz auction, so Idisagree with your assertion there. I think we have many, many different options available to usas a company, in terms of spectrum and connectivity for people in wireless andso forth, so I don’t think we feel like there’s any desperate need for us tohave to bid to win or anything like that. And again, the money is not burning ahole in our pockets. Eric E. Schmidt: Next question.

We’ll go next to Christa Sober Quarles from Thomas Weisel. Christa Sober Quarles- Thomas Weisel Partners: First question is just around in the mobile side, we’restarting to see sort of a convergence among hardware, software and services,you know, a la Nokia’s bid for NAVTEQ. I was just wondering, do you feelcomfortable with your current position on just having applications and theubiquity that you can achieve in the distribution of those applications? Secondly, I was just wondering if you could give us anupdate on when you think DoubleClick might get some clarification on when thatmight close. I guess the EU decision begins next week, but just an update therewould be great. Thanks. Eric E. Schmidt: On the DoubleClick side, we are following all of theappropriate steps that are needed to get worldwide approval and we arecertainly optimistic. It would be I think premature for me to suggest anyparticular timing. I can tell you we have a pretty close working relationshipwith all the people who I think in my view responsibly are checking on doesthis make sense and so forth. But we believe it will ultimately result in avery good outcome for us. On the mobile side, we have talked at some length about ourmobile application strategy. We are very happy with it. Mobile applications,there’s some evidence that we are becoming the leading mobile applicationsprovider, at least in certain segments, and the mobile story is a very strong onefor Google. It is also a great one for the world. You see over and over again one company after anotherannouncing a new interesting mobile platform. We want to make sure that Googleand its technology is a part of each and every one of those platforms. Next question.

We’ll go next to Mark Mahaney from Citigroup. Mark Mahaney -Citigroup: First, congratulations to George for a job extremely welldone. Just to keep going on mobile, what I’m trying to figure out is how muchof the future investment requirements success for Google in mobile couldentail? And the setup here is you’ve obviously achieved a leading position as aPC search service without the need to develop a Google PC or a PC operatingsystem or an Internet access service with all the infrastructure requirementsthat that would entail. Is there any reason that your success in the mobile Internetworld would require any similar type developments -- a Google phone, a mobilephone operating system, or a wireless access infrastructure with all of therequirements that that would entail?

I don’t think again that there’s a requirement to do anythings like that. I think Google, obviously we’ve grown a lot since we enteredthe search business and the opportunities that are available to us aredifferent, and there are opportunities for us available in those kinds ofspaces. And we would also love to get even greater numbers of people and wideraccess to our applications that we provide. So I think that it is more of an opportunity for us then acost. We have tremendous usage of our current mobile applications and we havedeals with very, very many different wireless carriers and so on, and manyother types of carriers. I think those things will all continue. Eric E. Schmidt: Next question.

We’ll go next to Douglas Anmuth from Lehman Brothers. Douglas Anmuth -Lehman Brothers: It looks like you added more than 2100 net headcount adds inthe quarter, which is significantly more than you added in Q2, despite beingmore focused on headcount. So even ex Postini, it looks like it is more than1800. So can you give us some color on the timing of your hires during 3Q andalso how we should think about this in relation to margins going forward? Thankyou. Eric E. Schmidt: Obviously can’t talk about margins going forward. What wesaid last quarter, as you know, is that this is an area where we needed tospend some more time and focus more on what is the appropriate rate. And thegood news is we have done that. The numbers that you are seeing are essentiallyan overhang and they are an overhang from hiring that had been agreed to many,many months earlier. June, of course, is a major college hiring, universityhiring, professor hiring kind of a cycle, so I don’t know that that will berepeated. The important thing here is that we did in fact correct andI think going forward, you should be comfortable that we are paying a lot ofattention to the headcount. Douglas Anmuth -Lehman Brothers: Thank you.

We’ll go next to Justin Post from Merrill Lynch.

Thank you. The gap between your revenue growth, 57%, andyour sponsored click growth, has been maintained around 12%. Could you talkabout the drivers there, where you are in your monetization cycle? Do you havea pretty good pipeline of things coming forward? And do you think things like YouTube and AdSense for contentcould actually grow that gap as we look out to next year?

I can maybe cover some of the monetization issues. We arecertainly very happy with the product upside that we achieved this quarter. Itwas really -- it really came out of over 20 quality and UI improvements that welaunched. There were two very big things that we’ve talked aboutpublicly. The first was the reserve base promotion, and actually we onlylaunched that in late August, so it only had part of the quarter to manifestitself in terms of improvements, and that was basically the change to theformula which determines which ads are shown above the search results, so thatwas certainly significant. We’ve also been doing some things like previous query basedad targeting, which is pretty significant. We’re looking at the previous queryto try to figure out what to do on the next query. So we’re pretty confidentthat we’ve got many, many more ad quality improvements like these. We’re also launching them internationally prettyexpeditiously, so from that standpoint we think there is a very healthypipeline in ads improvements. Eric E. Schmidt: Next question.

We’ll go next to Brian Pitz from Bank of America.

Your CPC growth rate accelerated from 7% last quarter to 8%this quarter. Can you provide any commentary on this, including is this drivenby your recent algorithm change? Secondly, with respect to your ability to monetizesignificantly better than competitors, is there the possibility for TAC ratesto continue to come down, especially with respect to the upcoming renewal ofAsk.com? Thanks. Eric E. Schmidt: Jonathan and Omid.

I’ll let Omid handle the Ask.com comment. Basically you aretalking about a 1% difference. CPC, as we’ve talked about in the past, islargely driven by mix, so I think if you looked at the monetization improvementsthat I mentioned, that is certainly a component of it but a large part of it isalso a mix issue. Summer does tend to be modestly higher from a CPCperspective. One of the things that we see is that there is a lot less academictraffic, which Google has disproportionate to most of the other players in themarket. So with less non-monetizable traffic and modestly moremonetizable traffic, that is a mix that actually does play a role.

We are going to I think enter a period where you will see alot of these fluctuations so it will be hard to predict. One is driven bypartner renewals, like the ones you mentioned where we obviously focus onpreserving our relationships with as many of our partners as possible,including Ask. But the other thing that is going in parallel with thatobviously is increasing the quality of our network and our partners are alsoactively involved with distribution strategy of their services, like we are. I think the mix of those effects is really hard to predict.We are trying to improve the quality overall, which will I think actuallyeliminate some growth in terms of distribution in the network. That’sunhealthy, in our opinion, for the network. On the other hand, the renewal and improvements in monetizationreally drive up the monetization [efforts]. So that makes it hard to predict atthis point.

The one other thing I would add is that all of the adsquality efforts are very, very focused on eliminating a lot of the bad ads, andin particular, it’s a lot of the very bad ads which are low CPC, so one of thethings you will see is that as we improve ad quality, reducing coverage whichin general is what we’re doing, you will see the CPC increase because thoselousy ads are generally the nickel or thereabouts types of ads.

Thank you. Eric E. Schmidt: Our next question.

We’ll go next to Jeffrey Lindsay from Sanford Bernstein. Jeffrey Lindsay -Sanford Bernstein: We would like to ask a little bit more about the 2100 newhires, or the 1800 after Postini. We noticed that a high proportion came insales. Could you possibly give us an indication of the geographic split forthese new hires, overseas versus domestic? And then, could you give us an indicationfor the rationale for the expansion of the sales force? And given that a lot ofyour sales are automated, wouldn’t expansion of the sales force be taking yourcost structure in the wrong direction?

A couple of important factors in that, some of them youmentioned. First, we have been very focused in having the proper level ofpresence in every country that makes sense for us to have, both our partnershipteams as well as advertising sales teams that directly work with customers. As you can imagine, in some of the emerging markets, forexample, both in Asia and in Europe, we’ve had actually early success withadvertisers working directly with our system through our online channel.However, you reach a point where local education are helping the efforts onmonetization with the clients. It requires the presence and what our focus hasbeen is to really push our field sales forces, our direct sales forces, toreally spend their time on the named accounts and also represent the full suiteof products that we have. So one of the things we are trying to avoid is havingmultiple sales forces for the different products and services we have. Forexample, the YouTube activity; one of the great efforts we have done, both inNorth America and other regions, is to actually train the sales force andcombine effort so that our customers receive one voice and one representationfrom the company covering the majority of the products. At the same time, what we are doing is paying a lot ofattention to cost per revenue dollar metrics and sales force productivity andputting the right customers in the right channels and mapping that with oursales organization where again, we balance the direct sales force that is inthe field versus the operations team and sales efforts that go on in our bigoperation centers in Dublin and in Argentina, in local countries in Asia and inIndia, which we have a major presence in. Eric E. Schmidt: Next question.

We’ll go next to Youssef Squali from Jefferies. Youssef Squali -Jefferies & Co.: Thank you very much. Can you talk about monetization on thevideo side and YouTube in particular? You’ve started syndicating that contentacross the ad network. When do you turn up the monetization dial on that? Is itan ’08 event? What’s preventing you from doing it now? And secondly, I guess for Sergey, is it fair to assume thatyou’ve decided to go with ad overlays over a pre-roll and potentiallypost-rolls? Thanks.

Let me just take both of those. We’re certainly progressingon monetization for YouTube and what not, but that’s not the number onepriority for that property right now. We continue to grow the traffic andimprove the user experience. We continue to really improve the publisherexperience and also, we are working on things like the fingerprinting, which weannounced recently, which we have just really fantastic technology for. On the advertising UI, we are very pleased with the overlaybut I don’t think we are ever going to say this is it from now on. We are goingto continue to test a variety of different formats. When we started in UIs for advertising on search, were bythe way the little text ads, we were considered really crazy. I mean, it took along time to really perfect that to get advertisers to really understand it,learn it, and ramp the monetization. Here also I think we are in for along-term investment. Youssef Squali -Jefferies & Co.: Thanks. Eric E. Schmidt: Next question.

We’ll go next to Heath Terry from Credit Suisse.

Thank you. As you start broadening out your advertisingformats with your television relationships, YouTube, to what degree are yoursearch advertisers starting to manage these mediums from a single point ofcontact for you? And how far along are the more traditional branded advertisersin beginning to look at their Internet and traditional forms of advertisingalongside of each other when they are trying to evaluate the effectiveness ofthat advertising?

We are actually spending a lot of time -- that’s a very goodquestion -- in terms of how we should focus on the core business and help alladvertisers, including the major Fortune companies and companies across theworld, really take advantage of search. That’s a proven model for us. We reallyunderstand a lot about it and that is something we -- the sales force spendsthe majority of their time doing at this point. In these other areas, as Sergey mentioned, for example, weare really prioritizing in the case of YouTube the user experience but at thesame time, we are having great demand and interest in advertisers trying thesenew formats and working with us. So in the case of radio, TV, print, all ofthese are new initiatives. We are seeing a lot of interest. We are spendingtime on it and really trying to balance not losing focus on the core businessthat we really understand well and clearly works with the advertisers, as wellas getting interesting trials going, trying different formats. So I think we are very confident in terms of the future ofthese formats, and especially the video, which is a great area of focus for us,as well as TV. I would say those two areas, you will see a lot of progress fromus in the coming quarters and search will continue to remain a very, verystrong focus. Eric E. Schmidt: Next question.

We’ll go next to James Friedland from Cowen and Co. James Friedland -Cowen and Co.: Thanks. I didn’t hear any comments on the call about GoogleCheckout, and now that we are heading into the holiday season, I just wanted tosee if we could get some commentary on what you are seeing in terms ofadoption, especially in the U.K. where you just launched. Secondly, CapEx, while we expect it to continue to growquickly, has gone down sequentially and I was just wondering if you can commenton how it has been trending in the core search business in terms of ROIC. Onthat incremental dollar spend, are you getting better returns on your searchCapEx today than you were say 12 months ago? Thanks.

On Google Checkout, Google Checkout is continuing to grow.We are very excited about it. I personally use it all the time. We’ve beenadding a number of great merchants. Most recently, we added B&H, which happensto be my favorite camera equipment store. But we are adding many others aswell. We are excited going into Q4 because we have -- it’s afairly young product and this time, we get to develop it further into theholiday season, so we are really excited about that one. On your other question, I am going to turn it over to --

This is Jonathan. I caught the checkout part of thequestion. Maybe we can follow-up and get the second half. I just wanted tomention Sergey’s shopping experiences are too limited. We’ve got a big chunk oftop 500 merchants. In Q3, we launched PetSmart, Drugstore.com, Shoebuy.com, andthe NHL Store. I think the real story that is important there is that manyof the advertisers that we are working with, such as Jockey, are reporting much,much higher click-through rates. They achieved as much as 60% higher withCheckout and they decreased the cost-per-click by over 31% with Google AdWordsand Google Checkout. So we are seeing much more significant volumes in terms ofsome of these advertisers and the performance with the advertisers. I’m not sure I got the other half of your question. James Friedland -Cowen and Co.: The other half was on the returns on invested capital onsearch CapEx, because CapEx has been trending down a little bit. It’s stillexpected to grow quickly but for that dollar spend on search CapEx a year agoversus today, are you seeing improved returns on your business? Eric E. Schmidt: That’s a good question. We don’t actually use that metric inthe way you phrase it. What we are really trying to do is to invest the capitalof our shareholders as wisely as possible. As you know, we have built large andvery powerful data centers that are largely custom designed. Those data centersdo more than just search; they do advertising, they host apps, they do GoogleEarth and maps and so forth and so on. We are quite comfortable that that investment, which wemonitor incredibly closely because it is, you know, millions of dollarsinvolved, really does translate into superior financial returns. One way to think about this is that a year ago, people wouldask us about capital, why we were spending on this money on capital, and we’dsay we’ll get it. We’ll get it back in scale and in systems and so forth. Andyou are seeing the benefit of the investment a year ago. Hopefully you’ll seethe same investment return in the year for what we are doing today. James Friedland -Cowen and Co.: Thank you. Eric E. Schmidt: Thank you. Next question.

We’ll go next to Sandeep Aggarwal from Oppenheimer & Co. Sandeep Aggarwal -Oppenheimer & Co.: Thank you. Two questions and one, sorry, again, asking aquestion on mobile search, but I wanted to know if you can share what kind ofmix are you seeing in terms of a search query initiated by [mobile] versus PC,and if there is basically a trend you can share versus last year? Secondly, you have completed one quarter with universalsearch. If you can make any comment in terms of what kind of improvement theend user has seen and what kind of benefits advertisers have realized? Thankyou. Eric E. Schmidt: On the mobile search side, our mobile searches areincreasing rapidly compared to a year ago. They are growing more quickly thannon-mobile searches. They are still a very small percentage of total searches,which is of great frustration to us and we are working very, very hard withsome mobile operators to get Google Search to be as standard as possible onevery phone -- very quick and very responsive. Because we think the peopleusing phones really want to use Google to solve interesting informationproblems. Jonathan, do you want to handle the second question?

The second question specifically on universal search, Ithink as you know we launched at the Searchology event back in around themiddle of May. We are very pleased with the increases in traffic which we sawthis summer, relative to the traditional seasonality. I am not sure that I canstatistically attribute the causality to universal search but certainly what weare seeing is very, very favorable feedback from users. We are seeing goodclick-through rates particularly, as Larry mentioned, with the betterintegration of pieces from different data sets like book search. So as we addmore books into the index and make it blend better, we certainly see higherclick-throughs. So in terms of revealed user activity, what we are seeing isvery strong. Whether or not that is actually what drove growth is unclear. Ithink it is certainly a component. Eric E. Schmidt: Our next question.

We’ll go next to Mark May from Needham & Company.

Thanks for taking my question. It is increasingly clear thatin order to succeed long-term in the online marketing services space, that it’sbest to have a broad set of ad format capabilities. The question is can youprovide us with some data points that illustrate Google's current position inwhat I think is the largest of those, or one of the largest, which is brand ordisplay ads? And what are you doing to better your position there?

I think at this point it is still early for us to be able toreally put any markers. What we are very busy with is just engaging thecustomers, training the sales force, trying these new formats, understandingwhich ones work best. It is clear that the engagement model is of great interest,things like the gadget ads that we mentioned. The accountability and themeasurements, the kinds of things we are doing in TV that we discussed earlier-- all of those is very meaningful to the advertiser and there is greatinterest from them to participate in these trials we are doing and these testswe are doing. I think we should be in a position to share more informationwith you in 2008 as we get more of these services out of beta, as well as signup more partners, more inventory and get the advertisers to have more spendingin these. I think you’ll, as I mentioned earlier, I think you will seethat primarily happen initially in both TV and the video space for us.

I think we have time for just one more question, please.

We’ll go next to Jason Helfstein from CIBC World Markets. JasonHelfstein - CIBC World Markets Thanks. Two questions, one quick one and then fairly longer;are there any market share numbers or growth rates you can provide for Chinaand India? And then my second question relates to the consolidation weare seeing of network guys by AOL and Yahoo!. It seems to us that that’s kindof a play on behavioral marketing. Do you have any concerns if they are notcareful, it might trigger privacy concerns for the industry and legislation orsomething we obviously don’t want to happen? And are there any discussions thatare going on perhaps at the industry or IAB level, so everyone is careful inthat regard? Thanks. Eric E. Schmidt: On the growth rates in China and India, we are starting froma relatively smaller base in a number of other countries, and so the growthrates are quite significant. We would expect that to continue until they get tosome reasonably stable growth pattern. Both markets are growing quickly. Bothmarkets are under-penetrated in the Internet as a whole. In China, as you know, we have a local competitor who hasmajority share. In India, it appears as though we have majority share. But inboth cases, it’s essentially an open field for all the players. On the question of consolidation and some of the privacyconcerns, this is something that we spend a lot of time on and we are veryconcerned that the actions of the industry as a whole, people who are concernedabout what happens on the Internet could somehow affect us or really hurtconsumers. From a Google perspective, we had done a number of things tothat respect. We have announced a whole bunch of policies around cookies andlog retention, which are innovative in the industry. As best we can tell, wehave the most aggressive privacy policy of any of the key players in theindustry today. But we are also working very hard with government relationsteams all around the world to try to get people to understand what it reallymeans to have people using the Internet all day and the various conflicts thatare inherent there. From a Google perspective, our ultimate success is based onthe happiness, satisfaction and excitement of end users. I can tell you that anend user is not going to come to Google if they don’t trust us. To the ultimatecheck, if you will, on a company like Google, is the fact that we are aconsumer company, primarily, and the consumers are free to choose and if theybelieve that Google is a poor quality company with respect to their privacy,they are not going to use Google. They are going to use somebody else. So it is very much a fundamental part of our businessstrategy not only to promote privacy but also to encourage everyone to take itvery seriously. With that, it looks like we’ve run out of time. I wanted tomake sure that everybody knew that we are having our financial analyst meetingnext week and we are looking forward to all of you who can attend in personcoming, and of course, you’re invited. And those of you who cannot attend inperson, of course there will be a full webcast and everything will be availableonline, as you would expect. So with that, thank very much, Krista. Thank you, everyone,for joining us.

Thank you all for joining.

And this concludes today’s conference. We thank you for yourparticipation. You may now disconnect.