At a technology event in San Francisco, Schmidt said that in the past Microsoft, with its Windows platform and market power, has had the ability to prevent choice and such a capability could be brought about by a merger or similar agreement between Microsoft and Yahoo.
"We think an independent Yahoo is better for competition, for innovation and so forth," Schmidt said.
Schmidt acknowledged reports that Google has been seeking a partnership with Yahoo but denied that Google could impact any partnership between Microsoft and Yahoo. "It would seem to me that that decision is up to Yahoo, not to Google," Schmidt said.
He added that any partnership between Google and Yahoo would be structured so that there would be no anti-trust issues.
Asked if Google was a 'one-trick pony', only vested in search, Schmidt cited Google efforts ranging from cloud computing to Google Maps and geospatial information technology. But monetising various initiatives remains a challenge, Schmidt said.
"The goal of the company is not to monetise everything, the goal of the company is to change the world," Schmidt said. Monetisation is a way to pay for that, he said.
The internet has lacked successful monetisation models; advertising is one that has worked, said Schmidt. Google, for its part, also does not know exactly how it will make significant amounts of money from its ownership of YouTube.
People are consuming more media online but paying less and less for it, he said. That is bad for Google because Google depends on high-quality content, said Schmidt.
Social network sites will become a destination for advertising, he said. "The traffic is phenomenal, and there will be advertising," said Schmidt. He also said information in social networks should be searchable.
Mobile systems, meanwhile, offer lucrative opportunities for targeted advertising, Schmidt said.
He also offered reassurances about privacy issues. Google has an interest in maintaining trustworthiness, Schmidt said. If the company could not be trusted, "you wouldn't go back to Google; you'd go somewhere else," he said. Google does not track user data, he said.
Schmidt also recognised the likelihood that the Google-backed Android mobile platform would compete with Apple's iPhone.
"Both Apple and Google believe that the mobile space is going to be very large," Schmidt said.
Schmidt expressed excitement over the possibilities of artificial intelligence, particularly language conversion. "That alone will have a phenomenal impact," he said. Google has a language translation service called Google Translate, currently in a beta format.