Google CEO Eric Schmidt just took the stage for a sit-down interview with Federated Media’s John Battelle as part of today’s keyonote presentation at the Web 2.0 Expo. Schmidt started the talk by announcing that Google is releasing its long-awaited spreadsheet slideshow application for Google Apps. The slideshow tool is Google Apps’ PowerPoint killer, the “missing link” that finally empowers the company to fully compete with Microsoft Windows as a full-featured office productivity suite. Battelle pressed Schmidt about the Google’s office app threat against Microsoft, which Schmidt downplayed.

“I don’t think we compete with them. We’re not as fully functional as MS Office — we’re more in line with how people use the web than how they use the desktop.”

Battelle made it clear that he wanted to dig a little deeper: “Come on! This totally competes with Microsoft Office.”

Schmidt conceded that for people who use the web a lot, Google Apps is a viable alternative to Microsoft’s office suite. (Who doesn’t use the web a lot these days?)

Next, Battelle steered the discussion towards DoubleClick, the advertising company that Google purchased last Friday for $3.1 billion. Battelle told an anecdote about interviewing Google co-founder Sergey Brin in 2004. Sergey said that Google would never work with DoubleClick because they weren’t targeted and they were too gaudy — too many “Punch the Monkey” banners. Schmidt interrupted, saying that he didn’t know what “Punch the Monkey” meant. That brought a chuckle from the audience. I’ll give the guy the benefit of the doubt and assume that he uses really good ad blockers.

Schmidt answered the question by saying that Google and DoubleClick have both grown a lot since then, and that the advertising marketplace has changed considerably with regards to targeted and local advertising.

Battelle asks: “What is it that allows you to pay $3.1 billion when the whisper price was $2 billion only five days earlier?”

Schmidt wouldn’t go into details about the bidding, but he did offer a diplomatic explanation. “Basically, Google has a lucrative worldwide ad business that gives us significant cash flow,” he said.

Battelle: One of the companies Google bought as part of the DoubleClick acquisition is Performics, the marketing company specializing in search engine optimization. What is Google planning on doing with Performics?

Schmidt: We haven’t decided.

Battelle: One of the programs bundled in the Google Pack download is a third-party application that deletes DoubleClick cookies. What’s Google going to do about that?

Schmidt: “We think it’s a pretty good application, so we’ll figure it out.”

Next was a question about Microsoft and AT&T’s antitrust claims about Google’s DoubleClick acquisition. Schmidt got some laughs with his answer: “I’m sorry, did you say Microsoft and AT&T?”

More seriously, he said, “They’re wrong.”

On whether Viacom’s negotiating tactic to force YouTube to take down licensed content is the correct approach: “Yes. We all rely on copyright law, and we did the right thing by taking their content down. Also, YouTube’s traffic went straight up after that happened.”

Battelle: What do you make of Amazon S3?

Schmidt says it’s a very good start and a good idea as a web platform, but Google isn’t looking to compete in the arena of online storage right now. “We’re more interested in a different platform — Google Apps.”

Battelle: What do you see as the web’s biggest growth areas?

Schmidt: “Mobile, mobile, mobile — it’s probably the most wide open space out there right now. Also, local. Most search companies don’t take advantage of the local data inherent in the web.”

Battelle concluded the discussion with a fun question: what’s the first thing you think about when you get up in the morning. Schmidt responded rather dryly, “My e-mail.”