Google CEO: Internet search is actually benefiting from recession

Google announced a 26 percent rise in third quarter profits on Thursday, while also dropping strong hints that even the phenomenally successful search engine giant has concerns about how to keep thriving during the tougher economic times ahead.

"Thanks to everybody's hard work. Google had a good quarter. Traffic and revenue were both solid and we kept tight control on costs," summed up Google CEO Eric Schmidt, during a conference call with analysts today.

Google wasn't the only technology company to show good profits during the economic slowdown between July of September of this year. But in a way, Google actually benefited from the slowdown, Schmidt suggested. "Year-on-year, for example, search query traffic is growing in almost every vertical," according to the CEO.

"We believe that these results reflect the fact that as marketing budgets are squeezed, targeted, measurable ads are becoming more valuable to advertisers. As consumer budgets are squeezed, people use the web for comparison shopping to hunt for bargains online and in stores."

Nonetheless, Schmidt also acknowledged during today's call that achieving profitability over upcoming quarters might well be harder.

"I think everybody on the call and listening understands that it is pretty clear the economic situation today globally is worse than people were predicting just a month ago," he told analysts.

Aside from a 26 percent increase in year-over-year third quarter profits, Google this week announced quarterly revenues of $5.54 billion, representing a 31 percent gain over the third quarter of 2007 but only a 3 percent increase over the second quarter of 2008.

How will Google manage in upcoming financial quarters? Google, Schmidt said, will continue to funnel most of its investments into its core business of search -- the same area he pointed to as showing itself rather recession-proof during the third quarter.

"Our user experience is getting much better. Index size is getting much larger, greater personalization for better results globally for every user, lots and lots of language support, more highly relevant ads against as many queries as possible and using more sophisticated tools for advanced bidding and measurement and optimization," according to Schmidt.

"Advertisers, who understand that advertising is directly correlated with revenue, can use those tools to maximize revenue based on the terms that they set and based on the budgets, which is what they care about."

At the same time, Google will continue a current trend toward internal cost containment. "Along the way, we are going to stay very close, keep a very close eye on costs. It makes sense given everything we read in the papers and we have done that effectively in this quarter," the analysts were told.

But Schmidt also suggested another way in which the future cost-cutting measures of other companies might present opportunities for Google. Google Apps can help fill the need for lowered IT expenditures, he noted.

"In apps, [companies are] going to cut IT costs and increase productivity with greater collaboration. Well, we are there for them. Our enterprise applications really add value there."

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