Schmidt: Economy both good and bad for Google

Eric Schmidt
Big executive bonuses aside, Google CEO Eric Schmidt says the search giant is "not immune" to the pressures of the poor economy. Speaking at the Morgan Stanley Technology Conference in San Francisco Tuesday, Schmidt said 2009 in particular would be "a tough, tough year," leading some to surmise that he was preparing the way for a disappointing Q1 2009 earnings call. But he also underscored some bright spots, including renewed enterprise interest in Google tools. With the economy, as with most things Google, there's a good side and a bad side.

All Things Digital's John Paczkowski focused on the negatives from Schmidt's talk, underscoring the domino effect Schmidt says the economy has on Google's bread-and-butter search advertising business:

“I view the situation as pretty dire,” Schmidt said. “The combination of everything that we have seen does not appear to have a current bottom. … We may be better positioned from an advertiser perspective, but ultimately… the real pain being felt by corporations worldwide will translate to our world.”

Such talk led Paczkowski to predict that Google's surprisingly strong earnings calls are a thing of the past:

"Why make such grim public remarks about the economy, unless to signal that your own earnings will soon suffer from it."

And Paczkowski wasn't the only one to read "poor earnings" into Schmidt's words. The market was also listening, sending Google shares down more than 3% in after-hours trading.

Still, Schmidt's talk was not all gloom and doom--far from it. IDG reports Schmidt also emphasized the fact that the poor economy is leading more enterprises to discover and try out Google tools like the Google Search Appliance and Google Apps:

Google has seen an uptick in the number of companies trying out products like its Search Appliance, for locating corporate data, and its Google Apps hosted productivity suite, said Schmidt ... He attributed the increased interest from businesses to either the economy or a recognition that Google makes good-quality products. "Either reason is fine with us," he said.

So there you have it. Google feels the pain of the recession, but it's also seeing some gains. Still, the pain it feels hits search advertising, which accounts for 90% of its business, while the gains are in areas where it garners less than 5% of its revenues. Looks like the smart money's with Paczkowski and the stock market.

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Copyright © 2009 IDG Communications, Inc.

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