Google has often been seen as a competitor to traditional newspapers, but the search giant is now teaming up with two major papers for a new experiment in presenting news online.
Google announced on Wednesday "Living Stories," an experimental new feature designed to deliver news stories, updates, editorials, and multimedia focusing on specific topics, all on one single Web page.
Each Living Story, whether it's on health care, global warming, or the war in Afghanistan, has a permanent URL that you can follow. That page displays everything from headlines to summaries to in-depth articles on that subject. By clicking on the various links on each Living Story page, you can read the articles, view photos, watch videos, and access a time line for an historical view of the topic. As new stories and updates are posted, you can read them on the same page.
The Living Story keeps track of your activity, so it alerts you to updates you haven't yet seen and grays out or collapses older news that you may have already read. You can also subscribe to e-mail updates and RSS feeds of your favorite stories, so you don't need to return to the Living Story page to grab the latest news.
Since Living Stories is a new experiment in the Google Labs sandbox, the number of topics is limited. Google is working with just two media partners to start--The New York Times and The Washington Post. The newspapers decide which topics appear on their own Living Story pages. But Google has plans to develop open-source tools so other outlets can create their own Living Stories. If the concept takes off, it might prove a money maker for other publishers, according to the Times, as they could sell ads on their own pages.
Newspapers have been hit by declining business as more people have flocked to the Web to grab their daily or hourly news fix. In some corners, Google has been seen as the enemy to traditional print outlets. Media maven and Wall Street Journal owner Rupert Murdoch has even accused the search giant of stealing his content and threatened to remove his sites from Google listings.
Responding to such concerns, Google Chairman Eric Schmidt recently wrote an editorial in the Journal in which he argued that his company could actually help newspapers boost their business. And in the face of lower revenues, many news outlets have started to embrace the Web rather than compete with it.
From its perspective, The New York Times seems optimistic that the Living Stories experiment could lead to bigger and better things.
"It's an experiment with a different way of telling stories," said Martin A. Nisenholtz, senior vice president for digital operations of The New York Times Company, in a statement. "I think in it, you can see the germ of something quite interesting."
Google CEO Eric Schmidt celebrated the launch of music-video site Vevo in New York and he doesn't appear worried that his company might be helping create a future YouTube competitor.
(Credit: Greg Sandoval/CNET )NEW YORK--Eric Schmidt's presence at a swanky music industry gathering was an illustration of how far digital technology has come and the power it has amassed.
A decade ago, the film studios and top record companies dismissed Northern Californians as a bunch of bearded dweebs who liked electronics. Five years ago, with illegal-file sharing spinning out of control, the entertainment industry looked on techies with fear and loathing, invaders to be repelled before they made off with the treasure. It wasn't that long ago that some in Hollywood considered Google a "rogue company."
Pfft. That's all in the past. On Tuesday, at a launch party for music-video site Vevo, the Google CEO was an honored guest. Schmidt was seated front and center in an area reserved for music industry titans and major recording stars. He rubbed elbows with singers Shania Twain and Sheryl Crow. He chatted up record producer and label exec Jimmy Iovine. He sat and visited with Doug Morris, CEO and chairman of Universal Music Group, the largest of the four top recording companies, as well as the chiefs of Sony Music Group and EMI.
And why shouldn't they show him some respect? Not only is he at the helm of the most successful advertising company in the world and operating YouTube, the Web's No. 1 video site, but Schmidt is also helping to get Vevo off the ground. Instead of trying to stand in the way of a music-video site that is in many ways breaking away from YouTube, Google is providing the service with technological expertise and allowing it to continue to market to YouTube's massive following.
What's that? Google booked $21 billion in revenue in 2008. How can a company like that be satisfied to play rhythm guitar in someone else's band?
At the Vevo party, Schmidt said Google couldn't be happier with the situation. This is what he's done for over a year now, held out his hand to big newspapers, film studios, TV networks, and book publishers. By taking a backup role in Vevo, Google sends a message that the rogue image is garbage and the company is prepared to go a long way--even give up decision-making power--to help partners grow their businesses. No threat here.
In many entertainment circles, that message may resonate, especially the ones where the digital revolution has laid waste. Some of the celebs at the Vevo launch were only too happy to tell Schmidt and everyone else how badly recorded music has suffered.
"We've come here to mourn the death of an old cash cow that was the music industry," U2's Bono told the audience during his speech.
"Let's hope Vevo can help salvage something that used to be amazing," said singer Mariah Carey.
If you're anti-copyright and this makes you long for the days when Google and YouTube used to wave the Digital Millennium Copyright Act in the faces of Viacom, NBC Universal, and others that demanded YouTube remove unauthorized film and TV clips from its site, well, it's time to move on.
For more than a year, YouTube's strategy has been to strike partnerships with the top studios, record companies, and TV networks.
Doug Morris, Universal Music Group CEO and the man who came up with the idea for Vevo, waits to shake Schmidt's hand at the Vevo launch party.
(Credit: Greg Sandoval/CNET )YouTube has content deals with MGM Studios, Sony Pictures, Lionsgate, CBS (parent company of CNET), and all four of the major recording companies.
What probably drove Google to take a softer stance was competition. There might have been a period a couple of years ago when Google could have easily morphed into a video-on-demand service, offering feature films and TV shows and been all things Web video. But it played hardball and NBC and News Corp. successfully came up with a YouTube alternative: Hulu.
The competition between the companies to obtain premium films and shows has been fierce. After pursuing a deal to get full-length content from Disney, Google saw Disney sign with Hulu. That was a bitter blow. Google isn't used to losing.
At the same time, Netflix has jumped into the fray. The Web's top video-rental service has deals with makers of set-top boxes that enable customers to watch streaming Internet video on their TV sets. Apple has a slice of this market as well.
Meanwhile, Hulu could have tried to woo the music labels away from YouTube. Hulu could try to capitalize on any lingering distrust of Google at the labels. Conspicuously missing from Vevo's launch party was Warner Music Group CEO Edgar Bronfman. A feud between Warner and YouTube led to Warner's content being pulled from the video site for nine months before the companies made up. But Warner has so far declined to join Vevo.
In addition, EMI recently penned a music-licensing deal with Hulu. EMI clips will appear on both Hulu and YouTube.
In his speech introducing Vevo, Universal Music's Morris was generous in his praise of Schmidt and Google. But the former songwriter also raised questions about who he was referring to when he said things such as "the best thing about Vevo is that it's our platform" and "no more middlemen" and "we can experiment with anything and everything we want. We don't have to ask anyone's permission anymore."
Tiger Woods, this week's Icarus, grew up with the Web.
Indeed, when he seemed to be flying most closely to the sun, Woods insisted that instead of talking to the police, he would only communicate through his own blog, TigerWoods.com.
News of his striking an iron fire hydrant and a wooden tree with his Cadillac Escalade was generated not by conventional media, but by Web media, principally led by TMZ.com.
While the more conventional media were still telling the story of how Woods' wife had supposedly saved him from a terrible fate, TMZ, RadarOnline, and others (the one conventional medium on TMZ's side was the more traditional Enquirer, but traditional media have always despised this under-rated institution) approached the matter with a cynic's eye, a skeptic's nose, and perhaps even a spy's technology.
Together, they produced many alleged lovers and tales of Tiger's conversations with close friends in which he allegedly confided that only a Kobe Special (the evocatively phrased "house on a ring") might remedy the situation.
And now that, according to numerous online sources, we have rumors of sexted photos of the inside of Tiger's trousers, I can think of nothing other than Google CEO Eric Schmidt.
(Credit:
Cliff 1066/Flickr)
Is it mere coincidence that on the day that Woods' most hallowed reputation was assaulted by rumors not only of smutty cell phone photos, but of an affair with a fascinating porn star, Google's CEO spoke to the world from on high?
In an interview with CNBC, Schmidt declared in what some might feel was his softest, most touchingly moralistic tone: "If you have something that you don't want anyone to know, maybe you shouldn't be doing it in the first place."
His statement was meticulously constructed in response to a question about the trustworthiness of the world's most enveloping search engine. However, surely his answer applies to technology in general.
The problem with technology isn't so much that it immediately reveals, but that it immediately records. That is how Google makes much of its money, by recording the preferences of those who use it.
That is also how photographs, opinions, flings, even drunken nights come back to haunt those who may not wish nor deserve anyone's criticism.
In days gone by, sportspeople, movie stars, even, perish their memory, congressmen could keep their less socially acceptable behavior on the down low because proof was somewhat hard to clutch. Of course, people may have talked. But there was no physical evidence.
Now, the minute Playgirl decides that photographs of Tiger's private life and parts are genuine, all will be revealed in its less than salubrious glory. And Woods' interesting faith in the power of his blog to bring the unquestionable truth to those who admire him will seem like faintly naive bluster.
However, as we watch this whole sad, real, painful and even slightly amusing affair (or, as it seems, affairs) unfold upon our Macs, PCs and smartphones, shouldn't it make us wonder what it is to be free?
In order to live a life of freedom, shouldn't we fly in the other direction from Facebook, put some space between ourselves and MySpace, smash our cell phones and invest in landlines, let go of our laptops and most definitely never imagine that our personal blogs will persuade people that we are who we really think we are?
Shouldn't we attempt to live in a way that no one can observe and no one, especially Google, can record?
Tiger Woods might have gone the old media route--an interview with Diane Sawyer or Oprah. Even a Roger Clemens-like session on "60 Minutes." Perhaps one of those might have garnered him a little sympathy, might have earned him a few points in a game now largely driven by a 24-hour news cycle.
But Woods believed in new technology. And it is new technology that might end up doing him the most damage of all.
Since 2006, many observers have scratched their head over what prompted Google to pay $1.65 billion for the video site YouTube. We're now a little closer to the answer.
Google CEO Eric Schmidt said in May, "I believe YouTube was worth somewhere around $600 million to $700 million."
(Credit: Elinor Mills/CNET)The blockbuster acquisition for the 18-month-old start-up played a large role in sending valuations in the tech sector skyrocketing. Although YouTube made little revenue, the all-stock transaction gave Google control of a company many believed would change the face of mass entertainment. It also led to criticism from skeptics who thought that Google would never get its money back.
Google has revealed little about how it decided to pay $1.65 billion but CEO Eric Schmidt said under oath last spring that he was willing to pay a premium--a big one--for YouTube. Leading up to the acquisition, Schmidt told Google's board of directors that his estimate of YouTube's worth was somewhere between $600 million and $700 million, according to court records reviewed by CNET.
A Google representative declined to comment about Schmidt's valuation.
Schmidt had his reasons for asking his board to OK an offer of $1 billion more than what he thought the site was worth. The CEO made the comments during a deposition he gave in May as part of the copyright lawsuit Viacom filed against Google and YouTube in 2007. In short, he believed that Google had to offer that much, or competitors, presumably Microsoft or Yahoo, would walk away with the increasingly popular video site.
"This is a company with very little revenue," Schmidt said while being questioned by Stuart Jay Baskin, a Viacom attorney. "(YouTube was) growing quickly with user adoption, growing much faster than Google Video, which was the product that Google had. And they had indicated to us that they would be sold, and we believed that there would be a competing offer--because of who Google was--paying much more than they were worth...We ultimately concluded that $1.65 billion included a premium for moving quickly and making sure that we could participate in the user success in YouTube."
Three years later, that user success continues: YouTube has grown from 12 million unique users (in May 2006) to more than 100 million users just in the United States. Every minute, more than 10 hours of video is uploaded to the site. But Google is also fighting a $1 billion copyright lawsuit with entertainment giant Viacom, which claims that YouTube encouraged users to violate its copyright. On top of that, the company is still trying to figure out how to turn its prize acquisition into a profitable business.
YouTube managers have toiled to find the right way to generate revenue, experimenting with a wide range of advertising methods and models--everything from prerolls to overlays. Perhaps most importantly, managers changed their approach to copyright owners.
Whereas Hollywood executives once called YouTube a "rogue company," the video site can now boast numerous partnerships with top entertainment companies, including as Walt Disney, CBS (publisher of CNET News), Sony Pictures, and Metro Goldwyn-Mayer. YouTube also has deals with all four major music labels. And YouTube's finances may finally be turning the corner: company representatives have hinted in the past several months that it's on the road to becoming the kind of revenue generator that Google always envisioned.
Whether Google paid too much for YouTube then is a sort of barroom debate among media analysts, not unlike arguing whether the New York Yankees overpaid on free-agent ballplayers in the off-season. James McQuivey, a digital-media analyst at Forrester Research, said that if he were in Schmidt's shoes, he would have made the same deal.
"It actually becomes worth the additional value because Google can tie all of its advertising expertise and search traffic into YouTube," McQuivey said. "It's not like it's going to pay back that $1.6 billion any time soon, but what it does is, it ensures that these millions and millions of viewers are coming to a Google-owned site rather than someone's else's site...As a loss leader goes, if it never makes its money back, its still going to be worth it."
McQuivey acknowledged that those focusing only on hard business numbers are probably not going to agree with him. Count Josh Martin among them. Martin, a research analyst, was an early skeptic of YouTube's profit potential, arguing on behalf of Yankee Group Research that Google overpaid.
"I don't think Schmidt is wrong in assuming that someone would have overpaid for YouTube," Martin said. "If Google was willing to overpay for it, then someone else would have too. But it was a bad business decision for Google. We said it at the time, and three years later, we have been proven right."
Martin said that when Google priced YouTube, it should have deducted heavily for the legal liabilities, as well as for the company's ability to draw an audience, if it couldn't offer pirated content.
"You go back to the reason why YouTube was popular, and it was because of (the 'Saturday Night Live' skit) Lazy Sunday," Martin said. "That is what put YouTube on the map. So it was popular because it had access to content that it shouldn't have had and that you couldn't get elsewhere because no one else was willing to put it up illegally...Clearly, (Google's leaders) needed to understand what was driving momentum behind YouTube."
The following is an edited excerpt of Schmidt's deposition:
Stuart Jay Baskin, a Viacom attorney: And what was management's valuation?
Schmidt: Much lower than we paid for it.
Baskin: And how was that communicated to the board?
Schmidt: I told them.
Baskin: So why don't you tell us what you remember telling the board in connection with the valuation?
Schmidt: I believe YouTube was worth somewhere around $600 million to $700 million.
Baskin: And you communicated that to the board?
Schmidt: I did.
Baskin: Of Google?
Schmidt: I did.
Baskin: What methodology did you use to come up with that number?
John P. Mancini, an attorney working for Google, objects.
Schmidt: My judgment.
Baskin: Was it based on cash flow analysis? Comparable companies? What were you using as the basis for your judgment?
Mancini objects.
Schmidt: It's just my judgment. I've been doing this a long time.
Baskin: So you orally communicated to your board during the course of the board meeting that you thought a more correct valuation for YouTube was $600 million to $700 million; is that what you said, sir?
Mancini objects to characterization of the testimony.
Schmidt: Again, to help you along, I believe that they were worth $600 million to $700 million.
Baskin: And am I correct that you were asking your board to approve an acquisition price of $1.65 billion; correct?
Schmidt: I did.
Mancini objects.
Baskin: I'm not very good at math, but I think that would be $1 billion or so more than you thought the company was, in fact, worth.
Mancini objects.
Schmidt: That is correct.
Later...
Baskin: Can you tell us what reasoning you explained?
Schmidt: Sure, this is a company with very little revenue, growing quickly with user adoption, growing much faster than Google Video, which was the product that Google had. And they had indicated to us that they would be sold, and we believed that there would be a competing offer--because of who Google was--paying much more than they were worth. In the deal dynamics, the price, remember, is not set by my judgment or by financial model or discounted cash flow. It's set by what people are willing to pay. And we ultimately concluded that $1.65 billion included a premium for moving quickly and making sure that we could participate in the user success in YouTube.
In a move that comes as little surprise, Apple announced Monday that Google CEO Eric Schmidt is resigning from its board of directors.
"Eric has been an excellent Board member for Apple, investing his valuable time, talent, passion and wisdom to help make Apple successful," Apple CEO Steve Jobs said in the release. "Unfortunately, as Google enters more of Apple's core businesses, with Android and now Chrome OS, Eric's effectiveness as an Apple Board member will be significantly diminished, since he will have to recuse himself from even larger portions of our meetings due to potential conflicts of interest. Therefore, we have mutually decided that now is the right time for Eric to resign his position on Apple's Board."
Google CEO Eric Schmidt
(Credit: Elinor Mills/CNET News)Schmidt had been on Apple's board for almost exactly three years, since August 2006.
In May, Google confirmed that the Federal Trade Commission (FTC) was planning to hold discussions concerning potential conflicts of interest related to Schmidt's presence on both companies' boards of directors. Google's chief legal officer, David Drummond, said at the time that Google did not believe there was a problem with the situation.
Schmidt has said repeatedly that he recused himself from Apple board discussions pertaining to areas in which the companies' interests overlap--the iPhone, for example, given Google's work on the Android operating system for smartphones. But the similarities grew more difficult to reconcile when Google announced the development of its Chrome operating system, which will compete directly with Apple's OS. (The companies already own competing Web browsers, Apple's Safari and Google's Chrome.)
Last month, Schmidt said that he was planning to discuss the future of his role on Apple's board given the advent of Chrome OS.
More recently, potential competitive turf became evident when Google's third-party applications for the iPhone--which comes preinstalled with Google Maps--started to get well-publicized scrutiny from Apple. Google's location-aware service Latitude, for example, has been restricted to a Web-based app rather than an installable one, and a Google Voice telephony app was outright rejected by Apple.
Last week, a report surfaced that the Federal Communications Commission had sent letters of inquiry to Apple, Google, and iPhone carrier AT&T concerning the blocked app.
The Federal Trade Commission, meanwhile, is also looking into the relationship between Apple and Google. On Monday, the FTC said it would continue that inquiry even with Schmidt's departure from Apple's board.
"We have been investigating the Google/Apple interlocking directorates issue for some time and commend them for recognizing that sharing directors raises competitive issues, as Google and Apple increasingly compete with each other," Richard Feinstein, director of the FTC's Bureau of Competition, said in a statement. "We will continue to investigate remaining interlocking directorates between the companies."
Last updated Tuesday at 4:38 a.m. PDT with FTC statement.
Google CEO Eric Schmidt confirmed speculation that his company had been considering the possibility of acquiring a newspaper, the Financial Times reported Wednesday.
CEO Eric Schmidt
(Credit: Google)However, in the same interview, Schmidt quickly added that the company has since decided against the idea because potential acquisition targets are either too expensive or have too many liabilities. Schmidt said Google was "trying to avoid crossing the line" between technology and content and was instead working with struggling publishers to make their Web sites "work better" for online advertising, according to the story.
Schmidt also dismissed what he called "clever ideas" suggested about sheltering newspapers in nonprofit structures through the Google.org foundation. "They are unlikely to happen without some massive, massive set of corporate bankruptcies," Schmidt told the Financial Times.
Two reports earlier this month--by Fortune and The Washington Post--suggested that Google has been talking to both The New York Times and the Post about possible areas of collaboration, or even investment. Schmidt's statements to the Financial Times suggest it was more the former than the latter.
Of course, given the contentious history between Google and traditional news outlets, which have never liked the idea of the search giant making money off their content without paying for it, the idea of Google buying a paper had some scratching their heads. Then again, Google does have deep pockets and a keen interest in the health of the news business when it comes to generating online content.
Is anyone else reminded of the adage, "Why buy the cow when you can get the milk for free?"
MOUNTAIN VIEW, Calif.--Google shouldn't be surprised to face government scrutiny as it continues to grow.
CEO Eric Schmidt held court on a wide range of topics Thursday at Google's annual meeting.
(Credit: Google)At least, that's what CEO Eric Schmidt thinks. In a wide-ranging discussion with reporters prior to Google's annual meeting at the company's headquarters, Schmidt deflected questions about reported government inquiries that have surfaced in past weeks by saying "we should expect governments around the world to pay attention to what we do, and hold us to the principles that we've articulated."
The Department of Justice is reportedly looking into Google's settlement with publishers over the rights to display book content online, which Schmidt called a "historic" agreement. And Google confirmed that the Federal Trade Commission wants to talk to Google about Schmidt's role on Apple's board of directors, which could be seen as a conflict of interest given Apple's iPhone business line and Google's Android project.
Schmidt said such scrutiny is to be expected as Google expands its reach into areas that were previously the domain of other interests.
"We continue to believe the mission of the company is important, even if there is pressure from other industries. (But) we are more careful about when and how we do things that are going to raise the concerns of any party," he said. Rachel Whetstone, Google's vice president of public policy and communications, has been leading efforts in this area, he said.
Other items discussed during the day:
• Susan Wojcicki, vice president of product management, said Google is looking hard into ways to make money off social-networking services, as there there has been an "explosion" in potential ad inventory. "We believe there are ways to monetize it over time, but it will be different from search because the nature of intent is different."
• Fresh off her trip to Washington, D.C. to testify before a House subcommittee, Marissa Mayer, vice president for search products and user experience, said Google is looking at how news coverage will evolve in the future, including possible changes to the way news stories are presented. Mayer is also in charge of thinking of ways to improve the relevance of "microblogging" (read: Twitter) into both Google's regular search results and blog search, she said.
• Speaking of Twitter, Schmidt said that Google was "waiting for the right opportunities at the right price" when it comes to making acquisitions. Twitter, of course, has been the subject of countless rumors regarding acquisitions from the likes of Google and, most recently, Apple.
• Schmidt declined to comment on the possibility of Android Netbooks, such as appeared to surface earlier this week with regards to Dell. But he did say that he believes "the Netbook phenomenon looks very real," and that it fits well into Google's notions of cloud computing.
Correction at 2:50 p.m. PDT: This story initially misquoted Kent Walker. He confirmed that Google was aware of a "pending FTC discussion" into Schmidt's board seats.
MOUNTAIN VIEW, Calif.--Google confirmed that the Federal Trade Commission plans to hold discussions with the company over a possible conflict of interest due to CEO Eric Schmidt's participation on both Google and Apple's board of directors.
In response to questions posed by reporters during a lunch meeting with Google executives--including Schmidt--Google vice president and general counsel Kent Walker confirmed that Google was aware of a "pending FTC discussion" into Schmidt's board seats, which was reported earlier in the week by The New York Times.
Google does not believe Schmidt's role on Apple's board presents a problem, and encourages company members to participate on boards, said David Drummond, Google's chief legal officer and senior vice president for corporate development.
Schmidt reiterated that he recuses himself from discussions inside Apple that involve areas in which the companies overlap, such as the iPhone. When asked if he recuses himself from any other discussions inside Apple, he said "not that I recall."
It took awhile, but the recession has definitely sunk its teeth into Google's financial performance.
"No company is recession-proof. Google is absolutely feeling the impact," Google CEO Eric Schmidt said in a conference call Thursday after reporting first-quarter financial results.
Google's revenue growth rate has been slowing, but for the first time since it went public, the company's quarter-to-quarter revenue declined. (Click to enlarge.)
(Credit: Google)The company, as is customary, reported results that most business only dream of, recession or not. Its net income grew 8 percent to $1.42 billion and its revenue, excluding commissions paid to advertising partners, grew 10 percent to $4.07 billion. It generated free cash flow of $2 billion for the quarter, the vast majority of it derived from money advertisers pay Google when people click on ads next to search results.
But everything is most definitely not coming up roses. Google's revenue, after ascending steadily quarter after quarter, peaked in the fourth quarter and declined 3 percent in the first quarter. Google's business is still relatively strong, and it's been hit by the recession less than many in the tech world, but it's been hit nonetheless.
Curtailed clicks
Why? In short, because people are buying less and advertisers consequently are advertising less. As an Efficient Frontier study released earlier this week showed, advertisers are getting more conservative by bidding for search terms where there is a proven return on investment (ROI).
Here's Schmidt's explanation, including his assertion that the company's overall business of showing ads next to search results is still intact:
Users are still searching, but buying less. What that means is the ads are converting less. There's more window- and comparison-shopping, purchasing lower-priced goods. In other words, users are doing the right thing. They're doing what you'd expect them to do given the enormous economic changes around us.
Advertisers are still spending, but they're lowing their bids to manage their ROI. They're behaving correctly in our view. One way to say that is our advertising model is working. The user and advertising behavior we're seeing is entirely rational, and the auction model is working for both.
In short, Google Chief Economist Hal Varian's "Wal-Mart effect," in which people under financial pressure would steer more of their purchasing behavior through search engines in an attempt to get the best deals, has its limits.
Creeping pessimism
To put this in context, let's retrace some history over the previous four earnings conference calls. The company's statements have grown gradually more pessimistic:
First quarter 2008: "We've looked at this really carefully, and we do not see an impact as of this time," Schmidt said. "We're well positioned should economics change. We continue to do well because our model is so targeted, and targeted (advertising) does well in most scenarios."
Google CEO Eric Schmidt
(Credit: Stephen Shankland/CNET)Second quarter 2008: "Despite the weakness in the economy, advertising revenue seems to be holding up remarkably well in most sectors. I think this illustrates the point that we have made several times: during periods of slow economic growth, the last thing an advertiser wants to cut is its spending on search-based advertising," said Google chief economist Hal Varian.
Third quarter 2008: "It's clear the economic situation is so fluid that we're all in uncharted territory...It's clear the global economic situation is worse than predictions just a month ago," Schmidt said, and Varian added, "When there is a recessionary event, and people are counting pennies and researching purchases, this potentially has an upside for Google...We think this kind of effect could work to Google's benefit potentially."
Fourth quarter 2008: "In some ways, the fourth quarter was the easy part," Schmidt said, when the economy was in "uncharted territory. Now it's clear we're in recession. We don't know how long this period will last. We're certainly prepared to get through this (with) no problem."
So yes, Google has been getting more cautious about the economy and its effects, but Thursday's assessment was the most sober by far. In contrast, other companies including Yahoo saw these effects sooner and issued cautionary statements earlier.
Through a Google lens darkly
One curiosity about the timing disparity is that Google, through analysis of search activity through what the company calls the "Google lens," has a view on the economy most other companies lack. Where a business such as Proctor & Gamble has to look at sales data and surveys to project consumer sentiment, Google can look directly at what people are searching for.
Searches on "bankruptcy" increased 53 percent in the last year, and those for "unemployment" more than doubled, said Jonathan Rosenberg, senior vice president of product management.
So what comes next? Google clearly isn't done with search advertising, and there are plenty of opportunities for more money: Google can improve search results overall, drawing ever more search traffic. It can show ads more often, as long as it maintains the quality standards to avoid showing irrelevant or inappropriate ads. It can draw more advertisers to search advertising, increasing the bidding for search terms.
And of course, the company is working on any number of other projects, from closely aligned ones such as ads on image search results, to more distant ones such as graphical "display" ads on YouTube that are targeted at users based on their Web-surfing behavior, to remote ones such as charging subscriptions for online office productivity tools. Such areas are subsidized by search results today, but there could come a day when they stand on their own.
Even though the recession's teeth took a bite out of Google's results, even though Google has trimmed a number of projects that didn't pass muster, and even though the company's employee count actually dropped for the first time, the company still has plenty of money to invest in its other areas.
"We think Google is now well placed for the recovery as it occurs It appears (advertisers') shift to online ROI...is outpacing, on a relative basis, any on loss of economic activity. We benefit from that," Schmidt said. "Our priorities remain unchanged. Basically, long-term growth."
Google's revenue growth rate has been slowing, but for the first time since it went public, the company's quarter-to-quarter revenue declined.
(Credit: Google)Buoyed by continued growth in search and by cost cuts, Google reported better-than-expected profitability for the first quarter of 2009.
Google's net income increased 8 percent annually to $1.42 billion for the quarter ended March 31, the company reported Thursday. Revenue increased 6 percent to $5.51 billion, but excluding commissions paid to advertisers (called traffic acquisition costs), revenue increased 10 percent to $4.07 billion.
On average, analysts surveyed by Thomson Reuters had expected revenue excluding commissions of $4.085 billion, a bit more than what Google reported. However, the company cleared the earnings forecast as it did in the fourth quarter with earnings per share of $5.16 compared to the $4.93 expected once various charges were factored out.
"Google had a good quarter given the depth of the recession--while revenues were down quarter over quarter, they grew 6% year over year thanks to continued strong query growth. These results underline both the resilience of our business model and the ongoing potential of the web as users and advertisers shift online," Chief Executive Eric Schmidt said in a statement. "Going forward, our priority remains investing for the long term to drive future growth in our core and emerging businesses."
Google makes money when people click on ads next to search results, so search volume growth is central to the company's business. So is the number of times people click, and that figure increased 17 percent from the year-earlier period, Google said.
"Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our AdSense partners, increased approximately 17 percent over the first quarter of 2008 and increased approximately 3 percent over the fourth quarter of 2008," the company said.
Google been restraining its exuberant experimentalism, cutting several projects that weren't performing up to snuff. That included not just online services such as Dodgeball but also potential revenue-generation engines such as print and radio ads.
And it's cut hundreds of employees through the process--nearly 200 in sales and marketing, 100 recruiters, 40 in a radio ad project, and an undisclosed number of contractors.
Google's revenue increased yearly but decreased compared to the most recent quarter for the first time. It's not the only ascending curve to start dipping though: Google also for the first time had fewer employees, trimming head count from 20,222 in the fourth quarter of 2008 to 20,164 in the first quarter of 2009.
Google CEO Eric Schmidt
(Credit: Stephen Shankland/CNET)Update 2:25 p.m. PDT: On a conference call to discuss the earnings results, Schmidt spoke in sober tones while touting his company's overall performance.
"No company is recession-proof. Google is absolutely feeling the impact," Schmidt said.
For one thing, people are still searching, but they're doing more window-shopping and comparison while buying less, Schmidt said. And advertisers are pulling back to bid more on search keywords that produce a stronger return on investment, which means bids in the keyword auctions are generally lower.
Overall, though, the company's business model is healthy, according to Schmidt. "We think Google is now well-placed for the recovery," he said. "The shift to online gives us a real advantage."
He made no economic forecasts about the future beyond cautioning that Google's second and third quarters are typically seasonally slower. Regarding the economy, he said, "we're still basically in uncharted territory."
Google also said that longtime executive Omid Kordestani, senior vice president of global sales and business development, is stepping down to become a senior adviser. He's being replaced by Nikesh Arora, currently president of international operations.
