Digital Media

(Credit: Dan Farber/CNET)

Google CEO Eric Schmidt expects 2009 to be a "tough, tough" year and he warned that the search giant is "not immune" from the worsening economy.

The search giant's chief touched on a wide variety of topics and, specifically, how they affect Google, during an on-stage chat with tech analyst Mary Meeker during the Morgan Stanley Technology Conference held Tuesday in San Francisco. But he focused mostly on the economy, calling the current climate "pretty dire" and adding that he doesn't expect it to improve until next year.

"It obviously will affect the online advertising market because our systems are so tightly tuned. If customers are buying less, it will eventually be reflected in CPCs and CPMs," he said, referring to cost per click and cost per 1,000 impressions, respectively. "We are not immune to this."

Schmidt also said that Google "was pretty inactive right now" on the mergers and acquisitions front, blaming unfavorable prices.

"The good news is we have lots of capital," Schmidt said. "The bad news is we're still trying to get everybody into the model that we really want in terms of M&A. And I think it'll start soon, but it's pretty inactive right now."

When asked about Twitter during an audience question-and-answer session, Schmidt said Google "was in favor of all these new communications mechanisms."

"Speaking as a computer scientist, I view all of these as sort of poor man's e-mail systems," he said. "They have aspects of an e-mail system, but they do not have a full offering."

"Twitter's success is wonderful and it shows you that there are many, many ways to reach and communicate, especially if you are willing to do so publicly," he said while touting the success of Google's instant messaging system.

Schmidt also had kind words for Yahoo CEO Carol Bartz, who also appeared at the conference, calling her a "fine and able CEO."

More casualties of Google's belt-tightening are surfacing as the search and ad giant pares away projects that don't pass muster: Shared Stuff and AdWords business pages for mobile ads.

"This service will no longer be available after 3/30/2009," said a note on Shared Stuff, which let people publish Web links, videos, and Knol articles, then share them with contacts. "If you want another way to share videos, you can use the 'Share' link below each YouTube video. You can also create a public Google Site if you want to share Web sites and links with friends."

In a statement, Google said it decided to remove Shared Stuff "because few people are using this service. Instead, we find people are much more familiar with sharing through e-mail or through other shared services, like the sharing links on YouTube and other sites on the Web."

Google Operating System, which spotted the change, offers some more useful suggestions for alternative services.

Also apparently on the block is the mobile business pages service, a Google-hosted system that let people create ads geared for mobile devices and then hosted those ads for free. Google announced AdWords business pages for mobile ads in 2007.

Tim Cohn spotted a cancellation notice in his AdWords account: "AdWords Business Pages for mobile ads are being retired. As the first stage, you will no longer be able to edit your mobile Business Page after March 23. Please make any necessary changes before that time."

The service was only for ads using the lower-end WAP mobile technology. "We are no longer supporting mobile WAP business pages, but we will to continue focusing on new marketing opportunities on the mobile platform," Google said in a statement.

Faced with economic pressures from the recession, Google is curtailing many smaller projects such as Dodgeball and a few higher-profile ones such as ads for radio and print publications. Google also has slowed hiring dramatically, cut contractor jobs, and implemented more rigorous reviews of new projects.

(Via Search Engine Land.)

Jobs, taxes, and travel captured the interest of U.S. Internet surfers in January, marking double-digit to triple-digit gains over the previous month, according to a ComScore report released Thursday.

The number of unique visitors heading to tax sites climbed 176 percent to 24,703 in January, as users geared up for the upcoming tax season, according to ComScore.

Travel sites, meanwhile, posted a 46 percent increase to 13,028 visitors last month, as users took advantage of falling fuel prices and a desire to plan ahead for their vacations, while job search sites climbed 42 percent to 26,702 visitors, in January.

(Credit: ComScore)

With unemployment running at 7.6 percent nationwide in January and Americans across all industries concerned about their job security, it's not surprising job-related sites are gaining an increase.

According to a January ComScore survey, U.S. residents earning less than $50,000 have had the highest unemployment rate, while those earning $50,000 up to $100,000 are extremely concerned with losing their jobs.

(Credit: ComScore)

That type of concern may not bode well for giving a kick-start to e-commerce spending, noted Gian Fulgoni, ComScore's executive chairman, during a press conference Thursday to discuss the January e-commerce results.

The middle-class, for example, accounts for 46 percent of online retail spending, while the upper-class represents 34 percent, he noted.

And although these two groups posted a 2 percent and 8 percent increase in January year-over-year retail e-commerce spending, respectively, this type of concern over job security could lead to belt-tightening down the line, he noted.

During January, U.S. retail e-commerce spending rose 2 percent over the previous year, according to ComScore.

E-commerce spending on sports and fitness rose 42 percent in January over the previous year, while books and magazines captured a 37 percent increase and home, garden, and furniture climbed 14 percent, the report noted.

Google headquarters in Mountain View, Calif.

(Credit: Stephen Shankland/CNET Networks)

Updated 12:20 p.m. PST with new comment from Google and the North Carolina Department of Commerce.

As a result of uncertain plans for data center expansion, Google has turned down a $4.7 million economic development grant from North Carolina that would have funded computer facility plans in Lenoir, N.C.

"The company's ramp-up forecasts for its Lenoir project always have been sensitive to a variety of factors that are difficult to accurately predict. Recent volatile economic conditions make business planning even more difficult," Google said in a letter to North Caroline Commerce Secretary James Fain III in which the company withdrew from the grant program.

Google spokesman Eitan Bencuya added that the company didn't want to be tied to a specific timeline or metrics.

Getting the funding through the Job Development and Investment Grant program would have been contingent on meeting specific milestones outlined in the plan, state Commerce Department spokeswoman Kathy Neal said. Although Google withdrew from the JDIG program, "They are still continuing with their investment, initially estimated at $600 million," she said.

Google has been tightening its belt as its days of rapid revenue growth come to an end, and the recession and economic crisis come to the fore.

Google was awarded the grant in 2007 for creating 210 jobs and spending $600 million over four years as a result of the data center in Lenoir, N.C., according to a story in the Triangle Business Journal. But the Internet giant withdrew its application Thursday after establishing one data center building with 50 employees and only the shell of a second, according to the report.

But Bencuya said building the shell and leaving it empty until needed has always been Google's plan. And the company is still building the data center, even if it's giving itself more wiggle room about the schedule.

"This decision does not, in any way, impact the operation of our data center in Lenoir, our commitments to the Caldwell County community, or the jobs of those who are currently employed at the data center," Google said in a statement. "We fully expect to achieve employment and capital investment levels that are consistent with those that the state announced back in 2007."

There are other incentives such as tax breaks for the Google facility, too, according to a report in the News & Observer. Bencuya didn't share specifics, but he said the $4.7 million grant was a minor component of the overall incentives.

Investment bank UBS has cut its estimates on digital-ad growth, in conjunction with gloominess about the overall advertising industry. The sector will continue to grow, a report said, but it will slow down significantly.

"UBS estimates that Internet will remain the only segment with positive growth until 2010," a release from the company read, "though the growth rate could drop as low as 10.4 percent in 2009." That's still optimistic compared with some folks in the industry, like Gawker Media founder Nick Denton, who released his own predictions this week that Internet advertising will see a 40 percent drop before the worst of the recession is over.

The bank's estimate for 2008 digital-ad growth has been lowered from 22.1 percent to 21.7 percent.

Some other tidbits from the UBS report: It's optimistic about the fate of Yahoo, despite its stock's sink into the $9 range, because of the likelihood of a merger with AOL or another chance at an acquisition by Microsoft. The bank also gave a thumbs-up to Google, which "has significantly decreased hiring and delayed the implementation of its 'server farm' in Oklahoma until 2010."

UBS is more bearish on eBay, which it says "remains a company in an identity crisis" as it vacillates between a focus on auctions and fixed-price commerce.

In addition to the phone companies, so far it looks like cable operators are also in good shape to weather the current economic downturn.

On Thursday, Comcast, the largest cable operator in the U.S., reported solid earnings for the third quarter of 2008. The company's net income for the third quarter rose 38 percent to $771 million compared with the same period a year ago. Revenue was up 10 percent to $8.55 billion

Thanks to reduced capital spending, Comcast also improved its cash flow by 77 percent to $928 million. Comcast is now expecting to exceed its free cash flow target for 2008 of $2.3 billion. This is largely due to a reduction in capital spending, as the current housing crunch has lessened the need for new cable equipment.

While an impending recession could still ultimately spell trouble for Comcast in the next several quarters, it appears the subscription TV, phone, and broadband businesses are largely resilient. For many Americans cable TV and high-speed broadband service are seen as must-haves now in addition to home phone service, even when times are tough.

Verizon Communications' CEO Ivan Seidenberg suggested earlier this month at a conference that he believed his company and others that provide home entertainment services, like TV and broadband, could actually do slightly better during an economic downturn because people are more likely to stay home and watch TV and surf the Internet.

Still, the economic crunch is also likely to increase competition between cable and phone companies especially when it comes to price. Consumers may look for better deals and could be more likely to buy the triple-play package of services at a competitive price.

So far Comcast appears to be winning the battle to win new customers, especially when it comes to high-speed Internet. During the quarter, Comcast reported it lost 147,000 basic cable subscribers, but it added 382,000 broadband customers. Compare that to Verizon Communications' and AT&T's results. Verizon added about 225,000 fiber Internet subscribers, and AT&T added only about 148,000 broadband connections.

Despite feeling confident that they will weather the economic storm, Comcast's executives still said they plan to be cautious. The company said it might curtail its stock buy-back program. It said last year it planned to buy back $7 billion in stock. It still has $4.1 billion worth of stock to go.

Google's revenue continued to rise in the third quarter of 2008.

(Credit: Google)

Updated at 3:22 p.m. PDT with further details.

Google easily cleared analysts' profit expectations for the third quarter of the year, patting itself on the back for the results but offering a cautious qualifier about current economic conditions.

The company reported net income of $4.92 per share, excluding various items such as stock-based compensation, compared to expectations of $4.75 from analysts surveyed by Thomson Reuters. Revenue was $4.04 billion, excluding commissions called traffic acquisition costs that are paid to advertising partners, compared to an expected $4.053 billion.

"We had a good third quarter with strong traffic and revenue growth across all of our major geographies thanks to the underlying strength of our core search and ads business. The measurability and return on investment of search-based advertising remain key assets for Google," said Chief Executive Eric Schmidt in a statement. "While we are realistic about the poor state of the global economy, we will continue to manage Google for the long term, driving improvements to search and ads, while also investing in future growth areas such as enterprise, mobile, and display."

Using generally accepted accounting principles, net income increased from $1.07 billion in the year-earlier quarter and $1.25 billion in the second quarter to $1.35 billion in the third, the company said.

In Google's second quarter, the company missed expectations for profit and issued a more cautious assessment of the online advertising market, sending the stock down to $478 or so. With the current economic pessimism, that price looks downright giddy: Google's stock closed at $353.02 a share on Thursday, and Collins Stewart analyst Sandeep Aggarwal pointed out that a full third of Google's employees have nothing but valueless "underwater" stock options that have greatly diminished incentive value.

After-hours trading sent the stock up 10 percent to $389.

Search ad strength
Google makes most of its money through ads delivered alongside search results. Advertisers bid to have their ads placed next to results based on search keywords that people type into the search box, and they pay Google only once people click on those ads. One significant measurement from the company: the number of search ads on which people clicked increased 18 percent from the year-earlier quarter.

The company also is eyeing new ad revenue from increasing use of the Internet by people with mobile devices.

"We're seeing an explosion in mobile search volume," Schmidt said on a conference call to discuss earnings results. "The compound growth rate is one of the fastest growing things in the company."

Because of the paid-click mechanism, advertisers' spending on search ads can be tightly linked to the success of specific ads, a factor Google executives eagerly point out when confronted by worries about advertisers' cold feet. "Advertisers are willing to take all the clicks we can give them at the current cost per click. Even in tough times, that will continue to be true because nobody wants to turn away a customer," said Omid Kordestani, Google's senior vice president of global sales and business development.

The company, through its acquisition of DoubleClick earlier this year, is trying to bring the same measurability to the more loosey-goosey world of graphical "display" ads, where costs are paid when ads are displayed and many ads are intended to promote brands rather than more specific actions such as buying a particular gadget.

Is a recession good for Google? 'The Wal-Mart effect'
Taking the big-picture view, Google has been cheery about Silicon Valley's prospects overall, but analysts skeptical of online advertising growth have reduced forecasts. The credit crunch and expected recession have sent tech companies' stock plunging downward in October.

Schmidt was careful to include plenty of cautionary statements in his conference call remarks. "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," he said.

However, he and chief economist Hal Varian were willing to raise expectations that Google could fare well in the current climate. Not only do advertisers prefer ads they can prove are profitable to run, but even consumers might put the company ahead.

"As consumer budgets are squeezed, people use the Web for comparison shopping," Schmidt said.

"When there is a recessionary event, and people are counting pennies and researching purchases, this potentially has an upside for Google," added Varian, who called the phenomenon "the Wal-Mart effect." "We think this kind of effect could work to Google's benefit potentially."

Keeping expenses down
Not that Google is immune to ordinary business pressures. The company also is trying to keep expenses in check, though it continues to hire at a slower rate. "We kept tight control over costs," Schmidt said.

The company hired at a relatively slow rate, with employee head count increasing by 521 to 20,123, the company said.

Schmidt offered no new guidance on the search-ad deal with Yahoo, a partnership the companies had expected to have begun by now but that they delayed for further antitrust review at the Justice Department.

"When we did the deal, we understood it would be controversial, that competitors would oppose it, and there's a proper role for legal review," Schmidt said. "We anticipated what turned out to be about a four-month (antitrust review). We're hopefully nearing the end of that period. We're in communication with the Justice Department and others."

Apparently there's nothing like a crisis to get people to check financial Web sites.

(Credit: ComScore)

Yahoo is falling victim to the current economic woes, with analysts lowering forecasts for the company's financial future and layoffs in the works. But one part of the company is all but chortling with glee: Yahoo Finance.

According to ComScore's latest statistics, Yahoo is king of the heap, with 19.9 million unique users in the month of September, an all-time high for the site, according to Yahoo. I'm guessing that's going to look small once we see the October statistics, too.

Nowhere in the top 10 is Google Finance. Disclosure: No. 8, though, is BNET, part of CBS Interactive, which operates CNET News.

NEW YORK--He made it past the Federal Communications Commission. But Sirius XM Radio CEO Mel Karmazin now has to deal with Wall Street.

In his keynote interview Tuesday at the Media & Money Conference, a joint production of Dow Jones and Nielsen, Karmazin wasn't in humility mode. "We're probably one of the top 25 media companies today," he said of the newly merged Sirius XM, which brought together the world's only two satellite radio companies. "I think it's very clear that we will be the most successful company in the audio entertainment industry. I know certainly, as ranked by revenue, we'll be there soon. Now we just need to grow our free cash flow and demonstrate that."

As so many have argued in recent weeks, Karmazin's mantra was that Wall Street is misguided, myopic even. "You need to make money, and in this particular environment, with Wall Street being what it is today, I think the companies that get rewarded today are companies that have an awful lot of cash flow, that make a great balance sheet. And that's not us today."

Sirius XM is in a tight spot. The merger was long and costly, both companies have shelled out extraordinary amounts of money to secure personalities like Howard Stern (who cost $500 million alone), and the credit crunch has dealt a blow to the most lucrative base of new satellite radio subscribers--car buyers. Sirius XM also has to refinance about $1 billion in debt, something else that won't be easy considering the volatile market.

Karmazin, a veteran of Viacom and CBS (which publishes CNET News), joined Sirius pre-merger in 2004, and acknowledged that he was brought onboard to accomplish a very difficult task of making the company profitable. "Before Sirius got its first dollar of revenue, which was in 2002, we had billions of dollars invested in the company," he said, explaining that the company had to launch three satellites before a single subscriber could sign up. That was a billion-dollar project.

"The day I joined the company, we had revenues of $67 million, and with revenues of $67 million the company had announced five months before that it had signed Howard Stern for $500 million," he said.

Today, Sirius XM has 19.5 million subscribers, which Karmazin said makes it the second-biggest subscriber base in the cable-satellite space behind Comcast, and is slated to keep growing. Sirius cut back its net losses last quarter, its final quarter before the merger. But the downturn in car sales is making Wall Street and the rest of the world less confident about Sirius' growth projections.

Karmazin said that if the auto market does poorly, there will still be millions of new satellite radio subscribers. "(Let's say) in 2009 there were only 12 million cars sold. That could happen, but no one has forecast that number as low," he speculated. "Of the 12 million, 6 million will leave the assembly line with satellite radio installed. So that would get us 6 million gross adds, and then there's a conversion rate. About 50 percent of those people choose to keep satellite radio...That would mean we're going to add about 3 million new subscribers just from that OEM (original equipment manufacturer) platform.

It was an optimistic pitch to the suit-clad audience, especially considering the widespread belief that satellite radio has been an overpriced, failed experiment.

But the good-ish news? The coming advertising downturn won't shoot down satellite radio. Karmazin said that between 94 percent and 96 percent of Sirius XM's revenue comes from monthly subscription fees, not advertising.

A typo was corrected: Sirius first pulled in revenue in 2002, not 2022.