Google (GOOG) CEO Eric Schmidt’s gloomy comments on the economy aren’t helping Google stock, which is down 3.2% after-hours. During a fireside chat with Mary Meeker at Morgan Stanley’s tech conference, Schmidt said:
- The ecomomic situation is “pretty dire.”
- Combination of everything “does not appear to have a current bottom.”
- “Obviously will affect online advertising market.”
- “Will eventually be reflected in CPCs and CPMs.”
- “We are not immune.”
- Google “better positioned,” but ultimately, “the sort of real pain that is being felt by corporations worldwide will translate to our world.”
Is this particularly surprising? No. But it’s a sign that the worst is perhaps still to come, especially for Google.
Schmidt also said some interesting things about Twitter, calling it a “poor man’s email system.” And Google’s “inactive” M&A game. And a few other topics, like display ads, which we’ll break out into a separate post.
4:05 Music winding down.
4:06 Psych! More music. This might be one of those lunch presentations that starts a little later than its scheduled time. Will keep updating every few minutes until it starts.
4:07 Just heard a voice through the music. Perhaps starting soon?
4:09 At any rate, Google engineering VP Vic Gundotra was just on a panel about the mobile Internet. Pretty standard non-news type of panel, but lots of praise for Webkit. My live notes are here.
4:09 Starting! Going through standard disclaimer stuff.
4:10 Moved the schedule back 10 minutes. Eric has been in the building for 15!
4:11 Meeker: A lot of chatter that the search market has settled and done. What’s your view? Obviously a lot of innovation ahead of us. Bug where we put a malware statement out for users, and in that time, Yahoo searches gained very quickly. Looks like people will move from one search engine to another for variety of reasons. Of course Microsoft is working hard to build a competitive search engine, and has recently leaked some details. Some new entrants trying to mix search with other things.
4:12 People said that about search 10 years ago, with a different company.
4:14 Netbooks are the next generation of the small device that OLPC was trying to talk about. Particularly interesting is price point. Eventually it will make sense for operators to subsidise. Can make services and advertising revenue; today’s aren’t completely done; Linux could be big.
4:14 Search, financials, etc questions coming over. On search side, economy question. Query growth remained strong for a while, our data indicates still there. CPC has been declinng, was negative in last quarter Any trends you can update on how you play through a more difficult economic environment?
4:15 Economic situation pretty dire. Combination of what we’ve seen does not appear to have a bottom. People are using the Internet more. Obviously will affect online ad market because our systems are so tightly tuned. It will eventually be reflected in CPC, CPM. We are not immune to this. We may be better positioned from ad perspective, but ultimately the real pain felt by companies worldwide will sometime translate to our world.
4:17 Any data points positive? Every data point we have is obvious. Queries shifted from morgages to mortgage help to foreclosure help. Things you see on TV are really true. Areas most hit on online world are same in offine world: Travel, automobiles, financials, etc. Consumers are smart because they use the internet to look for discount trips, etc. From our perspective, aside from our perspective, running the businesses much more tightly, haven’t fundamentally changed our strategic view. Trying to make profits from businesses we weren’t trying to before.
4:18 Taken a position that the person should be the search. Your viewpoint, history, etc. (With your permission.)
4:19 We like to generate cash. A good metric in any situation is if you can grow profits in absolute basis, you’re going to get through this. Patrick (CFO) is particularly good at doing business reviews. Going through systematically. During hypergrowth period, didn’t have budgeting and esitmation systems in place we do now. Google managenent spends lots of time doing business reviews now. A lot of that coming. When we get past fear, advertisers understand notion of guaranteed sale.
4:20 What were learnings from P&G swap? Have been able to translate? CPG trying to figure out how to use the Internet. Many don’t understand how to market inside online communities. Put people in their buildings, we put them in ours. We changed the way we market to consumer goods companies by talking to them not so much on traditional text queries, but how you can use targeted online ads within blogging communities, Facebook, those sorts of groups.
4:22 Consumers spend a lot of time online before they make purchase. Tend to join affinity groups. Diapers being obvious example.
4:22 Going to do employee swap with other companies. I don’t want to talk about specifics, that’s their data. But we like that model. Direct contact helps effect change.
4:24 Online continues to gain share. Worth trying to figure out when this will occur. Everyone sort of assuming that 2009 is tough year. What can we do now? Sales force goes in and says you need revenue now, here’s how. Many people stuck with contracts with offline channels. Increasing willingness to try new systems in enterprise. We have a set of enterprise offerings and have been pleased with willingness for customers to now accelerate trials.
4:25 What does 2010 look like? Depends on what growth rate of recovery is going to look like.
4:25 Let’s talk about music videos. You haven’t monetized it yet. Selling music via Amazon and iTunes with some of most-used videos. How do you see both artists using that venue over next 1-2 years as they’re dealing with their own contracts, and how do you see monetization of YouTube playing out?
4:26 YouTube is slowly getting monetization right. Taking us much longer than we had hoped. Always been concerned that aggreg monetization of online is not going to replace offline. Potential conundrum for video and movie industries. Music industry has this problem: In 1980s, self view was that they helped create MTV by giving them licenses to music videos “too cheaply.” How do you compensate music industry for things that are promotional? Apple successfully has worked that out with iTunes. Very positive example. We need an analogous example of how music videos will work on the Internet. YouTube good with music videos, sports, humour. Working on longer form content and HD. If we can make even a small amount of profit, because of scale, can add up quickly.
4:28 Financial results for media companies is not good. Trajectory that local and broadcast TV is on is similar. Is it possible that group of players who have been standoff to YouTube may change their view given that economic situation is different? We understand their problem, critically dependent on them for professionally produced narrative. My view is you asked question in the wrong order. Right view is: What does future look like? And how do you adapt? Fact of the matter is that mobile devices is going to be majority of how people get information. Mobile power will keep increasing.
4:30 Highly personal, location, etc. Don’t know how it’ll be monetized. But products are getting built. Challenge and opportunities is to make money. But you won’t get there by suing your users or by preventing that technology from happening. It’s going to happen.
4:31 Mobile clearly will pass computer. Depends on growth rate of data capable mobile devices. Monetization of ads should be higher because better targeting. When you have powerful browser like iPhone, BlackBerry, Android — people spend many more searches when they finally have a capable browser. So: What’s new in technology sense? And development of new, open-source browser really creates new. How long does it take? A few years, but not a few decades.
4:33 Some of Android devices will look like phones; some not like phones. I think people in the room understand how platform businesses work; it’s all about momentum.
4:34 Carriers are looking for new sources of data revenue. Some of carriers subsidizing other devices (like netbooks). Another new thing that will serve as accelerant.
4:35 With Japan, now partnerships with 2 of 3 mobile providers. Monetization is excellent. When you get it right, with right ad product and right search product on device, know that as a proof point. Now intending to replicate those sorts of deals. Obvious prize will be China. That’s sort of the next really, really big one.
4:36 M&A pretty inactive right now.
4:37 Stimulus program? I have a very long and strong answer. In the interest of time: We benefit when our customers have jobs, that they buy stuff. Any solution that gets the middle class to feel more confident benefits Google, our advertising revenue, our customers and shareholders. Can debate the specifics. No one’s ever done it before at this scale. With respect to how Google benefits beyond that; has $20 billion of payment subsidies and credits to build out more broadband. Also $20 billion in science funding, which will help lag with some new applications.
4:38 Always a danger when you have a Website that you temporarily overmonetize. Works for a quarter or two, then customers say heck, that’s an ad page, and they move somewhere else. Google at “coverage level” of about a year ago. Within a range of what we’ve historically done. Social networking has a lot of pageviews, but don’t monetise as well as text search. Where is next source of revenue? Next source is current business functioning better. Next and adjacent is a set of display businesses and an exchange being built from DoubleClick business. Display not uniform; Balkanized. By hand or poor quality spreadsheets in many cases; think we can work Google magic on that.
4:41 Thoughts on Twitter; evolves as real-time search engine, and haven’t really responded there. How do you foresee that as a potential threat to Google? In favour of all these potential communication features. Just set up Google account on Twitter. Got character count wrong! 140, not 160! Poor man’s email systems. They have aspects of an email system but don’t have full offering. Do they fundamentally evolve as sort of a note phenomenon, or storage, identity, etc. Or do email systems evolve? In Google’s case, we have a very successful IM product. Twitter’s success is wonderful, shows you there are many ways to communicate, especially if you can do so publicly.
4:43 US likely to have quicker descent, quicker recovery. Also believe India and China effected, but to a lesser degree. What does it do for long-term capital structure of these economices? Talking about Japan’s recession. Americans love their credit cards — basically have to solve the credit problem, get jobs stable, housing crisis. When those things are done, reasonable bet that Americans will go back to what we do best, which is to spend money.
4:46 Confident that we’re going to see some good things come out of it. American story is innovation. Etc.
4:48 What are 3 things that need to get done to get display to become part of business? First problem if you have a display property, multiple vendors building ad exchange. Heuristics are terrible. Standardization of ad formats. Need more. Especially around interactive and video ads. Future is an ad that brings you in, tells narrative. Best ads add real value. Video, story, narrative, etc. Third is construction of business relationship with large advertisers, which we’re still working on.
4:50 If two competitors merge, how do you see potential impact if MSFT and YHOO come together? I don’t know if that scenario will occur. We did best attempt to do deal with YHOO. Carol is a fine and able CEO. What do I really think will happen? The problem has to do with Microsoft’s ability to use its Windows monopoly to restrict consumer choice. Anything MSFT will do are of concern. That’s what we worry about. As long as technologies are competing on fair basis, that’s great.