Google CEO Eric Schmidt on recession, competition: Google makes more money

I asked Google CEO Eric Schmidt if he was concerned that there might not come a day when advertisers object that Google’s out-sized gross margins are achieved at the advertisers’ expense.
Written by Donna Bogatin, Contributor

Google CEO Eric Schmidt is extremely confident in the future fortunes of Google.

During a Q & A session with press yesterday at the Search Engine Strategies Conference, Schmidt reiterated Google’s belief in its invincibility, and its superiority.

Schmidt echoed statements he made at the company’s May investor conference call and at the company’s Q2 earnings conference call last month.

May Conference Call

Google was asked “Is there risk that budget dollars might get pulled away from Google if your competition significantly improves their monetization?”

people are very concerned because in traditional industries, the arrival of new competitors is a zero-sum game. But in something as massive as the shift to targeted advertising, which is bigger than the web and bigger than the Internet itself, it's so much of a larger space than the sum of the current online advertising industry, that we just don't see it as a negative. We see it as either neutral or positive, and we get laughed at if we say it's a net positive. But it probably is a net positive on a mathematical basis.

July Conference Call

Google was asked “With the economy potentially slowing down, how do you think that will affect search spending?”

when organizations are under stress, they focus on the best economics, because they don't have as many opportunities, they have to be much more careful. We continue to believe that the Google advertising system is literally the best place to put your sales dollars. In a theoretical global recession such as what you were asking about, I'm sure that we would benefit by the fact that our performance is simply better than the other alternatives.

In addition to putting forth that Google’s bottom line will be positively affected by both additional competition and in the event of an economic downturn, Schmidt also expressed yesterday his confidence in Google’s ability to continue to generate outsized gross margins, and to increase those margins.

I suggested to Schmidt that his belief in advertisers’ willingness to continuously bid up the prices they pay for participation in AdWords might soon be tested.

I pointed out to Schmidt that the Google auction model is contrary to the manner by which advertisers traditionally purchase advertising. I indicated that typical advertiser behavior is to negotiate a rate card down. Google’s opaque advertising purchase system, however, results in advertisers willingly raising their own cost of advertising.

I asked Schmidt if he was concerned that there might not come a day when advertisers object that Google’s out-sized gross margins are achieved at the advertisers’ expense and, subsequently, decide to revert to advertising purchase behavior more aligned with their own interests, that is to bid down prices to achieve higher ROI.

Schmidt’s response: NO.


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