Google's CEO calls economy 'pretty dire'

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."