Google's happy days are here again

Look for increased investment from Google, which after its third-quarter financial earnings has decided that if that's the worst the economy has to offer, it will be fine.

Google CEO Eric Schmidt feels like a man with a glimpse of open highway after being stuck in traffic for hours.

Google is ready to once again hit the gas, with plans to invest in people, products, and companies over the next several months now that it feels much more confident about its business and the economy. When the last recession hit in 2001, Google was still a small growing company, but a year ago the crumbling economy spooked executives into caution mode as they tried to anticipate just how bad things might get.

Now they know. "The worst of the recession is clearly behind us," Schmidt said following Google's announcement of third-quarter earnings that were stronger than financial analysts had expected. "Because of what we've seen we can be optimistic about the future."

That means Google is about to go on an investment binge; although, it probably would object to the term "binge." The most likely scenario is that Google plans to buy a few more companies than it has in the past year, open the hiring floodgates to the types of engineers and salespeople that fit within Google culture, and make sure it has the right technology assets to continue to dominate the search landscape.

That's not good news for anybody who competes with Google. Yahoo reports earnings Tuesday, and Microsoft next Friday, so it's hard to know if they are feeling as optimistic about the upcoming quarter. But Yahoo has been focused more on big strategic questions and product rollouts during the past quarter, and Microsoft CEO Steve Ballmer told CNET earlier this month: "I don't think things are getting worse, but I don't think they're getting a lot better yet either" as Microsoft prepares to launch Windows 7.

One year ago, Google executives weren't sure what kind of mess they had on their hands, as banks failed and markets plunged, said Patrick Pichette, Google's chief financial officer. "Twelve months ago there was a massive crisis going on, and we decided at that time to be prudent about navigating these uncharted territories. (Now) we'll go back to what we do well: innovate, invest, and build the future."

Search will be the main beneficiary of this increased investment, Schmidt said. "We want to get to the perfect search engine," he said, emphasizing that Google's primary focus has always been and will continue to be search despite all the other areas the company has tackled. Mobile searches are growing at a 30 percent clip, Schmidt said, emphasizing that sector as another area slated for investment.

And where there's search, there's advertising, spurring Google to look for new ways of showing ads to searchers. "Many of our advertisers would like to find more ways to spend money with Google if our products would allow them to do that," Schmidt said.

Along those lines, Google is working on developing new kinds of ads, such as the local listing ads that Google is testing in San Francisco and San Diego that offer advertisers a flat-rate listing in the sponsored links, said Jonathan Rosenberg, senior vice president for product management. (Try "San Francisco coffee" in Google for an example.)

Schmidt would like to see Google spend a little bit more on capital expenditures over the next several months, after the company took a cautious approach to such spending over the past year. He noted that Google has been able to wring efficiency from existing servers by tweaking its software for multicore processors , but maintaining Google's army of servers is a competitive advantage: infrastructure spending "creates a very significant platform for future growth."

And Schmidt declared Google "open for business" as far as acquisitions are concerned. He said essentially the same thing earlier in the year , but took things a little bit farther in saying that not only would Google continue to look at small technology companies, it was considering larger acquisitions on the order of YouTube ($1.65 billion) and DoubleClick ($3.1 billion). However, Google is unlikely to make that big a buy more than once every year or two, he said.

Could Google be overconfident? After all, unemployment still remains high, which could mean that retailers are in for another poor holiday shopping season. And any recovery could take quite some time before individuals and businesses feel like spending money like it's 2007.

But Google seems to think that now that it has a baseline for how bad things will get, it can be more aggressive with its formidable resources. If you had taken the worst punch the economy has delivered in generations with little difficulty, you'd probably feel the same way.

About the author

    Tom Krazit writes about the ever-expanding world of Google, as the most prominent company on the Internet defends its search juggernaut while expanding into nearly anything it thinks possible. He has previously written about Apple, the traditional PC industry, and chip companies. E-mail Tom.

     

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