Google’s Schmidt: Worst Is Over; Economy Set to Grow in Fall

The drumbeat of bad news doesn’t seem to let up, but count Eric Schmidt in the optimist camp. During a Q&A here at Cannes with Publicis Groupe CEO Maurice Levy and at a press conference afterward, the Google CEO said he believed the worst was over, and that the U.S. economy should begin to grow again in the fall.

The recession has not left Google untouched. Its business has slowed, Schmidt said, because while consumers continue to use search, they are more selective about their purchases and tend to spend less when they do open their wallets. That, in turn, depresses the amount advertisers bid in Google’s auction system, he said. But Schmidt does not believe the economic crisis has shaken U.S. consumers’ proclivity to spend money by going into debt. “Americans love their credit cards,” he said. “If people are concerned Americans will stop spending, you do not understand the American psyche.”

Google has seen a decrease in search in categories like mortgages and an increase in searches for things like bankruptcy services. That’s evidence, Schmidt said, that the Internet is working as it should. But it is not part of a long-term trend of consumer retrenchment, he added. “It’s shocked me that Americans started to save,” he said. “My guess is that’s a temporary phenomenon.”

Schmidt is making his first visit to the International Advertising Festival. He came as the guest of Publicis and said agencies are important partners for Google, which derives 98 percent of its revenue from advertising, particularly as it moves beyond simple text links into new forms of advertising. “I’m here because it’s very, very important for us to have good relationships with advertising agencies, especially the creative groups that are trying to learn how this new medium will work,” he said.

“The new medium was pretty creatively challenged. Now, we have many more creative formats.”

The company has had mixed results in moving beyond search ads. It shuttered its expansion into print and radio, efforts Schmidt said were doomed because they lacked a feedback loop for improving the ads.

YouTube is turning the corner, he said, pointing to its efforts on a number of fronts to introduce advertising in new ways, from pre-roll spots to sponsored search results to overlay ads. “We’re much happier now than we were a year ago,” he said. “We have some ad formats that are beginning to bring in revenue. These new ad formats we’ve brought out look like they’re going to be a good opportunity for brand advertisers. People will watch them, and it really will result in sales.”
Google faces renewed competition in its core search business with the release of Microsoft’s new search engine, Bing, backed by an $80-100 million ad campaign. Schmidt said he’s tried it, although did not comment on his impressions. “We benefit from Microsoft’s continual reentry into this market,” he said. “We encourage them to continue with this strategy.”

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