News

Another happy quarter for Google

Elise Ackerman
San Jose Mercury News (MCT)

SAN JOSE, Calif. - Recent research shows that money won't necessarily make you happy. But it turns out that making other people happy, or at least trying to, can make you gobs of money.

That was the message from Google's Thursday earnings announcement. The Mountain View, Calif., Internet giant reported first-quarter profits increased 69 percent to $1 billion and revenues increased 63 percent to $3.66 billion, pleasantly surprising Wall Street analysts who had expected less exuberant results.

The driver of Google's success? A relentless focus on "end-user happiness," Chief Executive Eric Schmidt explained in a conference call with Wall Street analysts.

More specifically, Google tried hard to make people happier about receiving advertising on the Internet.

"Some people feel advertising is a zero-sum game, but that's not how we feel," said Google co-founder Sergey Brin. "Our vision is that we can make advertising better, across the board better for everyone. We don't have to have intrusive, gaudy ads to be effective."

Google's focus on good cheer extended to advertisers. One of the ways Google handily beat analysts' estimates - again - was by providing an online tool that told them whether the specific key words they were bidding on were "poor," "OK," or "great."

Google makes money by allowing advertisers to bid on specific words typed into Google's search engine and then delivering matching text-based ads along with search results on Google's own sites. It also matches text-based ads to the content of other sites on the Internet.

Jonathan Rosenberg, senior vice president of product management, detailed other improvements Google had made, including changing the background color of ads shown at the top of a page of search results to yellow and showing fewer ads overall, which drove up ad prices.

David Garrity of Dinosaur Research said $115 million worth of glee came from an unexpected boost that Google's overseas business got from a weakened U.S. dollar. With that extra money, overseas advertising sales accounted for $1.71 billion or 47 percent of total revenues. Without that boost, Garrity said, Google would have disappointed analysts who had expected total revenues of $3.57 billion, according to the Reuters survey.

Indeed, without the currency boost, Garrity calculated Google's sales grew only 57 percent from the same quarter last year, a 27 percentage point decline from growth between the same quarters in 2006 and 2005.

Martin Pyykkonen, an analyst with Global Crown Capital, said Google's dependence on online advertising remains "a lingering concern."

"People have been looking for other sources of revenue," he said. Last week Google announced it will expand into online display advertising through the $3.1 billion purchase of DoubleClick.

Google has also been trying to use its technology to broker ads in newspapers, on the radio and on satellite television. During the last quarter, Google announced it had signed deals with EchoStar Communications, owner of the Dish Network, and Clear Channel Communications, owner of more than 675 U.S. radio stations.

Gene Munster, an analyst with Piper Jaffray & Co., said he was pleased to learn during the conference call that Google would be placing ads during periods of premium programming as a result of those two deals. Most analysts had assumed that the deals had only applied to undesirable remnant advertising.

Munster also noted that Google's spent less during the last quarter - a total of $2.4 billion - than he thought they would, even as head count increased to 12,238 employees. "They hired more people and paid them less," Munster said.

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