Google (GOOG) admits advertising slowdown, even as market share grows

Even Google Inc. (NASDAQ: GOOG) is feeling the economic pinch. Actually, what started as a pinch has turned into a train wreck, and now even the world's largest web search provider will be slowing hiring and turning down the heat on possible acquisitions. Google CEO Eric Schmidt told Bloomberg Television that advertising budgets are "under stress." I'd say that's an understatement.

In all likelihood, this will be Google's toughest test in its 10-year history. Its entire business revolves around advertising income. Although the company does it better than anyone -- and new media advertising is finally becoming mainstream -- the company's exposure to an ongoing slowdown could be cause for concern. Although the company may "do no evil," it will certainly have some profit evil creeping up on its results in some form soon.

Schmidt added that, "All of us are vulnerable . . . it's a race between a contraction in advertising, which would affect everybody, and a very positive shift from offline to online.'' The question is this: can Google take more of the dollars that are shifting to online advertising faster than the overall contraction in advertising spending over the next year or so (or longer)? Given Google's history, it will almost certainly continue to be successful, but it's hard to see the company taking such huge chunks of market share that the advertising slowdown won't chip away at its results.