Google again beat Street estimates with its revenue up 31% and profit up 26%. The performance of Google in the last quarter isn’t a complete vindication of the company’s business model in bad times—things have gotten worse since then—but they are a strong indicator that Google and perhaps other online firms may beat traditional advertising and retail channels in tough economic times. That would suggest that the Internet is becoming a necessity, something that is recession-proof, and that conclusion would have major implications for technology planning in 2009 and beyond.
Our models do show a tendency for online to continue with only small declines while more traditional channels dip more seriously. If the current quarter’s numbers show this, it will certainly have a major impact on the market, and on M&A in the online space. We note that Google’s growth is still slowing, and that the company needs to become successful beyond search ads, and very successful, to continue to dominate the field.