People are still using Google's search engines, but they're buying fewer and less-expensive products from advertisers, which means the sales conversion rates for ads are dropping, he said. As a consequence, marketers are spending less in order to balance their advertising return on investment (ROI).
"No company is recession-proof, and Google is absolutely feeling the impact," Schmidt said, warning that the company has now entered its historically weaker season: the second and third quarters.
However, he expressed confidence in what he considers the higher accountability and effectiveness of Google's search advertising model, particularly its auction-based approach to setting pay-per-click fees for ads. Google also benefits from the continued increase in Internet usage and the continued shift of ad spending to the online medium, he said.