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How Can Google Top Itself?

Now that Google  has blown out analyst expectations with a sterling quarter, it can't possibly do it again, can it?

The unrivaled search giant reported 70 percent revenue growth versus the previous year's third quarter, to $2.69 billion, and 48 percent earnings growth, to $733 million.

Mind you, this rise took place during the summer months, when much of Google's traffic from academic circles is down.

But Google's rivals should take note: The company hasn't tired of being Wall Street's darling and promises more heady days ahead.

Google executives said that improvements to the company's core infrastructure have laid the foundation for even stronger growth.

Better search algorithms are allowing the company to improve the monetization of its inventory, said Sergey Brin, president of technology and one of the Google's co-founders, on the company's earnings call this week.

This means that revenues will continue rising, even if Google begins to top out in terms of traffic or the number of advertisers.

"In terms of monetization [of ad inventory], the low-hanging fruit has been picked, but we've built ladders and we're reaching for higher hanging fruit," said Brin.

Google president of products and co-founder Larry Page added that the company still has a long way to go toward improving search results.

"I see very huge advances possible even in the very basic things we do," he said.

Not that there's any danger of Google's growth slowing in the near term.

According to Merrill Lynch analyst Justin Post, Google has over 50 percent of the search advertising market and, he wrote in a note this morning, "will continue to gain share over the next four quarters."

In addition to these bread-and-butter improvements, the company sees enormous benefits accruing from strategic partnerships developed over the past year.

Chief among those partnerships are relationships with content providers like MySpace, Fox and MTV, which broaden Google's reach to a younger base of users.

The Google brand is also gaining significant traction abroad, partly thanks to its deal with eBay .

It is also reaching into new markets in the U.S., such as small business, by leveraging its agreements with Intuit  and Dell .

And it has not yet even closed its acquisition of YouTube.

"The diversity of our approach is one of our strengths," said Google CEO Eric Schmidt.

He noted that the strategic partnerships combined with improvements in technology create a cascading effect that amplify and "compound each other quarter over quarter."

According to Emily Riley, an analyst who follows Google for JupiterKagan, the company was putting out the message that it's not interested in rivaling its partners.

"They're not planning to become a media company. They want to be a next-generation search company," she told internetnews.com.

Post was also convinced that Google is executing on its plan.

"We estimate that Google's monetization of search could be up to 50 percent higher than Yahoo," he wrote.

Post raised his earnings estimate for 2007 by 6 percent and said he expects Google to gain further market share during this holiday season.



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