Speaking to analysts at the annual Bear Stearns Media Conference, Google's (NASDAQ:GOOG) top ad executive dismissed the recent drop in paid clicks as a symptom of its own technological improvements.

Tim Armstrong, Google's North American president of commerce and advertising, said that the company had made a concerted effort to improve the relevance of its search ads to users' queries, which meant whittling down the total number of ads placed.

"Something that I think is a really strong competitive advantage for us in the marketplace is that we had a clear drive that the consumer should see really good ads, and if we can improve the ads for consumers we'll do it," Armstrong said. "We're constantly measuring ad quality changes with how that affects the rest of our business."

The upshot was that the total number of clicks went down, Google and the companies advertising on its sites were more focused on conversions, which Armstrong said were improving thanks to more relevant placements. Conversions are a better metric by which to gauge the effectiveness of a campaign, Armstrong said. After all, he added, a decline in total clicks does not mean that a campaign failed; Google often has to educate novice Web marketers about this aspect of Web marketing.

Armstrong also said that macroeconomic conditions had an impact on the types of searches that users performed, which could have reduced the volume of ads served on Google's results pages. Referring vaguely to search terms as a "proxy, in part, for what the world's thinking about," Armstrong appeared to suggest that consumers operating on tighter budgets would conduct fewer product-related searches that yield sponsored results. He was careful not to link the company's revenues with any talk of a looming recession.

Armstrong and David Eun, Google's vice president of content partnerships, laid out a vision for Google expanding its capabilities in display ads and content monetization to become a one-stop advertising shop.

Google's pending acquisition of DoubleClick, expected to receive final regulatory approval in Europe as early as this week, will greatly improve its competitive position in display advertising, a business in which it has lagged behind Yahoo (NASDAQ: YHOO) and Microsoft (NASDAQ: MSFT). The prospect of those two companies merging makes Google's bid for display ads that much more important.

Discussing social networks, which have not monetized as Google expected, Armstrong admitted that Google initially took the wrong approach. At first, Google's ad team treated social networks like traditional media companies, such as the New York Times Company. When the revenue from the ad deal with MySpace fell short of projections, Google reevaluated how it treated social networks. Realizing that it was dealing with a unique medium, Google formed dedicated engineering and advertising teams to tackle monetization of both the social network platform as a whole and the specific widgets and applications therein.

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Regarding the company's intentions, Eun emphatically stated that Google has no interest in becoming a media company in its own right.

"That is absolutely not the case for us," he said. "We are a platform partner. We want to work with those who own great content, but we have no intention [of entering that business] ourselves."

Calling YouTube the "brightest light" in the display space, Armstrong expects the runaway leader in Web video to be the engine for much of Google's ad growth in the coming year.

"We've purposely not taken the easy money," Eun said, referring to simply blanketing YouTube content with pre-roll video ads that users often find irritating.

Instead, YouTube places ads using the InVideo product, which appear at the bottom of the video and expand when a user clicks on them. Google recently extended InVideo across its AdSense program, and will continue exploring new advertising options with its video content.

"Over the next year, we're going to turn up the dial a bit on monetization at YouTube," Eun said.

Armstrong concluded the discussion with Google's vision for a holistic ad network, where the distinctions between different silos of creative content disappear.

"Over time the system that we're building doesn't separate between search and display," he said. "We have a long-term horizon here which is that we want every advertiser in the world to put all their assets into our system."

"Search and display to us are kind of a similar bucket because we want the advertisers themselves to load all their creative and assets into a system to be served at the right time to the right user in the right place and with the right outcome."