• by Laurie Sullivan  @lauriesullivan, October 15, 2009

Google reported Thursday that revenue rose 7% to $5.94 billion for the quarter ended Sept. 30, 2009, compared with the year-ago quarter.

Google-owned sites generated revenue of $3.96 billion, up 8% compared with the same quarter in 2008. Partner sites generated revenue of $1.80 billion through AdSense programs, or 30% of total revenue -- up 7%.

Aggregate paid clicks, including clicks related to ads served on Google sites and the sites of AdSense partners, rose approximately 14% compared with the third quarter in 2008. That's an increase of approximately 4% compared with the second quarter of 2009.

Average cost-per-click, which includes clicks related to ads served on Google sites and the sites of AdSense partners, declined 6% year-on-year, but rose 5% sequentially.

Traffic Acquisition Costs -- revenue shared with Google's partners -- rose $1.56 billion in the third quarter of 2009, compared with TAC of $1.50 billion in the third quarter of 2008. TAC as a percentage of advertising revenue was 27% in the third quarter of 2009, compared to 28% in the third quarter of 2008.

"While there is a lot of uncertainty about the pace of economic recovery, we believe the worst of the recession is behind us and now feel confident about investing heavily in our future," says Eric Schmidt, CEO of Google, in a prepared statement.

Google will continue to invest in people and technology, with plans to step up hiring and innovation, Schmidt told media and investors during the company's earnings call. Some of those investments have come recently in AdWords, Local, Google Maps and Search Options. "We want to get to the perfect search engine," he says, adding that Google made more than 100 quality improvements in search throughout the quarter.

Schmidt says Google plans to make more acquisitions. Historically, the company has acquired about one small company per month. These small companies typically bring a specific technology -- either the company created an interesting way to search, or a better way of sorting and working on display advertisements. As Google builds up its enterprise business, it will look toward Chrome and Chrome OS features that have already been built by small companies.

Google will make large acquisitions, too, similar to YouTube. The larger purchases are few and far between -- about one per year, Schmidt admits. The idea is to create tools that make it easier for advertisers to plan and better target audiences, as well as publishers, to reach consumers.

Advertising and marketing firm Didit has seen clients increase search spend slightly over last quarter, especially among mid-tier clients. "Google CPCs seem to have gone up during the third quarter, compared with the second," says Mark Simon, vice president of industry relations at Didit. "Marketers are flocking to search as a 'safe,' accountable channel to work through as they cautiously return to marketing as the economy improves.

Simon says Google's huge traffic volume makes it an obvious place for advertisers to spend their search dollars. The result of that influx in advertiser spend is greater keyword competition and greater revenue for Google.

Among Didit's clients, Google continues to gain share of search spend over its competitors. Google increased its share of the U.S. online search market to 64.9% in September, while Microsoft rose to 9.4% and Yahoo declined to 18.8%, according to comScore. Microsoft has invested heavily in its search engine Bing, released in May, along with an advertising campaign.

Microsoft also agreed to run Yahoo's backend search engine. Yahoo, however, appears to continue the innovation cycle. It has spent millions in advertising convincing folks that it has reinvented itself, as well as forging heavily into mobile search and advertising.

As for Google's video-sharing site, the company would not break out revenue numbers for YouTube, but admits the company is monetizing more than 1 billion videos on YouTube. About 90% of the home page ads were sold out in the third quarter.