A Maturing Google Buckles Down and Searches for Cost Savings

Company not Known for Penny-Pinching Cuts Staff, Perks

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NEW YORK (AdAge) -- The recession is reverberating even in the freewheeling halls of the Googleplex.

Proving that even the search giant isn't immune from the vagaries of the economy, Google is cutting its 10,000-strong contract staff, nixing some new products that won't pay back in the near term and aggressively trying to squeeze more out of existing revenue streams.
Sergey Brin: Co-founder recently said Google has been concerned about expenses.
Sergey Brin: Co-founder recently said Google has been concerned about expenses.

Staffers are also feeling the pinch, since it's dramatically slowed its hiring processes and, according to some, reined in some internal perks such as the free-flowing bins of swag (Google-adorned fleeces, hats, etc.) and frequent internal events and parties.

But is it all a reaction to the economy or to a more basic reality: Is Google simply maturing?

"One wonders if [the economy] just accelerated something Google has needed to [address] anyway. Their revenue growth has been going down quarter after quarter for several years now," said David Hallerman, senior analyst at eMarketer. He said the rate of worldwide revenue growth at Google has declined every quarter since the second quarter of 2005.

In an interview with CNET, Google spokeswoman Jane Penner said the plan to significantly reduce those thousands of contract employees is "something we've been thinking about for a while -- six or seven months. It predates the most acute phase of the [present economic] crisis." Earlier, co-founder Sergey Brin remarked to the San Jose Mercury News that the company has been concerned about expenses and that it has about 10,000 contract employees in addition to its 20,000 full-timers. He called the number of contractors "really high."

The changes aren't just the company's hunkering down for hard times, said one person at Google familiar with the moves; there are also signs of a maturing company. And to be fair, while online advertising spending has slowed, search expenditures remain healthy relative to other areas.

Google was able to use cost controls to maintain its profitability in the third quarter -- a move applauded by investors -- and will have to work to maintain its margins amid a recession of indefinite length. Its stock price hovers around $280, well off its 52-week high of $724.80.

It has also recently begun testing new ways to squeeze more out of existing successful properties, including putting display ads in its image search pages (although selling the white space of a main Google search page remains off limits.) It has also launched a "broad-matching" tool for TV ads which should expand the number of TV programs suggested to marketers as good places for their ads. Additionally, it launched a tool for its regular search-ads product that shows customers what kinds of unusual or surprising keywords lead people to their site (in hopes, of course, that those marketers will shell out for the keywords.)

YouTube, whose usage continues to grow, is a major monetization priority for Google. The video site -- whose search volume almost equaled that of Yahoo in October, according to ComScore -- has launched in-stream ads and search ads.

'Smarter about money'
One Google insider suggests people are simply paying more attention now to the ad tests Google has been doing for years. But Danny Sullivan, who has covered Google from its inception, believes the company has been much more aggressive of late in trying to wring cash out of its properties. "They're getting to the no-brainer stuff -- it's a no-brainer to put ads in Google Finance or that if you're on YouTube and doing a search you ought to get ads coming up on the right side," he said. "Google hasn't put ads in these ads in these places because it hasn't needed to."

He likens it to households in tough times refinancing a mortgage or taking another look at their investments. "It's not that you're in trouble or going bankrupt, but you're becoming more aware that you need to be smarter about money," he said. "In some ways Google's becoming smarter about ad inventory."

The company also has shuttered noncore products, most recently Lively, a virtual world whose launch it trumpeted just eight months ago. While virtual worlds are intriguing, they have struggled to offer clear marketer applications. Lively was the product of Google's oft-extolled "20% time" in which engineers can spend one-fifth of their working hours on noncore experiments.

While Google is clearly not gleeful about the broader economic woes, in a way the recession may be proving lucky for the company, said Greg Sterling, principal at Sterling Market Intelligence. Mr. Sterling buys the theory that the company is also simply maturing -- and learning how to be more efficient.

"They can use [the recession] as a cover for rolling back and making changes that would otherwise be very much like French government trying to impose longer hours on French labor force," he said. "[Google would] have been met with more resistance than they will be now."
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