Here we are ladies and gentlemen, the day of reckoning, not only for Google, which is releasing its Q1 earnings report today, but also for every tech company, search company and the entire stock market. All eyes are on America’s newest blue chip, Google, and their earnings from Q1 2009. Will Google earnings slow? Will Google show earnings? Will Google surprise the world with growth?
Various analysts are picking Google to falter, and a handful picking Google to shock the world. Here’s my take. One year ago Google was a big spending tech giant, gobbling up every startup in its path with its surplus of billions of dollars of cash, and integrating those companies into the Google model. Some of those companies became key parts of Google, such as Keyhole, which is now Google Earth & Google Maps. Other acquisitions, well, they just didn’t work out as planned.
I believe that we’ll see that Google’s cut backs in employment and unprofitable projects grouped with internal and external expansion of their Google AdWords advertising network will show growth in Q1 2009 for GOOG, especially with their calculated rollout of Adwords in Image Search & Google News, two of their top 10 Google Properties which were previously not serving advertising.
Google Cuts Back Spending & Staff
In January of this year, the second week of this quarter, Google started trimming the fat and getting rid of the products which it had launched or acquired which were not used, not profitable, and not representing a proactive direction at Google. These products include Google Catalog Search which Google used for exploring OCR technology ages ago and which it obviously doesn’t need now, Google Video Upload which has long been dead, Dodgeball, Mashup Editor end Jaiku, which was being touted before as a Twitter killer and Google Notebook.
In addition to cutting some of its properties and projects, Google also cut back on recruiting and ended up saying goodbye to over 100 employees in a round of cuts and reorganization. Google had some of its engineers located in Austin, Texas; Trondheim, Norway; and Lulea, Sweden to move to other Google Offices while they ended contracts with vendors and external contractors who were providing recruiting services for Google. The company also reduced its manpower base in its recruitment organization to around 100 positions. It was also reported that some engineers were being laid off in a round of reshuffling.
Is all of this negative? No, not really. Not at a time when most of the large employers in the United States are laying off thousands, Yahoo had to cut its workforce substantially and 1.4 million layoffs in the US last year. In comparison, layoffs at Google are quite minimal.
Google is Proactively Growing
Now that we’ve gotten the layoffs and cuts out of the way, let’s look at ways that Google has grown in Q1 2009. I for one believe that Google takes a proactive and planned approach to all of its announcements and product launches. I tend to think of Google decisions as a “choose you own adventure book”, if Plan A does not work for Google, they have already put together a Plan B which will work. Instead of retreating and regrouping, Google is the kind of company which seems to not only have an exit strategy, but a success strategy as well. Let’s take Google advertising for example.
On the whole, search advertising spending may be down in 2009, but Google advertising via Adwords is designed to not only be cost effective for the advertiser, but also to scale.
Google Ads on Image Search, News and Finance
Let’s look at Google’s most popular properties. After looking at Google’s top three properties in Google Search, GMail and Youtube; Google also has Google Image Search as its fourth most popular property, Google News as number six, and then Google Finance is slowly creeping up the charts too.
While Google was working on cutting back on its less profitable and unused properties, over the past quarter Google has been beefing up Image Search, News and Finance with changes to their image search results and image sorting, adding hosted AP news to Google News, and tweaking Google Finance.
You know what else they have done with these properties? Google added ADVERTISING to Image Search, Google News and Google Finance :
- Text Ads in Google Image Search
- Google AdWords Now On Google News
- Google Finance Now Running Google Display Ads
Notice a trend here? Google held back on serving AdWords advertising on 2 of their top most popular properties and on Google Finance until Q1 2009. Talk about keeping an Ace card in your back pocket!
There are two reasons why Google waited to integrate advertising into these properties – because they didn’t need it before AND because they knew that if Google ever had a rainy day, slapping ads within Image Search, Google News AND Google Finance (along with Google Picassa) would expand their advertising network in a controlled setting where Google keeps 100% of the ad revenue and also secure the company if hard times were on the horizon.
With the rest of the economy bailing out, Google grew its advertising network in 2009 with these strategic moves.
Looking at Q4 2008 Google earnings, their ad revenue grew a only a little over Q3 2008 :
- Google Sites Revenues – Google-owned sites generated revenues of $3.81 billion, or 67% of total revenues, in the fourth quarter of 2008. This represents a 22% increase over fourth quarter 2007 revenues of $3.12 billion and a 4% increase over third quarter 2008 revenues of $3.67 billion.
- Google Network Revenues – Google’s partner sites generated revenues, through AdSense programs, of $1.69 billion, or 30% of total revenues, in the fourth quarter of 2008. This represents a 4% increase over fourth quarter 2007 network revenues of $1.64 billion and a 1% increase over third quarter 2008 network revenues of $1.68 billion.
In my opinion, I don’t think Google wanted to see this happen again, so they expanded internally and also externally, placing more ads on the most popular properties within Google and expanding their external distribution network. Add that with running the company more efficiently and also cutting back on the projects which were going no where, and I’m expecting some surprises from Google today on earnings.
What are your thoughts?