January 15th, 2009
Google grows up; Restructuring tweaks signal end of adolescence
Google is growing up and tweaking its business on many fronts: It is closing up shop in some engineering centers, laying off recruiters, ending deals with contractors and killing projects that aren’t delivering. Simply put, Google is acting like a real company.
Although some folks (Techmeme) will view these changes as bad news it appears Google is maturing. And that’s a good thing. Another good thing: The myth of Google is going away. Who really bought that Google is invincible line of thinking? Google as recession proof? Not quite. Google as all things to everyone? Not really.
Google is human. Google is shuttering projects that don’t work. So long Dodgeball, Mashup Editor Notebook, Catalog Search and Google Video uploads. Contract activity is being curtailed and recruiters are being laid off. Meanwhile, Google is consolidating its engineering outposts.
Why does Google’s spate of disclosures in the last 24 hours constitute a positive development? Now we get to see what Google is really made of. You don’t earn your corporate chops in a boom. Let’s face it. When the profits are flowing Google could burp and people would fawn over it. A stock price north of $700 makes everyone look like a genius and you can go on engineering benders.
In a downturn, companies show what they are about. My respect for Cisco wasn’t sealed in the dot-com boom; it was sealed in the downturn as CEO John Chambers reloaded and transformed the business. And guess what? Cisco is doing it again as its rivals like Nortel implode. Simply put, Cisco is battle tested.
Will Google deliver? We’ll see. Google’s fourth quarter is expected to be solid and analysts are cautiously optimistic. Piper Jaffray analyst Gene Munster said in a research note that Google’s paid clicks are tracking down in December and that may put pressure on the fourth quarter. He writes:
“Third party data suggests Google paid click volume for the December quarter is tracking down 5% q/q. We are modeling for Google’s December quarter paid clicks to be up 2.5% q/q and we also note that the Street is thinking the quarter will be flat. We view the data as a slight negative to the December quarter as consumers appear to be continuing to search as demonstrated by strong query volumes, but are not clicking on paid links as frequently. We had expected paid click volume to hold up well, but expected conversions to fall, which would negatively impact CPC rates. While the paid click data does not contemplate CPC rates, our expectations for a sequential increase in the fourth quarter are tempered by the data.”
Google, which reports its fourth quarter results next week, is expected to deliver earnings of $4.96 a share.
But the Google tale will be told over multiple quarters. Can Google adjust as cost per click rates fall? Can it curtail expenses and preserve profit margins? Can it invest in what will distinguish the company in the future? Can Google finally find another business to alleviate its dependence on advertising?
Grown up companies answer those questions. Now it’s Google’s turn. Welcome to the real world.
Larry Dignan is Editor in Chief of ZDNet and Editorial Director of ZDNet sister site TechRepublic. See his full profile and disclosure of his industry affiliations.
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