The Google Graveyard

I wrote a post the other day about how Digg could grow its business by acting more like Google.

It turns out Digg is acting just like Google. The new Google, that is, which recently realized that it has to slough off its caffeine-laden creative projects in favor of the only revenue stream that has ever truly worked: Ads.

The Wall Street Journal covers the fallout:

For much of its 10-year history, Google spent money at a pace that was the marvel of Silicon Valley. It hired by the thousands and dished out generous perks, including three free meals a day, free doctors, ski trips and laundry facilities, and subsidized personal trainers. It let engineers spend 20% of their time pursuing pet projects. The company’s goal was to develop new products that would reduce its nearly total reliance on selling ads connected to Internet searches.

After all that effort, it turns out that “total reliance” is still relevant, to say the least. Google makes the vast majority of money from ads. Now that the hard economy has advertising revenues, Google has to cut back.

Google said during a recent earnings call that it is seeing weaker spending from auto-financing, home-financing and real-estate advertisers.

In last year’s fourth quarter, the company’s revenue and profit fell short of analysts’ expectations, amplifying concerns about the impact of an economic slowdown on online advertising. But the company’s profit jumped 30% in the first quarter and 35% in the second as it continued to steal search-market share from competitors. Google said it…was well-positioned to continue to thrive because its search ads provided the best, and the most measurable, return for advertisers.

With the U.S. economy in a recession, Google is ratcheting back spending and cutting new projects.

The article covers some of Google’s fallout:

1. Contract workers

Google relied heavily on contractors. Now it can terminate their contracts without having to pay unemployment benefits. It was a cost-effective strategy from the beginning.

2. Real estate

So far, Google is closing offices in Dallas and Denver.

3. Small projects

Google Notebook, Google Audio Indexing, and Google Page Creator are going the way of the dodo. So are SearchMash and Lively.

4. Ad-free sites

Google News and Google Finance will soon be sporting AdWords ads.

5. Tea time in the New York office.

There used to be afternoon tea, dahling.

The article also mentions that Google was chock-full of idealistic rhetoric in its early days:

…the company said that it would always put long-term objectives ahead of shareholders’ short-term interests. It wooed the best engineers with generous perks, workplaces that feature pool tables and volleyball courts, and a promise they could spend time pursuing side projects. Inside the company, it was considered crass to talk about whether a project would eventually make money, say current and former product engineers. The measure that mattered most was whether a new idea would be good for the Internet user’s experience.

Yes, and executives gave informal Happy Hour company lowdowns every Friday, promising that Google would “Do No Evil.” It’s a classic sellout tale. The talent Google attracted with its old “freewheeling” culture won’t be attracted to the more co-opted style it is now adopting. Google has officially entered a holding pattern.

Will it be the next Yahoo?

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Comments

  1. Tod's Gravatar Comment by Tod on December 8th, 2008 at 6:54 pm

    Google would have to shut the faucet of innovation off completely to end up like Yahoo. In addition, Google has to be concerned with shareholder wealth these days, something Yahoo should have considered. The macro economy humbles even the most successful companies in tough times.

    Google does have to work extra hard to remain a leader these days as each passing year is more difficult to remain nimble against the next “Google”.

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