Google Succumbs To Downturn With Job Cuts

Google is eliminating 200 employees and showing that even its once sure-fire search and advertising business model is not immune to the sluggish global economy.

The search engine company announced 26 March that it would be laying off 200 employees from its sales and marketing teams, citing organisational redundancy as a reason.

Google is the latest big IT corporation to announce layoffs. On 26 March, news reports had IBM slashing hundreds of employees from its Global Services units. Microsoft, Dell, Advanced Micro Devices and a host of other IT vendors have also announced layoffs.

Omid Kordestani, senior vice president of Google’s Global Sales and Business Development, explained the rationale behind the layoffs in a post on the official Google blog:

“Google has grown very quickly in a very short period of time. When companies grow that quickly it’s almost impossible to get everything right—and we certainly didn’t. In some areas we’ve created overlapping organizations which not only duplicate effort but also complicate the decision-making process.”

Kordestani cited these overlapping organisations as reducing the “effectiveness and efficiency” of its sales and marketing teams. Google also “overinvested” in some areas where it anticipated more substantial growth trends, he said.

With regard to the 200-count staff reduction, “We did look at a number of different options but ultimately concluded that we had to restructure our organisations in order to improve our effectiveness and efficiency as a business,” Kordestani wrote. “We will give each person time to try and find another position at Google, as well as outplacement support, and provide severance packages for those who leave the company.”

In line with what other global IT companies have been experiencing, Google has found its bottom line affected by the recession. After several years of accelerated growth, Google reported net income of $382 million (£266m) on earnings per share of $1.21 for the fourth quarter of 2008, down 68 percent from $1.29 billion on EPS of $4.06 from the third quarter.

In posting those numbers, Google beat expectations. However, in a presentation at the Morgan Stanley Technology Conference in San Francisco on 3 March, Google CEO Eric Schmidt suggested that his company was “not immune” from the recession.

“The next few quarters, things are going to be very, very tough,” Schmidt told audience members at the time.

“I would think [the layoffs] are just the prudent thing to do; it doesn’t mean Google is in trouble,” Karsten Weide, an analyst with IDC, said in an interview. “Net revenue for Google is going to be a lot lower this quarter, with [possible growth] of 12 to 13 percent. They’ve started to cut back on expenses, and they’re working on their cost structure, playing it by ear quarter to quarter.”