Is Google in Trouble?

This might come as a surprise to you in light of their recent Q3 results in which they beat forecasts by 31% increase in revenue. However let’s look at the clear and omnious signs that even Google is not recession proof and may be in more trouble than you realize.

A million servers and counting… The Operating Cost factor

According to Gartner’s estimates, Google has over a million servers or more. The number represents a major portion of basic operating expense of running Google.

Google’s operating expenses, other than cost of revenues, were $1.63 billion in the third quarter of 2008, or 29% of revenues. The operating expenses in the third quarter of 2008 included $859 million in payroll-related and facilities expenses. With the economy in recession, this high operating expenses is definitely going to impact Google’s propsects. Google has in recent years, tried like Microsoft a decade earlier, to get its hand in every pie, in every product segment, be it social networking (Orkut), to content generation (Knol), enterprise apps (Google Apps), search analytics (Google Analytics), virtual world (Google Lively) and more. Each of its initiatives has a cost in terms of time and resources. There is a reason why any good executive will tell you to focus on your core competencies. Too much diversication, even for a behemoth like Google, can spread your resources too thin and often in more unproductive (but cool) areas as it is these days with Google. Google could have got away with it in a booming economy which lapped every Google’s new venture. But in this stressed economy Google’s executives will have to answer for its diverse cost sinking ventures and sooner than you may think.

Google facing serious stability issues in Google Apps and raises questions about its cloud computing model for business

That would be a shocker isn’t it? Google is well known for massive scalability in its search engine. Gartner estimates Google has over a million servers and counting. However any user of Google Apps will tell you that it is notorious for serious downtime. Google Mail this week alone suffered from over 30 hours downtime!

From Wednesday through Thursday, some Gmail users couldn’t access their e-mail accounts, similar to the infamous Gmail outages from August.

In the Start Page bug, users were frustrated by broken links and gadgets that prevent end users from reaching their e-mail inboxes.

The overarching and long standing issue is whether users can depend on Google Apps for serious business use? Google has no answers at this time.

Google Apps continuing issues raise serious concern on not only its quality control but also on the reliability of its cloud computing model in the applications space.

Google goes for gambling

Google is so desperate for cash that it is now allowing gambling advertisements in its search results in UK - for the first time anywhere in the world since a self-imposed moratorium in 2004.

Industry experts say Google could generate more than £100m in revenues from rule changes.

Google is obviously unsure about growing prospects of its advertising business to venture into gambling advertisements.

BTW: What bother me more is that Google over the years is genuinely moving away from its much touted “do no evil” and becoming yet another greedy corporation with monopolistic powers to do what it pleases. Gambling has the potential to destroy lives and as far as I am concerned is definitely evil. Promoting gambling makes it worse.

Begging for support…

In its latest attempt to convince the Justice Department to approve the Yahoo deal, Google is asking search marketers to try to sell the pact to federal authorities!

Search marketer Darrin Nix, who said he spends around $100,000 advertising on Google, told TechCrunch he received a phone call from a Google lawyer asking for his help at the DoJ.

BTW: Nix refused to help Google because he believes in free marketing. Nix is also worried that the price of ads will increase if the deal goes forward.

Concluding thoughts…

The key question is not even if Google is in trouble. Almost every company is going to be in trouble during the recession. Google’s main source of revenue is through AdWords program or online advertisements. In recession advertisement will decrease and so will Google’s revenue, that is well known. However with its huge fixed operating expenses, Google may be impacted more than you think. Google IMHO is too thinly spread across its diverse ventures and that takes away its focus from its core strength - search. You can expect Google to expand more on its advertising business by cutting down on revenue share with AdSense publishers and / or venturing into previously untouchable domains like gambling and who knows even porn (I do not any longer buy Google’s commitment to “do no evil” going by its recent action in diverse areas). I expect to see the impact on Google as early as Q1, 2009.

Let me know your thoughts in the comments below.