When Google reports its Q4 2008 earnings this Thursday, a lot will be learned about the state of the consumer internet and the online advertising market.
As I mentioned yesterday, one estimate has search advertising spend dropping significantly (8%) in the quarter. This despite the fact that search advertising was expected to hold up better than display advertising; some even predicted search advertising would benefit from a flight to quality.
As it is now clear that Google is not immune to recession and the company's stock price has fallen from a peak of nearly $715 in 2007 to $282.75 as of yesterday's close, the company that could once do no wrong appears increasingly challenged to figure out a way to do something right.
Last week, Google announced that it would be closing (to various degrees) Google Video, Google Catalog Search, Google Notebook, Google Mashup Editor, Dodgeball and Jaiku. The last two were the products of companies Google acquired when times were better.
The closing of Google Video made sense given Google's ownership of YouTube and the other services that were shuttered were perhaps best described as 'pet projects' to a billion-dollar giant like Google.
But yesterday Google made an announcement that is far more telling: it is closing Google Print Ads.
Launched in 2006 and expanded in 2007, Google sought to do for newspaper advertising what it did for online advertising with AdWords: "enable...advertisers of all sizes to easily plan and buy traditional newspaper media in both national and local newspapers within a single, web-enabled interface."
That was an ambitious goal even then as the struggles of newspapers were already clear. But if any company seemed capable of developing a lifeline for the newspaper industry and figuring out a way to save it from declining print revenues using a new business model, Google was it.
Google's failure to do so is probably more a reflection of the economic environment and the massive decline in newspaper ad spend than it is a reflection of Google's capabilities (or lack of them), but it's increasingly clear that Google isn't a miracle worker. For all its attempts with programs like Print Ads, Audio Ads and TV Ads (are these the next to go?), Google has not really been able to develop a substantial business outside of search advertising.
Services like Print Ads, Audio Ads, TV Ads and Ad Planner have clearly been part of a concerted effort by Google to create a unified platform that would enable advertisers and media buyers to purchase and manage advertising across all mediums. The shuttering of Print Ads signals that this strategy has not worked as well as Google hoped.
So where does Google go from here?
It's in a tough spot. Unless it finds a significant new revenue stream outside of search, investors will probably not find a reason to fall back in love with it as much as they were before. That's problematic because the current stock price will make it hard to retain employees (and recruit new ones when the company is ready). It also puts pressure on management to make more of the cuts we're seeing. While some of Google's 'pet projects' probably needed to be cut, the company's culture of experimentation is crucial to finding the next big innovation that it hopes to capitalize on. So cutting back too much to manage operations based only on the search business would probably not be good for Google over the long-term.
Thursday's earnings report will be more important than I think many realize. Stay tuned.