Google Lays Off 200; Management Finally Grasps It Cannot Go on Hiring Forever

Google is laying off 200 sales and marketing jobs — the largest layoff in Google’s short existence, according to Ad Age. The news is not economically significant, but symbolically so. It suggests that even the most successful web advertising operation of all time is vulnerable to the ebb and flow of boom and recession.

The company isn’t doing too badly. Revenue was up from $16.5 billion to $21.7 billion last year. Net income was flat at $4.2 billion, but only because it wrote down $1 billion in impaired assets. Yes, this is a company that can write off $1 billion and still come up rosy. Profits would have been up 25 percent if Google had not taken that charge.

The fact that Google is not in the kind of trouble that the rest of the ad business is in suggests that these layoffs — and the 140 let go earlier in the year — may be more to do with Google accidentally hiring too many people than any decline in its ability to print money.

Analysts have been worrying (a little) that Google’s hiring was out of control. Google execs talked about hiring at length on their Q3 and Q4 earnings calls. At that time, Google CFO Patrick Pichette had not mentally grasped that even Google couldn’t go on growing its workforce forever, even after Q4. Here’s the conversation in Q3:

CFO Patrick Pichette: On the headcount front, we finished a quarter with approximately 20,000 full-time employees. That is approximately 500 net new employees added in the quarter and over half of these new net hires are in engineering, and then followed by sales and marketing. We have implemented and continue to follow a disciplined hiring process in all areas of the organization, but as we have indicated in the past, we continue to invest in our core business, both in the US and internationally.

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Jeffrey Lindsay - Sanford Bernstein: We just wanted to talk a little bit clarification on the improvement in margins. Was this due in any way to improved terms on the AdSense deals or was it primarily expense control? If it was expense control was that really through avoided hiring or was there actually any staff reduction? Thank you.

Patrick Pichette: I can answer on the expense side. Across all categories of expenses, people have been very diligent over the last 90 days and I can – and on the specifics of hiring, I mean, we have continued to hire. We just hire in many areas. We are continuing to hire because we have a lot of needs and then what we are doing is just doing responsibly. So there – we will continue to hire, that is why you see the net improvement in headcount …

More recently, in Q4, they continued the hiring despite the headwinds of recession:

Patrick Pichette: Our prudent approach to expense management is also reflected in our headcount numbers. We had approximately 20,000 full time employees at the end of Q4. As mentioned previously, we do continue to hire, with approximately 100 net new employees added this quarter.

… On the cost structure point of view, I think that if you look very simply at Google, I mean you really have a cost structure. If Hal was here, he would say all costs are variable in the long run. So that makes the answer easy. But the real issue is we’re a labor-intensive business. We have a lot of labor. And so, depending on your views on labor, right, I mean we take care of our employees.

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Mark Mahaney - Citigroup: Thank you. Patrick, one question for you; Eric mentioned that he got the formula down now for cost controls. How much more opportunity do you think there is? You’ve only been there for a quarter and a half; do you feel like you’re just starting to find ways to cut costs or do you think we saw that major impact of what you can achieve already in the quarter?

Patrick Pichette: I think that you have to keep in mind that the mindset of the company is to be a growth company. I think that Eric, Larry, Sergey always pounded into every management meeting that, we’re a growth company and we’re focused on growth.

So, in a certain way, we are really focused on growing this company. In that sense, I’d love to have more cost because I have more revenue and we’re going to continue to focus on that. On the issue of, is there more available cost cutting or efficiencies available? All I’d say is we’re just managing responsibly given the environment.