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This week: When Google got too big to shrink
Depending on where you’re sitting, the same string of words can delight or distress you. That’s what I was thinking when I heard Google CFO Ruth Porat, during the company’s Q1 earnings call on Tuesday, explain that “after a decade of growth there have to be opportunities for added efficiency.”
For the intended audience of Wall Street analysts and investors, the comments were no doubt a balm for uncertain times, eliciting thoughts of falling operating expenses and rising profit margins.
To any Googlers who tuned in though, the CFO’s comments probably struck a less reassuring chord. Efficiency kind of rhymes with redundancy, which is another way of saying layoffs.
As Hugh Langley reports, however, Googlers need not worry too much (at least not yet). Yes, Google is backing off the aggressive hiring plans it started the year with. But Google isn’t actually planning to reduce its headcount – which now tops 123,000 full-time employees – nor even to freeze hiring. It’s simply promising to “decelerate” the growth in headcount from the brisk 20% rate it logged at the end of 2019.
If we assume, for the sake of argument, that Google’s headcount grows by only 16% this year, that translates to an additional 20,000 new hires. That’s a lot of onboarding, whether the newbies are coming to work in offices or via video chats.
By contrast, during the Great Recession more than a decade ago, Google’s headcount in 2009 declined by about 350 employees. By 2010, Google’s headcount was growing again, swelling by more than 4,000 souls in 12 months.
This underscores the new reality in tech today.
The up and comers, born during the last recession, are not as omnipotent as we thought:
- Uber is bracing for significant layoffs and has lost three of its senior, C-level execs.
- Airbnb’s IPO is in limbo and the company is upending its business model to focus on long-term stays.
- And of course, there’s WeWork.
But companies like Google and Amazon are cementing their dominance. In Google’s case, it’s getting bigger even as it takes steps to cut costs and be more efficient. It can’t help it. When you get to be that big, your momentum is a force of its own.
So what’s helping the GOOG?
YouTube’s ad business, particularly the direct response ads on the video site, showed remarkable durability in Q1.
And Google got a nice boost from the non-advertising side of its business, also known as Google Cloud.
Introducing BI’s first venture capital panel
We recently convened (virtually) a panel of 18 venture capital investors to discuss the state of startup funding in the time of the coronavirus pandemic. It’s tough to get VCs to agree on much of anything, but the panel revealed a few important takeaways affecting various factions of the tech industry.
For startup founders: You’re not imaging it,VCs have no qualms about dropping funding deals struck before the virus. Your letter of intent is really just a handshake deal, and as everybody knows, nobody wants to shake hands right now.
For startup employees: Direct listings – the buzzy alternative to an IPO that would have allowed you to sell shares sans lock-up period – are dormant for the foreseeable future.
For dealmakers: Falling startup valuations won’t necessarily spur an M&A free-for-all. One-third of the VCs on the panel expected a slight uptick in deals, but the majority expect deal activity to slow. And that was before members of the US Congress started talking about a legislative freeze on acquisitions.
Want to be part of the panel? If you’re a VC, we want to hear from you. Drop me a line at [email protected]
Sound bite of the week:
“We finished the summer and hadn’t raised a dime. We thought, maybe this is a bad idea. Maybe this developer thing is a horrible idea. Maybe this is a bad time.”
Jeff Lawson, cofounder and CEO of Twilio – now worth $US14.6 billion –remembers the summer of 2008 when the founders tried to raise seed funding for their startup during the Great Recession.
Not necessarily in tech:
How big banks decided the futures of America’s small businesses: The inside story of how $US349 billion in government cash was doled out in just 12 days, leaving thousands of entrepreneurs without relief
OK, I’m afraid we’ve reached the end for this week. Thanks for reading, and remember, if you like this newsletter, tell your friends and colleagues they can sign up here to receive it.
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