6.4. TEN YEARS LATER
Google entered 2008, the tenth anniversary of its founding, with trumpets blaring and triumphant flags flapping in the breeze:
Month-by-month its share of the search market was growing at well over 15 percent annually, reaching nearly 60 percent early in the year.
Its financial position was like a fortress, with $14.2 billion in cash, $17.3 billion in assets, and only $2.4 billion in current liabilities.
In the four years after going public, sales revenues had rocketed from $3.2 billion to $16.6 billion. Net income had increased even more, going from $399 million in 2004 to $5.3 billion at the end of 2007.
Google now had a workforce of nearly 20,000 compared to 3,000 four years earlier.
The company was acquiring new businesses such as YouTube and pioneering products in all sorts of fields, including the storing of medical records and other information online.
Even so, there were signs that the Google phenomenon had reached a new phase, and that perhaps expectations for "the search engine that could" had become overblown.
Google was beginning to scare people with its unbelievable reach into privacy, property rights, and human rights. Its competitors were feeling the hot breath of Google on their necks in dozens of Internet and wireless realms. The company was accused of wanting to dominate all forms of advertising, concerns that scuttled a proposed advertising partnership with Yahoo!. BusinessWeek posed the question, "Is Google too powerful?," and Wired magazine declared, "Who's Afraid of Google? Everyone."
Writing for The Motley Fool website, Alyce Lomax admitted that Google was an innovative and smart company, but she had her doubts about the long term. "Here's why I'm apathetic to all the Google hoopla: Its other products haven't come anywhere near its success with core Internet Search (and lucrative targeted advertising). Fortunately for it, that financial success has allowed it to carry on like an abstract artist/prima donna, throwing a bunch of stuff against the wall to see what sticks. But so far, it has been impressive just how little these extras have really mattered to Google."[]
The Economist speculated that Google's share price had peaked at $742 on November 6, 2007, a suspicion that would be confirmed in the months to come (at least so far). The stock's first real slide could be partly blamed on a touchy stock market, but also partly on a slight slowing in Google's miraculous growth.
In early 2008, the shares took a second pounding when some market analysts predicted that Google's ad sales would decline substantially. On February 28, 2008, the shares fell $10.8 billion in market capitalization in just 20 minutes. When the sales numbers came out, Google defied the rumors, still running strong. The share price recovered somewhat, but still closed 25 percent from its January high.
Not long after, the realization of a worldwide recession clenched the markets in fear and Google soon lost 60 percent of its value. At one point in the year, Google traded as low as $247. By the autumn of 2008, Page and Brin had lost roughly half of their net worth (a total of $12.1 billion) due to volatility in the stock market.
It was true that Google's breakneck-speed growth had slowed a little, but the results were still darn good. Third-quarter profits grew a healthy 26 percent, although they paled somewhat compared to 35 percent in the third quarter of 2007. The number of third-quarter paid advertising clicks grew by 18 percent, off only slightly from 2007's 19 percent.
To Google's credit, the company did not go into denial. Sergey admitted the company was as vulnerable to economic strife as any other:
To the extent that everybody starts spending a lot less, I don't think we are necessarily immune. I don't think any company is immune to a total bust.[]
Although Eric Schmidt said he was optimistic about Google's future, he added, "We are in uncharted waters now."[]
The company immediately began reviewing all of its expenditures, including the hours of free cafeteria service and liberal building of data centers. Google began reducing its army of 10,000 contract employees. Schmidt said he would trim away any program the company was merely "fiddling with."[]
It wasn't entirely bad news at Google, though. The preparation for hard times came early and Google's financial footing has remained solid. Its percentage of the search business kept growing, and along with it, ad sales. "Google just continues to grab market share," said Matt Tatham, spokesman for the market research company Hitwise. "There's no ceiling for them."[]
Three months after Google's tenth anniversary and in the midst of much gloom, The Motley Fool's Alyce Lomax now saw Google's belt-tightening as positive. "On Google's 10-year anniversary in September, I said that its creativity needs to be tempered with maturity and restraint. Maybe the company finally gets it. Or maybe tough times build character in companies and people alike. Whatever the case, a grown-up Google could end up becoming a very good thing for investors' long-term portfolios."[]