Google isn't recession proof.

In recent months the behemoth that is Google has started to take action to rein in non-core or non strategic business activities.  In January, Google announced it was shutting down Google Print Ads, and withdrew support for Google Notes.  Recently it announced it was shutting down Google Radio Automation.  Google had seen these areas as less successful than they had hoped.

Clearly Google is not immune to the recession.   Recent figures released by JP Morgan last November suggest that online advertising spend fell by a third in the last six months of 2008.  In addition, advertisers are looking to improve return on investment and are turning to CPA and away from PPC.

With CPA (Charge per action) only costs an advertiser in response to some specific action such as a user buying goods rather than with PPC (Pay per click) which cost as soon as a web user clicks on the ad.  Google’s flagship advertising service is Adsense, their leading PPC service. So the primary driver seems to be sensible economic business steps rather than involved explanations of Google’s strategy etc.

MySpace contemplate life after Google?

News that Google may end their search deal with MySpace will be adding to the concerns of the social networking scene.  The three and half year deal is reportedly worth $900M and it is proving very hard for Google to make money, even with their dominance of the PPC advertising market.  This news comes hot-on-the-heals of News Corps reported Q2 loss in its Fox Interactive Group.   MySpace is thought to bring in the majority of the revenues coming in from Fox Interactive. Here is what they had to say on the issue: “Fox Interactive revenues: $226 million revenues.  Down due to reduced subs at IGN. Search and advertising were similar to a year ago.  Costs were MySpace Music and international expansion”.  Overall the entire division lost $38million.

If Google pulls out, MySpace will become a significant drain on Fox as the shine seems to be coming off Social Networking as users begin to wake up to the many privacy issues that exist and how their personal information may be being exploited without their explicit permission.

As for Google, well Barclays' analyst Doug Anmuth stated that:-

“Google no longer sees the need to win distribution at any cost, and we also think it is internally re-evaluating its relationship with MySpace which includes $900 million in payments in the 3.5 year term leading up to mid-2010.  Importantly we do not believe Google would lose share as a result of this shift”.

With such a ringing endorsement from a “Banker”, I am sure that Larry and Sergey can rest easy……….