Google feeling the pinch?

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Sumi Das: Hello. I'm Sumi Das for ZDNet here with our senior editor, Sam Diaz. Sam, thank you for being with us.

Sam Diaz: Thank you for having me.

Sumi Das: Google is in the news. There's an analyst out there who is saying that their revenue might fall off in the next couple of years. Are we surprised about the fact that Google might not be recession proof?

Sam Diaz: No, I don't think that's surprising at all. I mean Google, like many other Internet companies, is -- its finances are largely tied to advertising. And as we know, businesses have cut back on their ad spend. Consumers aren't spending as much. Confidence is down, and so because it's tied so closely to advertising, that doesn't surprise me at all. You know, Google -- it's been really good at launching new technologies and making acquisitions and that sort of thing. You look at YouTube. YouTube is great. Lot of eyeballs, right? But no revenue, no money really coming in --

Sumi Das: Popular, but --

Sam Diaz: Very popular. Very popular but --

Sumi Das: Can't take it to the bank.

Sam Diaz: That's right. That's right. So I mean the fact that Google could be hit by the overall economy? No, that's not surprising to me at all.

Sumi Das: Okay. What about the fact that this is one analyst making these predictions? How much stock should we put into the beliefs of one, solo analyst?

Sam Diaz: Well, it is one analyst, but I suspect that -- you know, the arguments are very good in this analyst's report, so I suspect other analysts will follow. It's a good argument, and I think that you'll see others follow suit on that.

Sumi Das: Google has consistently been voted best place to work by so many different organizations and magazines and all of that. Are there gonna be people losing their jobs as a result of this?

Sam Diaz: Well, you know, this report also says to expect workforce reductions of about 10 to 15%. I actually think that's a little bit high, but I wouldn't be surprised to see some things cut back there. There was a little bit of a buzz a while back about a workforce reduction, and the big headlines were "Layoffs at Google." "Ten Thousand Jobs," when in fact it was actually contract workers, people who -- they're not full-time Google employees whose contracts were not being renewed. But you know, there has been some times -- cutbacks. My understanding is that there's a data center in Oklahoma that Google has now scrapped the plans on. So if there are cutbacks going on, it's only natural that we'll see some workforce reductions there as well.

Sumi Das: With the outlook not looking so rosy for Google over the next couple of years, does this kind of open the window for a competitor to slip in? Microsoft perhaps?

Sam Diaz: I think that window's actually already been opened. You know, Microsoft has definitely stepped up its game.

Sumi Das: A bigger gap in the window?

Sam Diaz: That's right. You know, a while back there was a lot of news about Google and Yahoo teaming on an ad deal. Well, that was scrapped. Google stepped away after Washington raised some red flags about that. But, you know, regardless of what Steve Ballmer out at Microsoft is saying, there's plenty of talk out there that Microsoft and Yahoo still need each other n a search deal. Now, if those two step up, they would go head to head with Google. Likewise, you know, Microsoft has launched its inaudible computing services, and it's really beefing up its registration on its live ID. In the meantime, you know, Google's sort of still trudging along there, but Microsoft is definitely trying to step up its game. And I think we'll see a lot more competition, a lot more heat out there in 2009.

Sumi Das: Tough times for all business. We'll be curious to see how Google handles it.

Sam Diaz: That's right.

Sumi Das: Thanks, Sam.

Sam Diaz: Sure.

Sumi Das: You can read more at blogs.zdnet.com.

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