Move spurred by economic slump
Google Inc. has jettisoned a substantial number of temporary workers in a recent austerity drive spurred by the recession, although the Internet search leader still intends to spend billions of dollars during the next two years on product research, development and acquisitions.
The spending plans were outlined in a regulatory filing that also provided some clues about the magnitude of a recent payroll purge targeting Google’s legion of contractors and other workers who aren’t considered full-time or part-time employees.
The filing to the Securities and Exchange Commission was submitted on Dec. 15, but it was made on paper, leaving it unavailable through the various Web services that track reports to the agency. The Associated Press obtained a copy of the records this week.
A key section of the filing is being kept confidential because Google maintains it contains trade secrets, but the publicly accessible parts provide some information that hadn’t previously been disclosed.
For instance, Google revealed it currently has 24,400 employees, including 4,300 interns, temporary workers and contractors. That contrasts sharply with the roughly 10,000 contractors that Google co-founder Sergey Brin said the company had in October. “It’s really high,” Brin said in an Oct. 16 interview with the San Jose Mercury News.
Google acknowledged in late November that it planned to significantly reduce the number of its contractors and retain all of its full-time employees.
But the company wouldn’t specify how many of the temporary workers were being dumped, feeding rampant speculation among bloggers and even industry analysts. Published estimates of the cost-cutting’s impact ranged from a few hundred to all 10,000 of Google’s contractors.
The SEC filing won’t resolve the mystery either. The 4,300 temporary workers mentioned in those documents represent a “subset” of the 10,000 contractors that Brin cited in October, so it would be incorrect to conclude the difference between the two figures reflects the total number of people cut by Google, spokeswoman Jane Penner said Wednesday. Penner would not specify how many contractors Google has eliminated.
The disclosures were made in an application seeking an exemption from rules that would regulate Google as a mutual fund if its investment activities diversify too far beyond government securities and other relatively low-yielding instruments such as money market accounts.
The Mountain View, Calif.-based company has been seeking the waiver since July 2006, hoping to reap higher returns from its $14.4 billion in cash and marketable securities.
Google also wants the exemption so it can be on more equal footing with rivals like Microsoft Corp. and Yahoo Inc. Microsoft, with about $21 billion in cash and short-term investments, received a waiver in 1988. Yahoo, with $3.2 billion in cash and marketable securities, has had the exemption since 2000.
A company can fall under the mutual fund regulations once its investments exceed 40 percent of its assets. Google’s investment securities represented 28 percent of its assets as of Sept. 30, but the company believes it could surpass the 40 percent threshold if it ventures into more lucrative options such as municipal bonds.
Although the company’s revenue is still rising, Google’s growth has been decelerating. The recession has caused consumers to shop less frequently on the Internet and advertisers have trimmed their marketing budgets. Those factors have slowed the money flowing to Google because online ads generate virtually all the company’s revenue, which is expected to total about $20 billion in 2008.
To help shore up profits, Google’s management has curbed some of the generous employee perquisites that have been a company hallmark for the past decade. It has closed some company cafeterias that serve free meals and last month withheld a $1,000 holiday gift that’s traditionally distributed to all employees. Instead, the company handed out free cell phones that run on Google software – a gift that management valued at about $400.
But Google doesn’t plan to scrimp on research and development or acquisitions.
In the SEC filing, the company said it expects to devote roughly 18 percent of its annual expenses to research and development during each of the next two years. That’s roughly the same percentage as the past four quarters, when its expenditures in the category totaled $2.7 billion.
Google also said it expects to buy other companies at a pace consistent with the past two years, when $4.2 billion in cash went toward acquisitions. Google’s $3.2 billion acquisition of online ad service DoubleClick Inc., completed in March, accounted for most of that amount.
“Given the consolidation occurring in the online advertising industry, it is reasonable to expect that Google may in the future spend considerably more to acquire companies in this sector,” the company wrote in the SEC filing.
Antitrust regulators, though, probably would take a hard look if Google tries to buy another Internet ad service. The U.S. Department of Justice already unraveled a proposed partnership that would have enabled Google to sell ads for Yahoo, which runs the second-largest search advertising network. Google backed out of the alliance in November to avoid a legal battle with the government.
Google is under greater pressure to boost its profits coming off a year in which its stock price plunged by about 55 percent.
Although it started to seek more freedom to invest its money well before the recession, gaining more flexibility this year could provide Google with another way to make more money. The recession has eroded the returns on U.S. Treasury notes and bonds as interest rates have fallen in recent months.
In the last four quarters ending Sept. 30, Google said it earned $415 million from its investments, accounting for about 8 percent of its total profit of $4.7 billion during that period. In calendar 2007, Google earned $452 million from its investments, generating nearly 11 percent of its income.
“It is … critical that Google have the ability to maximize its available resources to remain competitive in its industry,” the filing said.
The SEC hasn’t set a timetable for ruling on Google’s exemption application, according to agency spokesman John Heine.