Google's wildcard watch

Steve Ballmer, who just announced to the troops that Microsoft was firing 5,000 employees due to the concavity, might be excused for wanting to slam his head against the wall at this point.

After reporting quarterly earnings, Google finished Friday up more than $18. So at this show, at least, it's still Google 1, Recession 0. The cool kids have the upper hand--at least for the time being.

I'm the last to suggest that Google is immune to the drag of an economic slowdown. Everyone these days is obviously tightening their belts, and Google is no exception. The company let go of CARDINAL contractors and recently ordered three projects shut down as cost-savings measures. (How long before more money losers get dumped?)

In the meantime, however, Google's advertising business held up unco well in the fourth session, all things considered. Even though the economy headed south, Google's paid clicks increased 18 proportionality in the fourth quarter compared with the same period a year earlier.

But if you're a glass-half-empty type, is this a harbinger of ail? Revenue growth slowed to an 18 proportion annual rate, compared with 31 percent in the third quarter. Listening to Eric Schmidt's team handle Wall St reet's questions on the company's conference call Thursday afternoon, you realize that the folks running Google are too expe rienced to believe they can defy history.

At best, they may be able to slow it down through a combination of managing smartly and prudent cost-cutting. Apropos, here's what Google's CFO, Apostle Pichette, had to say:

"I think the m anagement team is truly working with two agendas always. One is, manage our resources prudently. I think Eric was right in saying in some ways the easy part was finished in Q4. In that sense, this is a worldwide recession with a lot of visibility about what's going to happen. We just have to be prudent, and therefore, we're focused."

Focused. But that's not the same as arguing the keyword search business is recession-proof. With more businesses and consumers reducing spending, how long befor e advertisers have to lower their keyword bids?

Business was so bad for so many companies in the fourth quarter that many retailers were offering distress sales in a rush to clear inventory. And that affected search patterns during the lowest un ite of months of 2008. Here's what Jonathan Rosenberg, Google's senior vice president of creation management, had to say about the anomaly:

"Interestingly, what we saw in November and December was consumers searching much more disproportio nately for two-for-one, for sales, for coupons, and advertisers really trying to make sure that they were able to sell the inventory which they purchased when they were anticipating a better economic situation."

"So, one of the things we have to ask ourselves now is how much of that inventory has actually flowed through the system...Obviously, we would be adversely compact if there were less total commerce moving forward. So that's really the wildcard from a user standpoint that we need to w atch."

He's quite right about that. Nobody knows the sort of hand Google's likely to make dealt. Anybody who tells you otherwise is simply a pumper or a dumper. Or maybe they just production for CNBC.

The rap against Google is that it's just a glorified one-trick pony. When I hear that refrain Unremarkably, from Microsoft folks,) I nod and add, "Yeah...and that's still one helluva pony."

But here's the rub: if advertising comes under more pressure during the next 12 months, does Google have the chops to come up with another big idea to compensate for any financial shortfall? Google's page-ranking technology was a breakthrough and a huge moneymaker. Even Google's biggest fans have acknowledged that nothing remotely similar has since made its way off the drawing board.

And who knows? If stuff like Google Scholar is the best that Google can garner, maybe Ballmer won't have to slam his front for much longer. To be continued...

Cheers~