Google survives Facebook attack, posts big ad growth
Google has surprised many pundits, posting an impressive 27% growth in ad revenues for the first quarter of 2011, amounting to a tasty 8.58 billion dollar windfall. That growth has taken some pretty substantial investment, however, with a strong fight back against a recent Facebook poaching drive hacking in to some of Google’s top talent.
Facebook’s incursions in to the Googleplex made headlines last year, with 12.5% of all their staff coming via the search giant. Facebook offered big ideas and big salaries, but Google bit back, reportedly flaunting substantial counter offers to tapped up employees. Google also dropped a massive 10% increase in salaries for every Google employee. It wasn’t enough to deter everyone from defecting, but certainly slowed the exodus, but Google are now dealing with the financial fall out.
“Google’s Q1 results tell a story of a growing but structurally more competitive market,” Ovum’s lead media technology analyst Adrian Drury explains. “While Google’s ad revenues were up 27% at $8.58bn for the quarter, against growth of 23% in Q1 2010 and beating analyst expectations, its earnings are getting hit by a jump in its wage bill.
Drury says despite Google’s remarkable revenue growth, the profit margin is a lot lower than previous years.
“Operating costs are up to $2.84bn,” he says, “a year-on-year increase of 54% with a major share coming from growth in its overall headcount and the 10% increase in salary across the board for all Google employees.
“As it pushes deeper into mobile, broadcast and online display advertising, engineering talent retention is going to be critical and expensive,” Drury says. “Inflation in its wage bill is going to persist and it will need some of its bets in video and display advertising to start paying out to stabilize its operating margin.”