What do 16,000 people 'do' at Google?
I'm beginning to think that besides search advertising, hiring is the thing Google does best. — On Thursday, the company reported gains of 50 percent or so in quarterly profit and revenue from a year ago, beating analyst expectations.
Context & Ripple Effects
CNET's question lands the day after Google reported third-quarter profit up 46 percent on $1.07 billion in net income, beating Wall Street with help from tighter cost controls and accelerating share gains in web search. The puzzle the column poses is that the headcount behind those numbers — roughly 16,000 people — keeps growing even as margins improve, which is why the author concludes that besides search advertising, hiring is the thing Google does best.
The same week supplies part of the answer: Marissa Mayer previewed a health platform for early 2008 aimed at patient records, Jeff Huber told the Web 2.0 Summit the platform wars are over with the web as the platform and demoed Gadgets, and Google shipped a News application for Facebook plus Subscribed Links in Co-op. Payroll, in other words, is being pointed well beyond the search box.
First-order effects
- Google's cost discipline is holding while it adds staff — profit grew 46 percent in the quarter even as headcount approached 16,000, so the hiring machine is not yet diluting the earnings story investors are rewarding.
- Every rival competing for the same scarce engineering talent — Yahoo, Microsoft, and the startups Google recruits against — now faces an employer whose growth rate lets it absorb headcount faster than they can match on compensation.
Second-order effects
- The new hires give Google capacity to press its non-search bets announced this week — the health platform slated for early 2008, the Gadgets widget push, and distribution deals like the Facebook News app — turning an ad-funded balance sheet into a multi-front product offensive.
- If 'what do they all do' stays hard to answer from the outside, competitors must plan against a company whose next product category is effectively unknowable until launch, raising the option value of Google's stock relative to single-line rivals.
Third-order effects
- The pattern points toward Google as a conglomerate structured around one cash engine: search advertising funds an ever-larger engineering bench deployed across adjacent markets, making headcount growth itself a leading indicator of where the company attacks next.
- Sustained hiring at this pace would make engineering-talent supply — not server capacity or ad inventory — the binding constraint on Google's expansion, pushing compensation and acquisition-of-teams costs up across the industry.
The trend: Web-scale companies are converting advertising profits into diversified product platforms by out-hiring the industry, with headcount growth becoming the tell for their next target market.