What's behind the Google layoffs

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Google (GOOG) has announced it will lay off 200 people in its sales and marketing operation. That is probably not a good sign for its revenue outlook, but it may not be as bad as it seems.

There has been speculation, which will not be confirmed until Google releases Q1 numbers, that search advertising is being battered by the economic slowdown. Google's revenue is almost certainly not down as much as other large web companies which rely primarily on internet display advertising. Industry expects expect that sector of internet marketing income to be down as much as 30 percent this quarter. Google's search ad products are viewed as a much more effective way to reach customers, so its sales may be holding their own, even in a tough market.

The positive spin on the Google layoffs is that most advertising bought on Google is bought online though the firm's AdWord program. Marketers do not have to deal with a human. They simply put the parameters of their advertising targets into the Google system and say what their budget is. The Google auction system gives ad customers better positioning based on what they are willing to pay. A marketer can change what targets it wants to reach and at what prices as often as it wants.

Google may have decided that it a bad economy, it will let its customers rely on its electronic AdWord program and get rid of a large portion of its human sales force. With a search system as strong as Google's, who needs humans anyway?

Douglas A. McIntyre is an editor at 24/7 Wall St.

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