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Is Google facing a retail downturn?

Is Google facing a retail downturn?

Google’s Ad and Search business made hay during the pandemic. Could it all come crashing down?

Here’s what you need to know this week:

  • Affairs of state: Is Google facing a retail downturn?


  • Google settled a gender discrimination lawsuit
  • Apple workers unionised for the first time
  • Microsoft learned about unconventional hours
  • Meta harvested health data
  • Amazon eyed a big Prime Day
  • Tencent’s workforce shrank

Affairs of state: A retail reckoning

Google appears to be weathering the economic turmoil that’s defined the first half of the year. But is there a reckoning on the horizon?

The headline figures are positive. Alphabet – the company that owns Google – recently posted a 23 per cent increase in total revenues in the first quarter of 2022. Revenue from Google Search, which accounted for more than half of total revenues, was up 24 per cent from a year ago.

Double digit growth supported by a dominant online advertising business may sound like a highlight reel earnings report. But when it was posted in April this year, analysts were disappointed. And there may be worse to come. 

Why? Both Google’s profits and revenues were growing substantially less fast than at the beginning of 2021, thanks to a post-Covid economic headwind that slowed down Google’s services and ads businesses. 

It all seemed so different in 2021, when Google’s online ad business benefited from people locked at home, in front of their computers, relying almost entirely on e-commerce. Now, rising inflation, an energy crisis, impacts from Russia’s invasion of Ukraine and a gathering recession all loom on the horizon. 

You can see this shift most clearly in Google’s “cost-per-click” metric – the amount an advertiser paid Google to get enough people to look at their advert to get one click through to their business. Between 2019 and 2020 the cost for advertisers rose sharply. 

In 2022, they are at a historic peak. Cost-per-click not only shows the amount that Google can charge retailers, but also the amount that those retailers are willing to pay given the competition and consumer climate.

Advertisers were prepared to pay more to Google partly because the average time users spend browsing on phones and computers rose steeply in the US from 2019 to 2020, by nearly 15 per cent. Online retail became even more of a key battleground. 

But in 2022, growth in screen time is pretty much flat, and potential buyers are feeling the squeeze from all sorts of macro-economic pressures. And for the companies paying more per click, the question is: does the tactic still deliver customers?

This year, e-commerce is predicted to slow down overall. The US food index also shows that eating got 8 per cent more expensive for Americans over the past year, and the price of fuel is up nearly 20 per cent in the last month alone. 

What is Google’s problem? For years, its search revenue has driven innovation in other areas. Google has grown used to relying on a seemingly inevitable rise in price-per-clicks. If that income starts stuttering it could result in a fundamental change in the profits and power of the tech states. 

Of course – that’s a big if. There are arguments to suggest that Google is weathering the retail storm better than other big tech companies. And yet big retailers who ramped up their payments to Google during the pandemic – like ASOS, the online fashion retailer – are in trouble.

Last week ASOS warned investors that profits could fall as much as 90 per cent on the year, and that an increase in “cost of living pressures” and returns were hampering growth.

Like all retailers, ASOS also needs to cope with the increased cost of shipping, processing and restocking delivery warehouses. All of which means that it’s likely to spend far less with Google this year. ASOS is unlikely to be the only company under such pressure.

Have analysts overshot expectations for Google? Three of the major advertising agencies – Zenith, MAGNA and GroupM – remain bullish, posting optimistic forecasts for the ad market in the second half of 2022. They predict an average of 11 per cent growth in the North American ad market. 

If that’s right, Google and other online advertising platforms will probably be just fine. If their optimism is misplaced – in the face of a mounting global crisis around food, fuel and finance – Google will be one of the main companies to suffer.

Google: Discrimination lawsuit

Five years after it was first sued by three female employees, Google last week agreed to pay $118 million to settle a class-action gender discrimination lawsuit. The three women accused the company of underpaying female workers and locking them into lower career tracks, and last year turned their case into a class-action lawsuit covering 15,500 women across 236 job titles. Holly Pease, one of the central plaintiffs, said she was “optimistic that the actions Google has agreed to take as part of the settlement” – including having a third-party expert analyse the group’s hiring practices – “will ensure more equity for women.” Cynics pointed out that the settlement equalled about eight hours of Google’s revenue.

Apple: Union precedent

The slow wave of unionisation continues to break across the tech states. Apple workers in Towson, Maryland, voted to unionise this week, becoming the first Apple union in the US. What’s interesting is how emphatic the result was, with more than two thirds of employees voting in favour of being represented by a union, the Apple Coalition of Organized Retail Employees. Even though it’s just one store, a precedent has been set. Employees said part of their reason for voting pro-union was Apple’s anti-union campaign, which included management telling workers that unions once prohibited Black employees. The big question now is: where next?

Microsoft: Unconventional hours

A story not about Microsoft this week – but about what Microsoft found out. The tech state commissioned an interesting survey into its Gen Z consumer base and its attitude towards a traditional 9-5 working day. It found that almost two-thirds of Gen Zers started, or intended to start, their own business. Some 91% of Gen Z small business owners worked “unconventional hours”, and 81% work on holiday, dispelling some of the myths about young people’s work ethics. The survey presents a challenge to Microsoft, which has always been defined as the buttoned-up, office-based tech state. Maybe that’s why the company is introducing games like Connect 4 and Solitaire to Teams. As if we didn’t already have enough distractions.

Meta: Sensitive data

Health data is one of the most sensitive types of information, so it was worrying to learn this week that hospital websites in the US (and maybe in the UK too) are sending Facebook sensitive medical information. Work by the MarkUp reveals that a tracking tool installed on 33 US hospital websites contains the Meta Pixel tracker, which sends Facebook data whenever a person schedules a doctor’s appointment. Some of the data transmitted was shockingly personal. On the website of University Hospitals Cleveland Medical Center clicking the “Schedule Online” button on a doctor’s page sent Facebook the doctor’s name and the search term used to find her: “pregnancy termination.”

Amazon: Prime Day

Prime Day for Amazon is always a huge event – with 250 million items sold over just two days in July. This year the stakes are particularly high. The tech state is dealing with a slowdown in online shopping, and this year’s Prime Day is also the first without Jeff Bezos as chief executive. Andy Jassy, the new CEO, has spent the  year paring back Amazon’s rapid expansion during Covid 19, subleasing excess warehouse space and closing 68 physical shops. In April, Amazon reported its first quarterly loss in seven years. So analysts’ eyes will be on whether Jassy can use Prime Day to help recover Amazon’s fortunes. For the rest of us, wait until next month to buy a Kindle or Echo device.  

Tencent: Workforce

The state clampdown on Chinese internet giants is starting to have a real effect on the workforce. Thousands have been made redundant and many of those who remain subjected to pay cuts, hiring freezes and a cancellation of office perks. Tencent’s executives have put “cost control” at the top of their agenda, repeating a version of the phrase more than a dozen times in calls with Wall Street analysts (h/t the FT for counting). Meanwhile, youth unemployment in China is at record levels. The problem is so bad that the phrase “bailan”, roughly meaning “let it rot”, has become popular among China’s youth to describe how they have given up trying.

Thanks for reading,

Luke Gbedemah

Alexi Mostrous