• Find Resolution, Wednesday, February 6, 2008 12:30 PM

For the first time in years, Google posted earnings that underperformed Wall Street's expectations--with numbers that were fueled by slower growth than in previous quarters. While there were various factors attributed to the lower (but far from poor) performance, Aaron Goldman suggests that slower growth may continue across Google, Yahoo and MSN--as the recession prompts the smaller, longer tail advertisers that have driven most of the growth to cut down on their spending.

"Given that these companies are newer to search and/or have less cash reserves to weather a financial storm, they are the most likely to pull back on their paid search campaigns with the economy tanking," Goldman says. "This poses a major challenge to the engines that have been growing revenue dramatically quarter over quarter as the tail gets longer."

Slower growth from the engines means frustrated shareholders, which could spark cost-cutting measures--leading to less investment in R&D and ultimately, fewer innovations in search. Goldman says that for larger search firms, it could mean less opportunity to expand their own search platforms and services. And this downward spiral culminates in a scenario where it's much more difficult for search agencies to grow their clients' campaigns, and thus, their own businesses.

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