Even for Google, the money party is over

During yesterday's huge market sell-off, where the Dow dropped nearly 679 points, Google's shares also took a beating, dropping 2.7% to just 328.98. (So much for rock-bottom at $381 per share.) Buried in the bad news of the day, however, was the fact that the Interactive Advertising Bureau (IAB) released its online ad market numbers for the first half of 2008. While they don't look bad, they don't look pretty either. For the past five years, the growth in online advertising has been strong, fueling investments in Web services and technology, and helping cash-flush Google enter new markets, like mobile phones with its Android OS. But if Google's cash cow of search advertising begins to weaken, so will the rest of its business. How well can a company like Google weather these bad economic times?

IAB says online ad growth slowed in the first half of 2008, to just 15.2% and $11.5 billion in the U.S., down from 27% growth in the first half of 2007, which was down from the comparable period in 2006, when it grew at 37%. While growth is slowing, however, it's still growth--which is a lot more than other industries can say. And the silver lining for Google is that search advertising remained the strongest segment of the online advertising market, increasing its share from 41% in the first half of 2007 to 44% in 2008.

While it's not surprising that huge old-economy firms like GM are hitting the skids now, it will be interesting to see how new-economy Google fares. Once consumers start hitting the breaks, and decide against purchasing that new G1 or start canceling their Internet service, Google's income is sure to suffer as well. Earlier in the downturn, Google claimed it actually benefited from the poor economy, since as people had fewer dollars to spend, they became more careful, and tended to do more research (and ad-clicking) online before they buy. While true, that scenario only works if people have dollars to spend. And now that Google's stock is down 50% from its high-water mark a year ago, Google is sure to face challenges on all fronts. Its shareholders will be looking for more accountability, perhaps forcing issues like better transparency and eventual layoffs, says Silicon Valley Insider's Henry Blodgett. Even for Google, perhaps now the money party is over.