As COVID-19 impact worsens, Google cuts marketing budget by 50%
Google LLC plans to cut its marketing budget by 50% for the second half of this year, according to a leaked internal memo sent to employees this week.
The report comes a week after Sundar Pichai, chief executive of Google’s parent company, Alphabet Inc., said in an email to employees that the company was cutting new hires this year as part of its response to the COVID-19 pandemic.
This week’s memo from an unnamed “global director” at Google, first seen by CNBC, relays the company’s plans to cut its second-half marketing budget by “about half.” The memo didn’t refer to any specific business unit or product group, but said the cuts would occur “across marketing and Google.”
Google’s marketing budget is quite huge. In 2019, it spent $18.46 billion on its sales and marketing efforts, according to its financial reports, though that figure also includes employee compensation.
One area of particular importance to Google from a marketing perspective is its cloud computing business, which is heavily dependent on hiring more sales reps to compete with Amazon Web Services Inc. and Microsoft Corp.
If cuts are made there, it could pose problems for Google’s cloud business, as the company has often stressed in the past that it needs to invest in its sales force, said Constellation Research analyst Holger Mueller. Inc.
“Thomas Kurian, CEO of Google Cloud, sees the lack of sales staff as a major weakness compared to its main competitors, Amazon Web Services and Microsoft Azure,” Mueller said.
Google acknowledged it planned to make cuts in a statement emailed to CNBC, but said all of its business would not be affected.
“As we highlighted last week, we are reassessing the pace of our investment plans for the remainder of 2020 and will focus on a number of significant marketing efforts,” a company spokesperson said. . “We continue to have a strong marketing budget, especially in digital, across many business areas.”
In his email last week, Pichai warned that the company planned to review non-essential business marketing this year, but did not disclose the extent of the budget cuts. Still, he was explicit about the company’s plans to “significantly slow” hiring, even though it will onboard thousands of new employees who have already been hired this year.
This of course raises a question, another Constellation Research analyst, Liz Miller, told SiliconANGLE. Namely, what does Google consider “non-essential marketing”?
“In today’s era of smart, intelligence-driven marketing strategies, how does a marketing investment still persist in the non-business-essential category? One would hope that part of that decision is to weed out any remnants of spending for spending’s sake, or vanity campaigns launched to appease whims,” Miller said.
Either way, Google should come out of the COVID-19 crisis in good shape. For one thing, Google still leads the pack in the all-important search market, and it’s one of the big three in digital ad spend, along with Amazon and Facebook, the analyst said.
“Right now times are tough, but the digital engine will kick in quickly as the economy appears to be accelerating rapidly,” Miller said. “Google and Alphabet, at least on the marketing and advertising side of the business, may feel the pinch, but they won’t be down for long.”
