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Google's woes - Goops!

2012-10-23 04:28:53

Oct 18th 2012, 21:53 by M.G.| SAN FRANCISCO

EARLIER this week, Google caused a stir on the internet by revealing photos of the inside of its data centres, which are generally kept off-limits to prying eyes. On October 18th it caused an even bigger stir on Wall Street when details of the company s financial results for the third quarter of 2012 were accidentally revealed to the market before they were approved for publication. The contents caused Google s share price to fall sharply, wiping off more than $22 billion of its market capitalisation before trading in its stock was suspended on the Nasdaq market while the firm sorted out the snafu.

The exact chain of events that led to the mishap is still unclear, though Google has said that R.R. Donnelly, its securities filing agent, issued the earnings release prematurely. (R.R. Donnelly said it is fully engaged in investigating the matter.) The draft even contained the words PENDING LARRY QUOTE , which referred to missing words of wisdom that had yet to materialise from Larry Page, Google's boss. Wags on the web were quick to fill in the gap on a Twitter feed, @PendingLarry, with suggestions that included Man, our privacy was WAY violated today and Somehow, I ll find a way to blame today s early release on Apple Maps .

But the rest of the release s contents and the fact that it was released unexpectedly, roiling the market were no laughing matter. Google s net profit fell by a fifth compared with the same period of 2011, to $2.2 billion. And its average revenue per click fell by 15%, fuelling fears that the company s core advertising business is being affected by the fragile economy and the steady shift of search activity from desktops to mobile devices, where it is tougher to monetise.

When Mr Page s actual quote finally materialised in the definitive earnings release, it stressed that Google had seen revenue rise 45% year-on-year in its latest quarter, to just over $14 billion. That is indeed impressive. But the costs of everything from those data centres (whose multi-coloured innards are now on display) to the restructuring of Motorola Mobility, its struggling mobile-device maker, have been rising fast.

Fixing Motorola swiftly and finding new ways to drive up advertising sales, which account for most of Google s revenues, are a top priority for Mr Page and his team. But they face an increasingly complex regulatory landscape, which could hamper their efforts. Earlier this week 27 European data-protection agencies issued a statement calling on Google to clarify how it is processing and storing users data, and to give folk more control over how information about them from different Google services they use is combined by the company. Such changes would hamper Google s efforts to drive up its ad revenues, but the regulators have made clear that if it fails to act within a few months it could face fines or legal action.

Watchdogs on both sides of the Atlantic are also investigating whether Google has used its search engine to favour its own services unfairly. The company is said to be trying to negotiate separate settlements with both the European Commission s antitrust officials and America s Federal Trade Commission in order to avoid protracted legal wrangles. But it is not yet clear exactly how the negotiations will play out. Answering a question about this issue posed at a conference that Google organised in Arizona this week, Mr Page noted that over-regulation of the internet and restrictions on what people can do is a big risk for us . That might be a good quote to include in Google s next earnings statement.