Is Bad News Really that Bad? Google and Microsoft’s Dip in Performance

At the end of October 2022, Google’s parent company Alphabet reported a 27% decline in quarterly profits compared to Q3 2021. * However, it’s not all doom and gloom. Group revenue rose by 6%. Google Cloud has experienced 38% year-on-year growth, reaching revenues of $69 billion, up from $62 billion for the same period in 2021. *

Now, you’d be forgiven for thinking that these are just figures. For thinking that Google and Microsoft performance doesn’t affect my business, even any profit decline is to be expected given the volatile world we find ourselves living in – even what’s the big deal? Google is still making a profit. Albeit a small one. And you’d be right. There’s just one thing: Q3 2021 saw Alphabet experience 41% growth. Then there’s the not to be avoided fact that industry analysts predicted 9% revenue growth. Not 6%. *

So, let’s get to the crux of the matter. With much of the US – and by extension the world – economy dependent on the performance of big tech companies, is it time to hit the panic button? Spoiler alert: NO.

Why Have Google’s Profits Declined?

The global economic contraction, rising operational costs and reduced consumer advertising spending have been cited as catalysts for Google’s decline in profits. However, figures have been skewed by obvious performance comparisons to 2021.

Throughout the pandemic, eCommerce boomed. Businesses invested heavily digital advertising, pumping billions of dollars into existing and new ventures. High street businesses shut up shop in favour of online retail. Existing businesses decided to spend their way out of decline and invested heavily in eCommerce marketing.

Google benefitted tremendously from lockdowns. But this inflated revenue and profits to levels that weren’t a true reflection of fiscal performance, merely a reflection of social and political circumstances. Today the world is different. The pandemic is over. Prices are rising. So too are interest rates. This fuels uncertainty. Talk of recession. Spooking the global markets. Then there’s political turmoil in both the US and UK. And let’s not forget the war in Ukraine.

This has all contributed to Google’s profit contraction. But the search engine behemoth isn’t the only big tech business facing challenges.

Why Have Microsoft’s Profits Declined?

Google wasn’t the only big tech business facing challenges. Beleaguered social media giant Meta (formerly Facebook) recorded a net Q3 income of $4.4 billion, down 46% from 2021. Total costs and expenses amounted to $22.05 billion, an increase of year-over-year. Meta’s Reality Labs, responsible for driving AR and VR innovation recorded a Q3 operating loss of $3.67 billion compared to $2.63 billion in 2021. * Let’s also not forget that Meta is in the midst of its biggest transformation (and, perhaps, the biggest transformation of any big tech business ever) and, as such, losses are to be expected.

However, the business that’s, arguably, more indicative of big tech performance is Microsoft. At the beginning of October 2022, Microsoft recorded a 14% drop in Q3 profit compared to the same period in 2021. Alongside this, the world’s most popular software company announced a net income of $17.6 billion (or $2.35 per share) and a quarterly revenue of $50.1 billion – up 11% from Q3 2021. *

Despite strong performance, economic forecasters have been steadfast in their opinion that Microsoft is widely expected to take a hit in Q4 2022 and into 2023. Why? Growing economic uncertainty and a slowdown in sales is likely to affect Microsoft’s performance.

Throughout the pandemic there was a boom in PC and software sales, prompted by volume of people working from home. Worldwide PC shipments declined 19.5% in Q3 2022 compared to Q3 2021, according to leading market research firm, Gartner. * This is the steepest decline since Gartner began tracking the PC market in the mid-1990s. The decline was compounded by a poor back-to-school sales performance.

Growing economic concern in both the US and UK is thought to be a symptom of economic uncertainty and the swell of PC sales at the start of and throughout the pandemic. People and institutions simply have the equipment they need right now!

Microsoft made up for its Window-related losses by strengthening its Cloud computing services to both businesses and other institutions globally.

It’s Hardly Time to Hit the Panic Button

On face value, this all may seem uncertain, almost doom and gloom. But if you read between the lines and understand the economic volatility caused by the pandemic, political and societal unrest and the war in Ukraine, big tech profit reductions are easily explainable.

Now, sure, you can go online and find tonnes of articles which basically say that the big tech chickens have come home to roost, but if you take a moment to this about it, these articles aren’t an accurate refection of the current state of the market.

Let’s not forget that writers and their publications typically have their own personal, political, commercial and economic viewpoints. Those sceptical of big tech tend and its influence tend to err on the side of the negative. Those who champion the value of big tech will err on the side of the positive.

However, political change aside, Google recorded its weakest quarterly growth (outside of the pandemic) for a decade, with sales growing by 6%. Microsoft’s sales still rose by 11%.

Does this mean that the party’s over for big tech companies and myriad sector businesses should consider redirecting to their marketing budgets away from Google Ads and SEO? No. Of course not. Does this mean that ROIs will be reduced? No. In fact, it can be argued that during times of economic trepidation, investing in marketing is paramount.

Why Businesses Need to Invest in Marketing During an Economic Contraction

Although the first instinct of many businesses is to reign in their spending when the economy is jolted by a looming, impending or definite recession, history has taught us that this isn’t the best idea. For several reasons.

Interested in learning why scaling back on the digital marketing is a BAD idea as 2022 winds down and 2023 begins? Keep reading.

Outsource Your Marketing

Digital marketing is complex. There are several disciplines, requiring varying skill sets. Sure, hiring someone (or a small team) who can write content and turn their hand to basic, even intermediate SEO will add value to your business. But what about PPC? Website design? Video marketing? PR?

Sure, the great resignation may have prompted businesses to consolidate departments, but consolidating the marketing with, let’s say, the sales department is a BAD idea. If you want to leapfrog, stay ahead or even keep pace with your competitors, you need to employ specialists. You need to outsource your marketing to a digital marketing agency, like Jungle Marketing.

History Repeating Itself

Marketing demands consistency for success. This means that hitting the brakes on some, most or all activities ISN’T the right course of action. Time and time again, businesses who invest in their marketing throughout good times and bad successfully navigate every economic outlook.

1974-1975, 1981-1982 and let’s not forget the Great Recession of 2008 prompted many businesses to reign in their digital marketing spending. In 2008, ad spending dropped by 27% across all platforms. The result? Less commercial growth. Scale back marketing and you’ll compromise your opportunity to reach and influence potential and existing customers.

Customer Relationships

No one is immune when the economy contracts. Customer retention is paramount. Regardless of the nature of a business. There is no more important time to value every customer you have.

Building and maintaining customer relationships, making and solidifying those emotional connections, meeting their needs, exceeding their expectations, projecting stability will all contribute to enjoying relationship longevity, regardless of the economic outlook.

Review Your Product/Service Offering

In times of economic uncertainty consumers gravitate to value, special offers, product sales, bargains. You need to highlight incentive. Give customers every reason to purchase a product or service, something like an offer that’s too good to be true!

Review your products and service offering. Create more affordable/greater value products or services. Run bespoke, routine sales opportunities. Look at the success of Black Friday and Cyber Monday sales. Hey, if it’s good enough for the world’s largest online retailer, Amazon, it’s surely good strategy for your business!

Focus on Untapped Resources

A global economic slowdown is your opportunity to get creative, try new things, explore new avenues that you’ve had on the back burner for ages!

Remember, during economic contraction, not all markets are affected the same way. Why not explore new, blossoming markets. You could try expanding operations to another region or country, look into providing projects and services to different industries, shift your product or service offering towards new, previously unexplored customers demographics. Be proactive. Identify opportunities. Get creative!

Give Your Marketing Strategy a Refresh

A recession can influence purchasing behaviour long after financial recovery. Even today, the disparity between the rich and poor, diminished job prospects for younger adults, fewer home owners and high levels of student debt can all be attributed to the 2008 economic crash.

The mistake made by businesses when it’s becoming apparent that we’re out of the economic woods, is to think, ‘phew, back to business as usual.’ Businesses need to evolve to meet the demands of a new economic environment – and current market conditions.

This involves a fresh approach to marketing. Think about it, we may be over the worse, but customers may be more conservative with their spending. How do you turn commodity into necessity? Shrewd marketing activities! Think about it, people still bought iPhones during the Great Recession. Did everyone need an iPhone for survival? No. Did Apple have a genius marketing strategy? Absolutely.

Maximise Your Budget

So, it can be argued that recessions require more astute cross departmental budget management for business, irrespective of their size. But maximising your budget is essential to commercial success, regardless of economic climate. Work with a digital marketing agency, like Jungle Marketing, that knows how to maximise budget and you’ll be able to have a solid foundation to prosper.

Better still, an economic contraction means businesses should concentrate on marketing activities that offer the best ROI. Postpone actions that don’t offer significant or longstanding ROIs, prioritise actions that focus on search engine visibility, identify customer demographics and create content tailored to them, build brand identity and showcase customer value. Trim that fat, as it were.

Once you feel more financially comfortable, scale actions that you know offer attractive ROIs whilst experimenting with activities that look to the future… like investing more in influencer marketing and interactive website content, using real-time messaging platforms for data collection and pivoting actions towards the inevitable metaverse!

Is Bad News Really Bad News?

In short, no. Sure, Google and Microsoft profit growth isn’t quite what it was, but this is hardly a clear indication of impending doom!

What’s more important, even if businesses are faced with the worst-case scenario – a recession – there are clear marketing actions to take which will help to sure up operations, even prosper when the economy is under performing.

Don’t be the business who fails to act, who’s indecisive in the face of a recession. Be the business that focuses marketing operations on success and growth! Get in touch with Jungle Marketing today to discover what you need to do to be successful in late 2022 and 2023.