Google's Stealth Layoffs

Brian Caulfield, 11.26.08, 04:53 PM EST

When is a layoff not a layoff? When it involves contract workers.

Denizens of Silicon Valley had gotten accustomed to seeing people on bikes with videocams, gathering footage of local streets for Google maps.

But the streets are going to be a bit emptier now.

Google (nasdaq: GOOG - news -people ) has begun cutting back its workforce by peeling off the thick layer of part-time and full-time contractors who had become the worker ants for some of Google's most high profile projects. Among them: people who had provided the video footage for Google maps and people scanning page after page of books for Google's book search project.

Don't expect to see any headlines about these cutbacks, however. Although companies are required to report layoffs of full-time workers, they can take the size of their contract worker pool up and down with impunity. Workers who get their jobs through temporary employment agencies are often asked to sign contracts that prohibit them from disclosing when an employer has let them go. Together that means Google--and other Silicon Valley companies--can quietly trim their expenses and head count with hardily a ripple of media attention.

When asked about reports that Google was reducing the size of its workforce, a Google spokesperson pointed toward an interview with the Mercury News in October, where co-founder Sergey Brin said Google would try to trim its pool of contract workers, which at the time numbered 10,000.

Global Equities Research analyst Trip Chowdhry says his contacts are telling him Google has let go 3,000 contract employees. He also figures 300 full-time employees have left as Google closes regional offices and employees opt not to move to Google's headquarters in Mountain View, Calif.

These moves, however, may not be enough. Until housing prices drop to 2001 levels and oil hits $25 a barrel again--or incomes go up dramatically--there won't be enough discretionary income to keep Google's advertising-driven business growing, Chowdhry figures. "Because Google is the leader for the consumer Internet, their success is their curse," Chowdhry says.

The search engine itself can't be faulted, to be sure. Google owned 63.1% of U.S. searches in October, up from 62.9% during September, according to a report released this week by online traffic tracker comScore.

Google, however, may be too big not to suffer as the economy chills. Chowdhry figures Google's current quarter sales will grow 15% over the year-ago period, and next quarter Google could actually see sales drop by 3% compared with the year-ago period. Unless the situation for U.S. consumers improves in a hurry, Chowdhry sees Google cutting 10% to 15% of its full-time workforce next year.