EBay Shows Web Firms Are NormalYes, Internet companies are normal businesses.
Any doubt about that was removed by eBay on Monday when it announced plans to shrink its work force 10%. The Internet auctioneer has been struggling for a couple of years with slow growth in its core business. It has taken some of the usual steps followed by companies facing such challenges: risky acquisitions and now a significant job-reduction effort.
Few of eBay's peers in the Internet sector have struggled quite as badly, apart from perhaps Yahoo. But it is a telling sign of how pessimistic investors are now toward the Internet sector that Google's stock has fallen as much as eBay's this year -- both down roughly 45%. Other big-cap Web names are also down: Yahoo is off 35% and Amazon.com 32%. These stocks, until recently among the brightest symbols of growth in the economy, have fallen more than the Dow Jones Industrial Average over the same period.
The scale of the selloff is a sobering reminder, particularly for Google, whose management has long acted as though the normal rules of business didn't apply. It faces a deep recession for the first time in its short history. Now trading at about 15 times 2009 earnings, below that of discount retailer Costco Wholesale, its stock reflects uncertainty about how the company's ad-based business will fare.
One way Google management can respond is by sharpening its focus. The time is over for investments in projects, whether it be clean energy or book digitization, whose profit prospects are amorphous. Lavish employee benefits could be curtailed. Yes, even Google needs to tighten its belt and act more like a real company.
