Google Earnings Down in Q1 – Is This a Warning for SaaS Companies?

Google’s parent company, Alphabet, announced its Q1 total sales that amounted to $68 billion. This figure is 23% more than last year’s but higher expenses pulled down the company’s net earnings to $16.4 billion—lower than the previous year’s $17.9 billion. With economies reopening and more businesses going back to the office, is this missed revenue a sign that SaaS companies can no longer rely on the COVID growth effect?

The weaker Google earnings come as the company tries to steer itself away from its dependence on search. Google controls 90% of the search market where it generates revenue by selling ads against keywords and search results. Its diversification efforts include propping up other services such as Google Cloud. But search remains a major driver of Google’s earnings.

At the start of the COVID-19 lockdowns in 2020, Google experienced advertising losses. As millions of consumers were locked in their homes, they relied on technology and the internet to communicate, work, and purchase goods and services. Businesses naturally had to be where the customers were so they turned to online ads. Google’s advertising revenue eventually rebounded the next year thanks to an increased demand for online advertising on its search engine results and YouTube platform. In Q1 2021 alone, overall advertising revenue pulled in $54 billion.

However, seems like things have changed. As the world goes back to its pre-pandemic ways, the demand for online advertising has also seemed to dwindle. Of the $68 billion Q1 revenue, $39.6 billion was attributed to Search and Ads.

SaaS Demand in a Post-COVID World

The SaaS industry was one of the few that thrived in the new business climate created by COVID-19. Organizations relied on SaaS products like project management software, CRM, and collaboration software to serve customers and conduct remote work. Now that stores and offices are operating and more employees are back at their workplaces, one starts to wonder if SaaS companies should also prepare for a decline in demand and revenues as Google experienced with its search and advertising services.

Though it’s unlikely that businesses will totally drop all their SaaS products (many will still continue in the digital realm and some will support hybrid work setups), future adoption will most likely be dictated by workforce size or company size. For example, smaller organizations often work on just a few sets of projects and will naturally require a limited number of SaaS products. Meanwhile, enterprises that have more complex and large-scale projects usually cannot depend on one product alone to meet all the features and functionality they need. These types of users rely on multiple SaaS solutions and often have the budget to provide as many SaaS resources as necessary.

With this in mind, it would be prudent for SaaS companies to start developing new marketing strategies that highlight other use cases of their technology to stay relevant in a post-pandemic workplace. For instance, tools that help manage employees affected by COVID-19, monitor their health, know when they can safely go back to the office, and keep their information private can be a useful tool for HR teams already using an HR management software. Creating entirely new offerings or features can also help attract new customers or keep current subscribers interested in a product.