Inside Google's Spending Binge

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With its in-house swimming pools, billiard halls and massage rooms, Google's always had a spendthrift reputation. But this quarter, the search giant out-did itself. Cutting into its first quarter profits, Google's operating expenses increased 54 percent to $2.84 billion up from $1.84 billion a year ago, the company announced in its earnings call Thursday. The news precipitated a 5.4 percent fall in the company's shares in after-hours trading and raised more concerns about Google's new, unsupervised CEO Larry Page. (Meanwhile, Google's other co-founder Sergey Brin is willing to quit if the company expands unscrupulously into China). So what did Google spend all that money on? Here's a breakdown of the big ones:

R&D

Research and development costs skyrocketed to $1.2 billion in Q1 2011 up from $818 million in Q1 2010. The company hasn't explained the details of the $408 million increase but it has made its goals clear. "We assume [Google's R&D line items] look something like this," writes Ben Parr at Mashable. "1) Social 2) Social 3) Social." Parr also cites investments into Android and Chrome as likely budget breakers.

Hiring Employees

Since January, 1,916 people have joined the ranks of Google's payroll. The hiring binge brought its workforce total to 26,316.

Keeping the Employees It Already Has

In Silicon Valley, engineers are a hot commodity and increasingly Google has had to drop fat wads of cash to keep even its mid-tier talent from defecting to Facebook or Twitter. In the first quarter, Google spent $432 million in stock options and bonuses, a 48 percent increase from Q1 2010. It also made a 10% across-the-board salary increase. TechCrunch reported earlier this month that Google paid as much as $150 million in stock grants to keep product developers Sundar Pichai and Neal Mohan from going to Twitter. The valley's talent wars are getting expensive!

Sales and Marketing Costs

Since last year, Google's sales and marketing costs have increased 69 percent to $1.03 billion up from $607 million. Much of that has gone into investing in its local ad business and promoting its Chrome Browser, reports The Wall Street Journal. During the earnings call, Google CFO Patrick Pichette explained that marketing for the Android mobile phone platform also went into those expenses which paid off given that 350,000 Android devices are being activated every day. The company also attributes 40 percent of new Chrome browser users to its advertising campaigns.

Data Centers

The company has spent $890 million on its expansive data center infrastructure in the first quarter. As Rich Miller at Data Center Knowledge explains, much of that money went into "resumed construction on a data center in Oklahoma and ...second phases at existing data center campuses in North Carolina and South Carolina. Google is also building a facility in Hamina, Finland."

This article is from the archive of our partner The Wire.