Google was a victim of its own success to some extent.  With half of its revenue coming from the U.S., the company showed a troublesome slowing in advertising click-throughs, thanks perhaps to the struggling U.S. economy.  Google puts partners' text ads beside search results and is then paid when visitors to the search engineer clicked the links.

It was used to seeing rapid growth in traffic throughout its history and this yielded rapid growth in clicks.  Last year, the quarterly growth was 47 percent.  This year growth had slid to 19 percent, which for anyone besides Google would have been very impressive.  However, for Google, this meant that its profits were not as high as expected, and it disappointed analysts' lofty expectations.

It posted a profit of $4.63 a share, well below the average of $4.73 a share, which a Bloomberg compilation of analyst projections predicted.  Partly to blame also were rising costs of operation.  Google saw its research spending budget rise 65 percent.  It also languished under the legal war of attrition it has been waging against Viacom over its video sharing property YouTube.

Thanks in part to the extra overhead from defending itself against Viacom, Google's general and administrative costs rose 49 percent to $475M USD.  Google also was nonplussed to see employees leaving the company, a foreign experience for the company who promoted a "lifer" mentality among its workforce thanks in part to feel-good perks.

Microsoft also felt some heat from its Q2 results.  The company, which gets 60 percent of its income inside the U.S., disappointed analysts with only producing a profit growth of 42 percent, yielding $4.3B USD in profit (42 cents a share).  Analysts predicted stronger profits of 47 cents a share. 

Its problems stemmed in part to sliding Microsoft Office sales, which were thought to be negatively impacted by piracy.  The sales missed the company's goals for a second straight quarter.  Worse, Microsoft saw its online advertising missing targets and losing ground to Google.  Overseas Microsoft showed more promising growth, but this growth was unable to offset its slippage in the U.S.

Brian Rauscher director of portfolio strategy at Brown Brothers Harriman & Co. in New York says this is to be expected, and that there is little Google and Microsoft can do to escape the reality of the U.S. economy's struggles.  He said, "For any U.S. company, the domestic part of their products are going to come under pressure.  The U.S. consumer is getting pinched."

Jerome Dodson, chief executive officer of San Francisco- based Parnassus Investments, which has $1.4B USD in investments, including holdings in Google and Microsoft stock, stated "You can't consider technology a defensive sector at all.  We're going to have a small sell-off in technology."

Even Google CEO Eric Schmidt admitted that his company was struggling under "a more challenging economic environment."

Microsoft and Google paid a heavy price for falling short of expectations on the stock market.  Google stock fell $52.12, or 9.8 percent, Friday, its worst loss since its 2004 initial public offering.  Microsoft saw slightly less severe, but still grim, losses $1.66 a share, or 6 percent, its own worse loss since April 25 of this year.