Feb. 12 (Bloomberg) -- Google Inc., owner of the world’s most popular search engine, announced plans to shut its three- year-old radio-advertising business and cut as many as 40 jobs, saying the investment didn’t provide enough of a payoff.

The company, which expanded into the market with the 2006 purchase of DMarc Broadcasting Inc., is seeking a buyer for software that arranges ads on radio programs. Google will stop selling radio ads by May 31 and focus instead on online streaming audio, according to a blog posting today.

The move illustrates Google’s failure to parlay its dominance in Internet-search ads into offline media. The company said last month that it would close a business that sold ad space in newspapers. Google spent $102 million in cash for DMarc and agreed to pay as much as $1.14 billion in later installments depending on performance.

“They’re trying to penetrate a media that is really old and institutionalized,” said Sameet Sinha, an analyst with JMP Securities LLC in San Francisco. He recommends buying Google’s shares, which he doesn’t own. “It was in such a circular tailspin that even Google couldn’t go in and do anything. Tough times bring discipline.”

The growth of radio advertising has stalled in the past three years. Ad revenue climbed 0.4 percent in 2006, then fell 2.3 percent in 2007, according to Mark Fratrik, an analyst with BIA Financial Network in Chantilly, Virginia. Preliminary figures show a decline of 8.5 percent in 2008, and Fratrik expects a drop of 10 percent this year.

Google, based in Mountain View, California, rose $5.01, or 1.4 percent, to $363.05 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares tumbled 56 percent last year.

‘Big Bets’

“We believe that making big bets is not only in the best interests of our users and partners, but also important for our long-term success,” Susan Wojcicki, vice president of product management, said today on Google’s blog. “We haven’t had the impact we hoped for.”

The company is taking a harder line on managing expenses as the recession curbs spending on online ads, its main source of revenue. Google slashed capital spending by 46 percent last quarter and added just 100 employees, compared with about 500 in the third quarter. The company said last month it was cutting about 100 recruiters.

NetApp Inc., another Silicon Valley company, announced its own job cuts yesterday. The maker of storage equipment plans to eliminate about 540 workers, or 6 percent of its staff. Microsoft Corp., the world’s largest software maker, is eliminating 5,000 jobs.

Slowing Growth

Google’s radio program helped companies decide where ads would run, on which stations and at what times. The company worked with Clear Channel Communications Inc., the largest U.S. radio broadcaster.

DMarc was founded by brothers Chad and Ryan Steelberg. They left Google in February 2007, a year after the acquisition.

The Steelbergs said today that the business still could generate billions of dollars and shouldn’t be closed. “Ryan and I are disappointed in Google’s announcement,” Chad Steelberg said in a statement.

Young people aren’t listening to the radio as much, turning instead to the Internet and portable music players such as Apple Inc.’s iPod.

“The radio industry is getting hit from both sides,” Fratrik said. Audiences are shrinking, and advertisers are increasingly finding other ways to reach customers, he said.

Google plans to continue investing in its television ad business. It also is seeking ways to sell more advertising on online audio services, which younger audiences are using.

“We will use our technology to develop Internet-based solutions that will deliver relevant ads for online streaming audio,” Wojcicki said. “We are dedicating a team of people at Google to explore how we can best add value for advertisers, broadcasters and listeners in this emerging advertising space.”

To contact the reporter on this story: Brian Womack in San Francisco at Bwomack1@bloomberg.net

Last Updated: February 12, 2009 19:34 EST