Times are hard indeed when even Google, the undisputed leader in company perks, is cutting back.

But this is exactly what is happening at the mighty search company's student campus-style headquarters in Silicon Valley and at offices around the world.

The freestyle corporate culture, which scatters scooters around the California Googleplex, offers volleyball courts and games rooms to staff, and plies them with free meals all day – plus a time-out for afternoon tea in some offices – is morphing into something more appropriate to these credit crisis-stricken times.

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And now, with the soaraway online advertising market threatening to stall, comes news that Google's software engineers are going to get less time to spend on pet projects and are being told instead to hunker down and work on money-making tweaks to the core business.

Bosses are pulling the plug on Lively, a virtual reality game launched only a few months ago, and myriad experimental projects will also now not see the light of day. Eric Schmidt, the chief executive brought in during Google's early years to impose some corporate discipline on student founders Larry Page and Sergey Brin, says the company is cutting what he calls "dark matter".

The leeway given to Google's brilliant engineers is legend throughout the industry – and beyond, because it has given us Google Earth and other time-wasting strokes of genius. The company has always allowed developers to spend 20 per cent of their time on personal projects, outside their formal work. This is one of the main reasons that the company holds the coveted No 1 spot in Fortune magazine's list of best companies to work for.

Its well-stocked canteens have already had their opening hours cut, to reduce staff costs, while employees have been told dinner is only for those working late, not for taking home. In the Manhattan office, there was outrage last month at the axing of the regular Tuesday afternoon tea, even though managers here promised "occasional surprise 'snack attacks' in the future".

These are rare concessions to economic reality by a company that went public in 2004 warning potential shareholders that it wouldn't be concerned about quarterly earnings, like your typical corporation. Instead it would focus on making the internet better, in the belief that it would eventually find ways to make money from its inventions.

Google's ad revenues are still growing at a rate of one-third a year, but just three years ago they were doubling annually, and analysts are forecasting the online advertising market will be little better than flat this year. Google makes effectively all its money selling ads next to its search results.

Engineers with a brainwave will not necessarily now be able to call on managers to hand him 20 other employees to develop it, as during the boom times, Mr Schmidt said in an interview with the Wall Street Journal yesterday. "But when the cycle comes back, we will be able to fund his brilliant vision."