A few days ago my attention was caught by a message communicated via the verified Google Twitter account, that introduces the role of Google as an engine of economic growth:
“We’re not just a search engine, we’re an engine of economic growth. Our U.S. economic impact in 2009 was $54 billion”
On the official Google Blog you can read a related article, posted by Claire Hughes Johnson, Vice President, Global Online Sales @ Google.
“This week is National Small Business Week, and Ross will be with me on Capitol Hill in Washington today to share his story and help unveil something that means a tremendous amount to me: a new report detailing, for the first time ever, Google’s economic impact in all 50 states.”
Let me be clear that the financial number of $54 billion is pretty impressive, but still I find the first time ever part remarkable. I’m pretty sure that the quantification on a state level is the first time ever in a public available document. Google is a public traded company, so you should be able to find estimates of the economic impact in the annual reports.
But what does the financial number of $54 billion, represent? If you download the Google’s Economic Impact – United States, 2009 – report, you can read that:
“In the pages that follow, we describe Google’s economic impact across the U.S. This impact is reflected by the number of advertisers and website publishers in every state, the non–profits we provide with free advertising, and the real–life stories of small businesses that have benefited from using Google.” (Google’s Economic Impact, 2009, p.3)
What I really like about the report, is that start-ups, entrepreneurs and small business are included in this report. I recall the statement of Professor Pieper on the title slide of the opening speech presentation of the vision on the future symposium: “Value creation, nothing else matters.”
Google Search, AdWords, AdSense and Google Grants
Google is well known for its search engine activities, but with regard to the economic impact let’s have a look at the business side where the money flows! In the the Google’s Economic Impact – United States, 2009 – report, you can read that:
“Aside from being a well-known search engine, Google is also a successful advertising company. We make most of our revenue from the ads shown next to our search results, on our other websites and on the websites of our partners. Through these ad programs, we help many others make a living too. This booklet presents a conservative estimate of Google’s economic impact on businesses across the U.S. based on three core parts of our business: Google Search and AdWords, AdSense and Google Grants.” (Google’s Economic Impact, 2009, p.4)
As you can see all three advertising related core parts of the Google business-side are closely tied to Google Search, which is the key resource (control point) in the Google Business Model.
The first advertising pillar the generates Google revenue is Google Adwords, that shows ads next to the search results based on the keywords that you have entered in the search field. In other words these are more or less “targeted” advertisements.
The second advertising pillar that contributes to Googles Economic Impact is Google AdSense. On the Google AdSense product page you can read the following description:
“Google AdSense is a free program that enables website publishers of all sizes to display relevant Google ads and earn.”
Almost everyone I know in online publishing is using Google AdSense to some extent, since Google AdSense can place advertisements in: (1) content, (2) mobile, (3) search, and (4) feeds. In fact it is a mutual relationship, since Google needs websites and online publishers to sell advertisements, while online publishers can use Google AdSense at no costs, and start earning money.
The most interesting part of Google AdSense is the multiple channel characteristic, each with different financial business (model) parameters.
The third advertising pillar from that contributes to the Google revenue is Google Grants. For me personally this was a pillar I don’t know that well, however if you look at the description on the Google Grants website, it is nothing more than Google AdWords for non-profit organizations:
“Google Grants is a unique in-kind donation program awarding free AdWords advertising to select charitable organizations. We support organizations sharing our philosophy of community service to help the world in areas such as science and technology, education, global public health, the environment, youth advocacy, and the arts.”
Calculations of Google US Economic Impact
In addition the financial number of $54 billion as the total of Google’s US Economic Impact in 2009, it is interesting to have a look at the underlying calculations.
You can find a pretty detailed description of the calculations in the Google’s Economic Impact – United States, 2009 – report, as shown in the picture above. (Google’s Economic Impact, 2009, p.6-7) Furthermore you can find a video of Claire Hughes Johnson, Vice President, Global Online Sales @ Google and Google Chief Economist, Hal Varian, who provides additional background information on the underlying calculations:
When I first watched the video, I heard the word estimates a few times, which raised some skepticism. Of course I do understand that it is hard to make the calculations with a mathematical accuracy on two digits behind the comma, that are 110% reflecting the real world situation. However in the Google’s Economic Impact – United States, 2009 – report (p. 7) you can read:
“This is a first attempt to estimate the economic impact of Google’s core search and advertising business. In search and advertising, we’ve derived a conservative estimate of the impact of our tools on businesses, website publishers and non–profits, but we’ve left out such estimates as the cost savings for consumers now able to find the information they need more easily than before. We also have not estimated the economic impact our employees provide, or that of other major products like Google Maps and YouTube. So while we’re reasonably confident in our estimates, consider them a lower bound on Google’s true economic impact.”
As you can read in the “what is not included” section (Google’s Economic Impact, 2009, p.7) there are some limitations and constraints. For example the is purely focussed on the core search and advertising businesses. YouTube is excluded despite it has become the second largest search engine online, is another example.
“For more information about our methodology and to download the two cited studies, please visit: http://www.google.com/economicimpact/methodology.html”
Final thoughts and overall conclusion
At first I think the Google’s Economic Impact – United States, 2009 – report is a highly interesting one, especially since there are some real-life examples included from each of the 50 states. I think both this report and the total economic impact, represent quite an amount of entrepreneurship.The report furthermore shows some core aspects of the Google business (model) side, where the search technology is an enabler for the advertising revenue model.
However there are certainly also constraints and limitations in this report about Google’s Economic Impact. You could also phrase it differently: the report has a clear focus on search and advertising, and it is a first attempt with recommendations for further research. 🙂 It would be interesting to do some math and compare the numbers from the Google’s Economic Impact 2009 report, with the Google Annual Report 2009.
Last year I was fortunate to visit Microsoft TechNet_Live, an event for IT Professionals and Technical Decision Makers, that started with a keynote “Join the New Efficiency” from Microsoft CEO Steve Ballmer. If you have a look at section 1. and the included picture, you can see that Steve Ballmer is performing a similar exercise with the slide “IT More Critical Than Ever”:
“Steve Ballmer describes the impact of the Microsoft Ecosystem in the Netherlands in terms of hard numbers: for example jobs, revenues, new business opportunities and even as percentage of the GDP.”
It is not only Google, Microsoft or Apple who have a significant economic impact, but I think you can extend this reasoning and generalize that every (major) company has strategically build ecosystem that directly or indirectly includes other “surrounding” companies in the ecosystem.
Google AdMob in Google’s Economic Impact 2010 report ?
Do you remember the article on the Official Google Blog, in which Google closed the acquisition of AdMob. Mobile Advertising has become a central part of the Google Advertising business with the AdMob acquisition.
Combined with the growing global market-share of the open source Google Android mobile operating system, I’m really curious to find out what percentage of next year’s Google’s Economic Impact is generated from Mobile and Mobile advertising. …. and with these last thoughts I would like to finalize this article !