Google and Its Value to the US Economy

May 27, 2010

I ignored this news item when I first read about Google’s value to the US economy. In a conference call yesterday, one of the participants mentioned the “importance” and “value” of Google. I took a look at a couple of the write ups generated non-Googlers. I have some skepticism about the utterances of Googlers, and even Xooglers have to be approached with aural radar in operational mode.

Google Says It Helps Generate $54 Billion for Businesses and Nonprofits” is representative. The numbers are Google-scale. Who can miss the $54 billion? The method, not surprisingly, is based on advertising.

For me, the most interesting passage in the Los Angeles Times’s article was:

The company said businesses bring in $2 in revenue for every $1 they spend on AdWords, Google’s online search advertising program. Separately, Google assumed that businesses get five clicks on their search results for every one click on their ads. Based on that, the company calculates that businesses get $8 in profit for every $1 they spend on AdWords.

Seems reasonable on the surface I suppose. But fiddle the assumptions and you can make Google even more significant or much less significant. And what happens if one asks, “Does advertising contribute to the US economy?” Google would argue, “Yes.” Those who have lost their jobs or have felt the impact of the economic downturn might asks, “No, Google did not do too much for me.”

Forget the numbers and the assumptions.

For me, the more interesting question is, “Why did Google feel compelled to have its world-class economist demonstrate the value of Google?”

The firm has a dominant position in Web search. The company generates most of its $27 billion in revenue from ads. But in terms of the average person, does Google’s value as calculated mean anything? Will elected officials see the number and conclude that Google is really important.

I am fascinated about the timing of this report. Is the document evidence for potential advertisers who can now turn to Facebook or other options? If the report is a type of marketing collateral, will it convince advertisers to spend more on Google?

Shareholders and stakeholders hope so. Google’s share price has fallen more than 20 percent since January 1, 2010.

Stephen E Arnold, May 27, 2010



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