Updated: Google (s goog) said today that the effects of its search and advertising businesses helped generate an estimated $54 billion in economic value for the United States last year. The assertion is clearly an attempt to promote the company’s value at a time when it’s coming under fire from legislators for its size and market clout in a number of areas — as well as some of its privacy-related behavior — and is fighting the telecom companies on the issue of net neutrality.
Google based its analysis on a number of assumptions, Chief Economist Hal Varian explains in a video (embedded below), including how much revenue businesses generate from search-related advertising via Google AdWords, combined with the amount that Google pays publishers that take part in Google AdSense, as well as an estimate of the value generated for businesses when someone clicks on a regular search result. It then added to this figure the amount that it donates to non-profits through the Google Grant program, which provides up to $10,000 worth of advertising for charities.
For example, Varian said, Google estimates that advertisers make $2 in revenue for every $1 they spend on AdWords (the company recently made public the revenue split for AdWords and AdSense). Google also tried to estimate the value of clicks on search results: Varian said that on average a search result gets about 5.3 clicks for every click on an ad, and the company estimates that advertisers get about 70 percent as much in revenue for each click on a search result as they get for each click on an ad.
Although he didn’t say how much Google pays its AdSense partners, Varian said that the bottom line from all these estimates is that companies get, on average, $8 in profit for every $1 they spend with Google. As a result, it believes that the average economic impact is eight times its AdWords revenue in each state, plus the amount spent by Google in AdSense payments and the value of Google Grants (maybe the company should have to subtract the estimated productivity decline from its recent Pac-Man playable logo).
There’s no way to determine whether the company’s estimates are correct, of course, since the parts of the equation that matter most are based on figures Google doesn’t release publicly. But it’s interesting to see the search giant trying to quantify its value to the economy (a full version of the report with a breakdown by state is available here). Whether it will help Google in its lobbying attempts in Washington is a much bigger question.
Some critics have taken issue with Google’s version of its economic impact. John Simpson, of the non-profit advocacy group Consumer Watchdog (formerly the Foundation for Taxpayer and Consumer Rights), says the economic estimates are just spin-doctoring, and that the company is “following the classic corporate evil-doer’s playbook as it attempts to quell worldwide outrage” over privacy breaches such as the recent collection of personal data transmitted over wireless networks.
“This is what every big corporation does when they are under fire,” Simpson said. “They divert attention from their wrongdoing and spin a story about their contributions.” The group said that Google’s math ignores other costs associated with the company’s effects on the economy and society in general, such as the competitive aspects of its businesses and the environmental costs of its infrastructure. “What’s the economic cost to the content providers whose material is grabbed without payment or the competitor whose listing is banished to the nether regions of results because of Google’s monopolistic control of search?” asked Simpson. “What’s the cost on society to maintain Google’s extensive network of energy-eating server farms?”
Scott Cleland, a telecom consultant who runs NetCompetition.org and has been a vocal critic of Google in the past, also slammed the Google numbers as “a gimmick,” saying the company “employs selective and misleading accounting in calculating its ‘total’ economic impact, including all the benefits, but not all the costs.”
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