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Is Google Really Getting Rich Off Piracy?

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A prominent Republican this week blamed Google (NSDQ: GOOG) for blocking a new anti-piracy law, saying the company profits from “rogue” websites that the law is trying to shut down. The claim has an appealing logic. But is the search giant really making money from these sites?

The “Google is in bed with the pirates” theory is hardly new and is often aired by publishers and copyright lawyers. It has bubbled up again in the last two weeks as a debate rages in Washington over the controversial Stop Online Piracy Act (SOPA).

SOPA’s sponsor, Rep. Lamar Smith (R-Tx) on Monday explained Google’s motives for opposing the law by saying, “That’s because they’ve made large profits by promoting rogue sites to U.S. consumers.”

And last Monday a senior copyright lawyer unleashed a screed against Google on Huffington Post, concluding that investors are losing faith that the search giant can support a legal revenue model.

This last bit, at least, is complete nonsense. Google’s share price is through the roof after the company’s October earnings report showed staggering quarterly revenues of nearly $10 billion and a profit of $2.3 billion. To claim that these numbers were driven by selling ads on fake Tiffany sites is stupid even by the standards of some financial analysts.

But that still leaves the question of how much money Google is making from the hundreds of “rogue” websites worldwide that flog everything from fake NFL jerseys to pirated versions of Hollywood blockbusters.

For those unfamiliar with Google’s business model, the company makes nearly all of its money in one of two ways. The first is by using auctions to sell keywords like “flowers” or “personal injury lawyer” to companies whose ads appear when a user searches those terms. The other way the company makes money is through its AdSense program which helps website owners place ads on their site. In return, Google gets a cut of the ad revenue.

This means Google could (in theory) make money by selling keywords like “football” to companies that want to advertise counterfeit Cowboys jerseys for sale. In fact, earlier this year, the company paid a huge fine for letting Canadian pharmacies buy keywords to advertise drugs without a prescription.

But the pharmacy episode appears to be a one-off blunder. There’s no evidence that Google has a habit of selling keywords to shady partners. A Google spokesperson said by email that the company has strict policies to ban inappropriate ads and companies that try to buy them.

“These policies and guidelines are enforced by both sophisticated automated systems and manual reviews,” wrote the spokesperson.

Still, it’s inevitable that Google makes at least some money from rogue websites that sign up for its AdSense program. Google says it doesn’t let these type of sites use AdSense but that unscrupulous companies try to get around the company’s ban.

The spokesperson didn’t provide numbers about how much revenue Google receives from rogue sites. But she did say that Google provides a refund to any advertiser whose ad inadvertently appears on one of these sites and that the company also keeps a blacklist of thousands of webpages that are prohibited from using the ad services.

If all this is true, it’s hard to see how Google is different from any other major company that provides a service that some people abuse. If we want to blame Google for rogue websites, then we should also blame UPS when someone ships drugs and blame Visa whenever one of its clients use the payment service to perpetuate rip-offs.

The ultimate question is whether Google is actually colluding with the bad guys that use its ad services. So far there is little evidence it does.

Some people claim Google has other, deeper motives for opposing the SOPA law. Scott Cleland, an analyst who has testified before Congress and who consults for Google’s competitors, says the company fears a flood of users will desert it if it removes certain websites from its search listings. For now this claim seems speculative at best (where would all these users go instead? Bing?)

Finally, common sense implies that Google is not in a conspiracy with the rogue sites. If the company is making money hand over fist from legitimate companies, why would it risk the government’s fury by going into the piracy business?

Conspiracy theories make for fun explanations. But in this case the straightforward story makes more sense: Google and the other tech companies are opposing SOPA because they think it’s bad policy (others may disagree) not because they wish to protect pirates.

3 Responses to “Is Google Really Getting Rich Off Piracy?”

  1. Robert Levine

    Sloppy. If you had even done a, um, Google search on the issue, you would have seen

  2. For fear of the wrath of Google I doubt many would publically speakup. Google does make a percentage of revenue from activities by individuals using illegal means. We receive some crumbs from the loaf (legally) so i cannot complain too much. 2012 we’ll see many more major changes as Google will continue profits to shareholders at the expense of the user.