Google Generates $54 Billion In Economic Growth
Perhaps someone from Google should step in to run for California State Governor. The Mountain View, Calif. Search engine estimates that in the United States it generated $54 billion in economic growth during 2009.
In a report released Tuesday, Google outlines the multibillion dollar impact by state, arriving at the value for each by itemizing search and advertising per spend and clicks, and adding in the number of Google Grants and amount donated for the year.
In California, the total number of search advertisers and Web site publishers totaled 262,400. Google attributes the economic value received by advertisers and Web site publishers in California reached $14,098,160,000. About 1,010 non-profit organizations received AdWords ads for free, donating more than $27 million. In total, Google estimates its economic impact on the state of California in 2009 reached more than $14 billion.
With the ability to generate that kind or growth, maybe someone from Google should step in to run the state of California rather than eBay's Meg Whitman or Hewlett-Packard's Carly Fiorina. Do you remember when the California attorney general's office cited two CNET News.com reporters' personal telephone records were accessed by a contractor hired by HP to uncover the source of boardroom leaks to the media. Need I say more?
Google says its search and advertising tools-Google Search, AdWords, AdSense and Google Grants-helps more than a million businesses worldwide create jobs and drive economic development. These businesses range from one-person in-home businesses to those with hundreds of employees.
The total value that U.S. Google advertisers and Web site publishers received in 2009 is the sum of the economic impact of Google Search, AdWords and AdSense. The value of Google Search and AdWords for businesses is the profit they receive of the organic and paid search results minus their cost of advertising, estimated as $8 of profit for every $1 spend.
Google chief economist Hal Varian breaks down the numbers into parts to explain how he came up with the economic impact. He says Google starts by noting the revenue it received from AdWords on Google.com search results in 2009. Businesses made an average of $2 in revenue from every dollar spent on AdWords. This is estimates of how much profit an advertiser receives. Google determined this number based on how much as advertiser bids for a click, assuming an advertiser will only spend the amount that allows them to make a profit on a sale.
Google's calculations from a large random sample of AdWords advertisers and found that on average the total value of the clicks was about twice the cost of each. While that's only an estimate, it relies on the assumption advertisers want to maximize profits from AdWords.
The dollars in 2009 Google paid AdSense partners, which receive a check from the search engine for the amount of money generated from the ads on their site. Google also factored in the in-kind donations made to non-profits through Google Grants, a free program that gives them free AdWords advertising to help them raise awareness about an issue or to raise donations for their cause.
Then Google estimates the value of a search click. People click on search results in additional to ads, so the equation includes the value of the search results to the advertiser. Google cites academic researchers Bernard Jansen and Amanda Spink, who suggest there are about 5.3 times as many search clicks as ad clicks where search and ad links are both present on the page.
Rounding the number to five, Varian estimates on average businesses receive five clicks on organic search results for every one ad click. But the search clicks may not be as commercially valuable as ad clicks, so he estimates each search clicks brings in 70% as much money as ad clicks.
If you're a business and someone clicks on your ad, based on the results in the auction, you're charged $1 for the click. Based on Google's assumptions, you would receive $2 in revenue from the initial click. You would receive five additional clicks on your organic search results for free. Customers landing on your site through organic search results would send only 70% as much as those coming to the site through paid search ads. This means each of the five clicks brings in $1.40 instead of $2.
Combined, the five natural clicks bring in $7. So, in total, you receive $9 back for the dollars spent for a total of $8 profit. Varian explains that for every $1 a business spends on AdWords they receive on average $9 in revenue through organic and paid search, or $8 in profit. This is how Google determined that the economic value of organic and aid search is $8 profit for every $1 spent. Add that to AdSense payments and Google Grants donations and Google comes up with Google's total economic impact in each state.