"Grossly exaggerated"
is how independent analysis describes Google's 2009
and 2010 Economic Impact report, in which the search company claims to have generated $54 and $64
billion, respectively, in activity for American businesses.
Could it be that FairSearch.org, which released the analysis by Allen Rosenfeld, a Ph.D. economist, Wednesday, is working the
numbers in its favor?
FairSearch.org, a coalition of travel sites and tech companies, spearheaded efforts to persuade the Justice Department to block Google's purchase of ITA Software, which
provides flight data. Coalition members include Expedia, Kayak, Microsoft, Sabre Holdings and Farelogix. During the opposition, Google responded with a blog post explaining the reasons for wanting to purchase the company.
The
analysis from FairSearch.org concludes that Google overestimated its U.S. economic impact by more than 100 times the value of the actual contribution of its search engine.
The analysis
details the fundamental flaws of Google's impact on the U.S. economy from its search engine advertising business, examines the validity of each of the explicit assumptions and the association between
advertising spend and economic activity.
Findings suggest that Google "contradicted economic logic" and did not account for costs of doing business. It also ignored the results of previous
empirical economic studies, and failed to consider negative economic impacts of the company's market dominance. As a result, "Google's net impact on the economy could well be negative" after
accounting for these impacts.
Rosenfeld claims that determining Google's impact on the economy must take into account the company's "unusually high profits, search engine dominance and market
power." The analysis claims Google did not take into consideration its 75% dominance in search engine clicks; 76% in search engine ad revenues; and profit margins that far exceed those of competitors
and average Internet and U.S. companies.
The report specifically points to Google's claims that its AdSense program for publishers accounted for roughly 10% of its overall economic
contribution. The revised analysis in the report found that Google's estimation of the impact from its AdSense program is 10 times the value of its actual economic contribution. Digging deep into the
numbers, Rosenfeld calls Google's donations from nonprofits -- less than 1% of Google's estimated total contribution -- "unjustified," since the donations represent redistributions of some of Google's
profit margins and do not reflect further economic activity.
Without listing all assertions, a revised model of Google's economic impact suggests:
1) The
advertisers' surplus is less than $1 for every $1 spent on AdWords, since the cost of search advertising must also account for fixed costs, resulting in costs equal to (1.20)(spending), rather than
(1)(spending) assumed by Google.
2) For every 3 clicks on paid ads, businesses get 7 clicks on unpaid links, rather than 5 unpaid clicks for each paid click as assumed
by Google.
3) The conversion rate of clicks into sales for organic links is only 51% of the conversion rate for paid ads, not 70% as assumed by Google.
4) Sales from free clicks result in only 15% as much revenue as sales from paid clicks rather than the same revenue, as assumed by Google.
5) A
cost to businesses, for optimizing organic search links, of 25 cents for every dollar spent on paid-search ads replaces the zero cost assumed by Google.
6) The contribution
of search engine advertising to revenue is estimated to be $1.30 per $1.00 of ad spending, rather than $2 for each dollar of ad spending as assumed by Google.
Google did not respond to
requests for comment based on the analysis.