Thursday, April 10, 2008

Is Google Being Evil?

Google's motto, "Don't be evil," raises the suspicion that Google is trying to hide something. Everybody knows that you shouldn't be evil, and nobody was accusing Google of being evil, so Google has no good excuse for stating the obvious.

What is Google trying to hide? Here's one guess: the real source of its revenue. According to its investor relations page, Google grossed about 16.6 billion in revenue in 2007, and Google claims that about 16.4 billion of that came from ad revenue. Google's "Advertising Programs" page lists only one way to post advertisements through Google: the Adwords (or Adsense) program. Does it makes sense for Google to be earning this much from Adwords alone?

As of December 2007, an estimated 1.3 billion people worldwide had access to the internet. If advertisers paid Google 16.4 billion to post those dinky little Adsense ads, that means the advertisers were expecting to profit at least an additional 16.4/1.3 = $12.61 per internet user resulting from increased sales.

Now, I don't know about normal people, but I have never clicked on an ad without first thoroughly bracing myself to resist the temptation to buy whatever is for sale, so I'm pretty sure that no internet ad has ever influenced me to buy something. Then who are the crazies out there who are doing what Google claims normal people do: click on ads and then go buy something? Have you ever done that? Have you heard of anyone who has?

Surprisingly, Google's 16.4 billion in ad revenue is nothing next to global spending on advertisement, which is projected to be nearly $500 billion in 2009. But this doesn't answer any questions. It just goes to show that Google probably isn't at the root of this conspiracy. Someone is behind this at the global level. Maybe some terrorists. Or else advertisers worldwide are just that stupid, thinking that just one more ad will help them sell more stuff.

Update: A reader points out that Google's ad revenue comes not only from text ads but also video ads. Recall that Google bought youtube, which now displays some advertisement videos. See the deal with the video ads here.


Blogger teague said...

Assuming your back-of-the-envelope calculations are correct, those sums sound pretty reasonable to me. $12 is certainly less than the amount of additional profit for a retailer from many single items sold as a result of web ads. If everyone was influenced in a buying decision by a Google ad once per year, the numbers would work out. Many of the transactions are worth a lot less than that, but many are worth a lot more, too.

Also, I think your idea of the purpose of the advertising may be too limited here. Though companies only pay per click, their value is also in building awareness and brand identity through multiple exposures (especially with the video ads). And perhaps more important for the value of the ads, their purpose is not just to direct you to a page where you will be convinced to buy something, but to get you to buy something from one particular company when you have already decided to buy it. This is a pretty big deal to the companies in question, and definitely worth the money they spend on the ads.

2:21 PM  

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