Google's $54 billion economic impact debunked as "gimmick" by critics

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By Surojit Chatterjee | May 26, 2010 8:59 AM EST

Internet search engine giant Google Inc.'s (GOOG) claim, Tuesday, that its economic impact in all 50 states is up to $54 billion with over 1 million American businesses, website publishers and non-profits benefiting in the past one year, has been debunked by critics as a marketing gimmick to prop up its flagging image.

Google said, Tuesday, it is helping local businesses grow through its offerings of search and advertising tools. "Aside from being a well-known search engine, Google is also a successful advertising company. We make most of our revenue from the ads shown next to our search results, on our other websites and on the websites of our partners. Through these ad programs, we help many others make a living too," the company said in a statement.

"Through our search and advertising programs, businesses find customers, publishers earn money from their content, and non-profits solicit donations and volunteers. These tools are how Google makes money, and they’re how hundreds of thousands of other businesses do, too," Google vice president (global online sales), Claire Hughes Johnson, said.

Breaking down its economic impact, Google said California received the biggest benefit at $14.1 billion. Other states which reaped benefits over $1 billion, according to Google, included New York ($6.3 billion), Texas ($3.2 billion), Illinois ($3.2 billion), Florida ($3.2 billion), Washington ($2.8 billion), Massachusetts ($2.2 billion), New Jersey ($1.4 billion), Georgia ($1.4 billion), Pennsylvania ($1.3 billion), Arizona ($1.2 billion) and Ohia ($1.1 billion).

Google chief economist Hal Varian, said the economic impact reflects the revenue generated by Google's search engine, the AdWords program or ads linked to queries, the Adsense program or the ads that runs on third party websites, and the grants it makes to nonprofit organizations through its nonprofit arm

The company estimated that businesses bring in $2 in revenue for every $1 spent on AdWords and businesses receive five clicks on their search results for every one click on their ads. On the basis of this calculation, Google said that businesses earn $8 in profit for every $1 it spends on AdWords. Finally, by multiplying its AdWords revenue earned last year by eight and combining it with money generated for third-party publishers that put up Google's ads and the business generated from free advertising Google gives to nonprofit groups, the company came up with $54 billion.

However, Google has called this a "conservative" estimate as it claims to have left out economic benefits such as consumers being able to find information or the effect of spending by local Google employees.

"In a time of tighter budgets and a slow economic recovery, we’re glad to support so many small businesses and entrepreneurs across the country by helping them find new customers more efficiently and monetize their websites through targeted advertising," the company wrote in a blog post.

However, many analysts have dismissed Google's published report as nothing more than a marketing ploy to boost its flagging image and attract investors. The company, which has also come under intense scrutiny from lawmakers, regulators and privacy watchdogs, is trying to get people to "look at them in a more balanced and positive way so they don't get pounded by politicians," Los Angeles Times quoted technology analyst Rob Enderle as saying.

According to Enderle, some people have started thinking of Google as "the evil company," primarily due to its undisputed position as search engine and two recent developments did not help Google's image: while its $750-million acquisition of mobile advertising startup AdMob raised antitrust concerns, collection of private data over unsecured WiFi networks through its Street View application drew privacy complaints.

"Google has lost control of its image. People have trouble investing in a company that has a declining image," Enderle said, adding that often a company, whose image has taken a battering, resorts to commissioning economic and other reports for public support.

A classic example is Wal-Mart, which in 2004, while facing stiff public and union opposition to its plans to open 40 Supercenters in California, had rolled out full-page ads in major newspapers emphasizing its contributions to the Golden State. The ads noted that the company handed over $650 million in California sales tax revenue the prior year and bought more than $8 billion in goods and services from 4600 state businesses.

Google has also been criticized by Chairman Scott Cleland, whose group is made up of major telecom and broadband providers such as AT&T and Comcast, who claims the report is nothing more than a "gimmick" aimed at drumming up public support.

Cleland said the report is "selective and misleading" as it ignores Google's negative impact on businesses such as newspapers through its Google News service and through its market domination in the online advertising market.

Shares of Nasdaq-listed Mountain View, California-based company, which reported $23.7 billion in revenue last year, were trading 1.38 percent down at $470.57 on Tuesday (2.11pm EDT).

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