Google Quantifies Its Economic Value to SMBs

Tuesday May 25th 2010 by Kenneth Corbin
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The search giant has offered its first estimate of the comprehensive economic benefit SMBs received from its search and advertising platforms.

WASHINGTON -- Google may be the largest and most successful Internet advertising firm in the world, but the company would have you know that its work also delivers substantial benefits to small businesses across all sectors of the economy.

At a news conference here in the Capitol building, Google (NASDAQ: GOOG) on Tuesday offered the first comprehensive estimate of the economic impact of its various search and advertising program on publishers, businesses and nonprofits. Flanked by the chairwoman of the Senate Small Business Committee and a trio of carefully chosen entrepreneurs, Claire Johnson, Google's vice president of global online sales, announced the figure: $54 billion in 2009.

"A lot of people think of Google as a search engine, where customers go to find information," Johnson said. "But it's also where businesses go to find customers."

Google's estimate, which the company describes as "conservative," draws on a handful of assumptions. Hal Varian, Google's chief economist, has estimated that companies net one dollar of profit for every dollar they spend on the AdWords product. Similarly, a pair of outside academics studying Internet marketing has estimated that businesses on average receive five clicks on their organic search result for every one click on an ad.

To arrive at the $54 billion figure, Google added the estimated economic benefit businesses enjoyed from visibility on its search pages with their presumed profits from their AdWords spending, as well as the amount it paid out in ad revenue to website publishers and the value of the free advertising the company gave away to nonprofits through its Google Grants program.

Google explains its methodology in more detail here.

It may be difficult to argue with the notion that search and online advertising have become an important engine of the economy, particularly for small businesses that have used the Web to generate national and even international sales.

At the same time, it is hard to overlook the political dimension of today's event. Google presented the report, its first public attempt at quantifying the economic impact of its search and advertising programs, organized by state, providing a handy reference point for any lawmaker curious to see the benefit the search giant spread across his constituency last year.

For those keeping score, Google measured its greatest impact in California, where it calculated more than $14.1 billion in value distributed to advertisers, publishers and nonprofits in 2009. At the bottom of the list was Alaska, which netted a little more than $15.9 million.

The report highlights select nonprofits that received advertising grants from Google, and lists the lawmakers and government officials from each state that have official YouTube channels.

Each state's page also features a testimonial from a small business touting the transformative benefit of AdWords and other Google programs.

Executives from three of those businesses were on hand today, one from Washington, D.C., and one from each of the home states of the two senators who attended the event, Richard Burr (R-N.C.) and Small Business Committee Chairwoman Mary Landrieu (D-La.).

Ross Twiddy, the director of marketing at Twiddy & Company Realtors, a family-run vacation rental service in the Outer Banks of North Carolina founded in 1978, captured the cheerful mood of the event when he described his company's embrace of the Internet and Google's advertising program in 2002.

"We were in the Dark Ages and AdWords took us into the Renaissance," he said.

Of course, there is nothing uncommon about businesses or trade associations taking to Capitol Hill with feel-good case studies from around the country in tow. Next month, for instance, the Interactive Advertising Bureau is planning to hold what it calls its "Long Tail Alliance Fly-In."

Following a day-long conference and a reception at Google's Washington office, the IAB is staging what it bills as a "busy day of advocacy" that will see small business leaders fan out around the Hill to meet with members and their staffs to tell their stories and champion the industry's policy priorities, which this year will likely include opposition to a draft bill in the House that would set rules for advertisers collecting consumers' information online.

eBay and other firms have made a practice of staging similar fly-ins to advocate for their policy goals.

Today's event was only one of many this week touting the economic importance of smaller firms. By presidential proclamation, this week is recognized as National Small Business Week, an annual tradition that dates back to the Kennedy administration.

Earlier today, President Obama delivered remarks at a White House event honoring entrepreneurs recognized as small business owners of the year, and urged Congress to act on the small business jobs package he sent to the Hill earlier this month.

For Landrieu, whose committee would play a major role in shaping that legislation, the small businesses highlighted in Google's economic impact study remain a bright spot in an otherwise sluggish economy.

"Even in these difficult times, they are growing, they are expanding because they're using new tools, new approaches and new technologies," she said. "I'm going to be looking to companies like Google and others. All the answers are not found in Washington, D.C., believe me. Not all the answers are found in the Capitol building."

Kenneth Corbin is an associate editor at InternetNews.com, the news service of Internet.com, the network for technology professionals.

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