Economic Impacts of Google Search

By Jeremy Tay

Google's innovations in search technology has made it the No. 1 search engine. However, Google did not start prospering until it started auctioning ads that appear alongside its search results. With a market valuation of slightly under US$200 billion (Forbes, 2011), the economic impacts of Google is certainly something that warrants further discussion.

Before we examine the various economic effects of the Google Search technology, let me briefly explain the technologies that are responsible for the economic influences of Google.

Basically there are two main platforms on Google through which many businesses tap on for their advertising and economic development: Adwords and Adsense. While the two are seemingly similar concepts (online advertising), they actually function in completely opposite ways.

Google Adwords, a technology closely linked to the search engine, allows advertisers to put up their own advertisements on Google search result pages and their websites. The concept is that while businesses personalize their advertisements and choose the relevant keywords associated with their businesses, Google will provide the optimal platform to reach the target audience. When internet users search on Google using one of the keywords, Google will surface their relevant advertisements next to the search results, thereby exposing only interested parties to the advertisements.

On the other hand, Google Adsense is an ad-publishing system that displays Google Adwords and the Google search engine on sites that are not owned by Google. This system functions, firstly, to enhance the user experience by introducing a google search engine on the website. This will, in turn, increase the search traffic of Google and consequently, the traffic volume of the advertisements. Additionally, Google provides monetary incentives to sites which offer their space for utilization. In this sense, Adwords and Adsense actually perform functions which are complimentary and mutually beneficial to each other.

Google derives approximately 99% of its revenue from advertising (Google, 2008). Despite the fact that most of its online products, (i.e. Google Search, Gmail) are free to use, they are all supported by text ads like Adwords and Adsense. The reasons for their success, and consequently, their economic influences, could be attributed to the following reasons. Primarily, Google owes its success in advertising to its powerful and popular search engine. Google search has become an ubiquitous commodity in our world today and is often used as a synonym to describe the action of searching the web. (Eg. “Google it”) Google’s advertising development has therefore, tapped on both the large volume of user traffic as well as Google’s large database of websites. Apart from its extensive resources, Google’s economic contribution in advertising can also be attributed to the fact that their advertising platform is customized according to the customer’s demands. This is evident in the way only advertisements that are related to the user's keyword search are surfaced on the search result page.

Having discussed and comprehended the technologies behind Google search’s economic contributions, I shall now spend the latter part of my critique discussing if Google has indeed positively benefited our economy.

So how has Google search, and accordingly, its advertising arms contributed to the economy?

In a article published in 2009 by Google, Google claimed that it has generated US$54 billion worth of revenue in the United States economy. One key way in which Google has contributed to private businesses is as such: For every dollar that companies invests in advertising on Google Search and Adwords, there will be a profit of $8 generated as users accessing their websites (via the advertisements) consume their products or services.

Owner of an e-commerce site, Medical Coding.Net, Dr Darren Carter, established an online business for the purpose of selling medical coding books, files, softwares. Dr Carter mentioned that in his [medical] industry, people are out looking for a variety of services and products” and this puts Google’s marketing strategy particularly useful for his business. Dr Carter believes that Adwords has opened the gateway for many interested consumers to his website and Adsense provides alternative sites should they not find what they need at his site. He has seen a five-figure return on his advertising investments through Adwords and agreed that Google’a advertising has had a favorable impact on his business.

Therefore, I believe that Google has had a significant impact especially in the manner enterprises carry out their advertising and development. The success rate of their advertising that Google has guaranteed its users suggests that companies have a significantly high chance of growing and developing their business, should they choose to employ the advertising platform provided by Google.

In addition to how Google has directly benefited our economy, another crucial consideration is that our society is becoming increasingly inclined towards the concept of “E-commerce”. Due to the increasingly convenient and availability of online commercial sites, there are greater tendencies for consumers to shop for products and services via the internet. This provides an excellent opportunity for online advertising to capture their respective target audience. Google, with its monopoly over the internet search engine, is in a prime and ideal position to do so. As such, with the growing population of online shoppers, accompanied by their search engine dominance, their economic impact on businesses will definitely be of great significance.

Nevertheless, critiques have questioned if Google has indeed overstated the influences it has on the economy. The primarily criticism is that Google has overestimated the value of actual contribution of its search engine and accompanying advertising systems. By claiming that the profit generated from businesses is solely based on the advertising via Google seems to imply that Google has conveniently taken credit for the economic activity that might have been contributed by other economical agents (apart from advertising). It may be true that advertising plays a pivotal role in the economic development of companies. However, it should also be noted that there are multiple other contributing factors; Google primarily plays only the online advertising role for these enterprises.

In view of the discussion above, I am convinced that the economic influences of Google Search is largely beneficial to both the producers and consumers in the economy. Similar to the manner Google has captured internet users with its unique and effective search engine, Google has redefined the way online advertising should be carried out- leaving competitors like Yahoo and MSN struggling to keep pace behind. Even though online commerce and its advertisements is still a relatively minor aspect of our economy, I believe with the continued advancement and development of informational technology and the internet, there is indeed great potential for Google to have an increasingly significant effect on our economy.

Online References

http://www.forbes.com/sites/leapfrogging/2011/02/03/putting-a-value-on-google-and-facebook/

http://www.businessweek.com/magazine/content/06_10/b3974071.htm

https://www.google.com/adsense/static/en_US/WsOverview.html?gsessionid=TpwCQPndaQjxxwWoLay12w

http://googlewatch.eweek.com/content/google_philanthropy/google_generated_54b_for_us_in_2009_with_ads_grants_search.html?kc=rss&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+RSS%2Fgoogle_watch+%28Google+Watch%29