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Brier Dudley's blog

Brier Dudley offers a critical look at technology and business issues affecting the Northwest.

May 25, 2010 at 12:13 PM

Google touts its benefits for advertisers, economy

In a nationwide public relations push today, Google has released a report claiming that businesses make double their money when they buy ads from the search giant.

Google released the information on National Small Business Day and said it shows how the company supports small businesses and entrepreneurs.

The move comes as Google increasingly pursues local ads that are still mostly handled by traditional media, including newspapers and TV.

Google’s announcement is also political. It was simultaneously delivered in Washington, D.C., and at events across the country attended by elected officials.

The company faces growing scrutiny from regulators as it uses its dominance of online advertising to expand into new markets, and the economic impact information implies the company is helping rather than hurting. As it matures, the company is also developing deeper relationships with governments, especially in places where it has major operations.

“We thought it was important to help people understand Google is not just the place where you search for information, but it’s also become a critical source of new customers and new revenue for businesses here in our state,” Rob Torres, a Google sales director, said at a Seattle press conference today.

The company asserts that each dollar businesses spend on Google AdWords generates $2 in revenue and $1 in profit for the businesses. That’s based on methodology and research that the company’s economist, Hal Varian, and two other researchers published last year.

Google combined that data with the amount of money it shares with Web site publishers who display its ads. It also wrapped in the company’s charitable donations and came up with a total of $58 billion worth of “economic activity” it generated for U.S. companies, Web sites and charities in 2009.

The company, at the Seattle event, said it generated $2.8 billion worth of economic actitivity last year in Washington state for 44,700 advertisers. The company also donated $3.14 million to 140 non-profits.

For perspective, the gross income of the state’s 328,372 businesses was $565.6 billion last year, down 9.8 percent. That includes retail business sales of $106.6 billion, which were down 6.7 percent from the year before, according to the state Department of Revenue. Apparently they weren’t spending enough on Google ads.

Google declined to provide the usual economic impact data that companies give lawmakers, such as direct and indirect employment and spending on goods and services, but it did say Google employs more than 600 people at its Seattle and Kirkland offices.

Microsoft’s most recent state economic impact study, produced in March, didn’t estimate how much business was generated by customers using its products.

But the Redmond company said it spent $7 billion on employee compensation and $2 billion on services in 2008. Microsoft’s study asserts that this is multiplied through the state’s economy, generating $18.95 billion in personal income in the state and $43.84 billion of the state’s gross product.

Google included three state legislators in the Seattle press conference — state Reps. Zack Hudgins and Ross Hunter and state Sen. Margarita Prentice.

“They want more friends,” said Hunter, who used to work at Microsoft. “They want people to see how they really impact your economy.”

Prentice said the information will influence her when considering future legislation affecting Google.

“Yes, I’m very much for doing everything we can to induce them to stay,” she said.

Google’s event was held in a Seattle showroom of Allied Trade Group, a Kirkland-based lighting manufacturer that has expanded into a major online retailer with 500 Web storefronts drawing more than 25 million online visitors a year.

“Google is a key driver of all that business,” said Michael Pinkowski, director of marketing.

Allied Trade’s a particularly good example for Google. Pinkowski explained that people shopping for lights don’t tend to shop for brands they’ve learned about elsewhere, such as Marvin windows or Kohler faucets, and use search to discover what’s available.

Does Allied make $2 back for every $1 it spends on Google ads?

“It varies by category because the categories have different profit margins in them; some things are much more competitive than others,” Pinkowski said. “But as a rule we beat that number.”

Now Google and other online ad companies are aiming to take a greater share of local advertising, where they still have a relatively small market share.

Of the $144 billion spent on local ads in the U.S. last year, $15.2 billion was spent online and $115 billion went to traditional media, according to BIA/Kelsey forecasts.

Comments | Topics: Google, Microsoft, Public policy

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