

Doing the math: Why 1% of search market share is worth over $1 Billion (2007) - rradu
http://dondodge.typepad.com/the_next_big_thing/2007/05/why_1_of_search.html

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rfreytag
I confess <http://DuckDuckGo.com> seemed to be an admirable but quixotic
effort; now I get it. <http://www.gabrielweinberg.com/> \- remember us when
you are rich and famous won't you? ;-)

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retube
Ask has something like 2.5% share of the search market, and they're worth
about £4bn.

~~~
il
Ask is owned by IAC, which has many more incredibly profitable properties like
Match.com, Zwinky, etc.

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patio11
The reason in a nutshell: here's Google's revenue formula:

GDP of $NATION

x percentage of commerce transacted online

x percentage of revenue reinvested in customer acquisition

I think they end up with measurable percentages of the world GDP if something
doesn't kill search as a usage paradigm.

~~~
netcan
patio11,

I think I've been down this road with you before (I think years ago, amazing
how long I've been on this site): I don't think the majority of Google's
revenue come from online transactions. Most come from services where each
individual customer is worth more.

The keywords with the highest clickrates are often things like 'plumber,'
'removals,' 'mortgage broker 'or 'divorce lawyer,' yellow pages type of
material.

An online shop (for example) might make an average sale of $50 with a $20
margin & a 2% conversion rate (fairly generous numbers). They can spend $0.40
on clicks and break even. An migration agent will probably get 20% conversion
rate (to phone calls) & 1/3 of those will become jobs (7%). A client is worth
about $1k. If they are willing to spend 10-20% on acquisition, that means they
can (and do) spend $10 if necessary.

So, I wouldn't be surprised if Google sees this as: GDP of a nation * x
percentage of revenue reinvested in customer acquisition * x percentage of
customer acquisition done on Google.

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patio11
I can't remember this specific discussion, but you're absolutely right in all
particulars. Egads. Now I'm even more scared of the borg.

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SoftwareMaven
What the math doesn't cover is the cost associated with owning 1% of the
search market. I would imagine the costs associated with owning 1% and 50% of
the search market are pretty close (think all the costs of crawling, storing,
and indexing). You may not be able to survive in the space with a 1% share,
even if it is worth $1B.

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ryanelkins
You should probably mark this article with a tag - [2007] as it is currently
about 3 1/2 years old.

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ddodge
I wrote this article over 3 years ago, while working at Microsoft. Ironically,
I now work at Google. I haven't analyzed the numbers again since then, but I
suspect the trends and reasoning are still the same.

I was surprised and delighted to see thousands of hits coming from
HackerNews...more than 3 years later. Several search startup CEOs told me they
showed this blog post to their VCs while raising money. Pretty cool.

Search is much harder than it looks. The "table stakes" investment required to
operate a real search engine have escalated significantly since I wrote this.
The competition is tougher, and winning just 1% market share is very, very
difficult.

The new markets for search are hyper-local search, mobile search, social
filtered search, and search automated action like Siri. Market share might be
easier to win in these markets.

Don

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iamelgringo
Someone, please correct me if I'm wrong. But if you plug in numbers from their
latest quarterly report (ref:
[http://docs.google.com/viewer?url=http://investor.google.com...](http://docs.google.com/viewer?url=http://investor.google.com/pdf/2010Q2_google_earnings_slides.pdf))
and ComScore's search rankings for 1st Quarter 2010 (ref
[http://www.comscore.com/Press_Events/Press_Releases/2010/2/c...](http://www.comscore.com/Press_Events/Press_Releases/2010/2/comScore_Releases_January_2010_U.S._Search_Engine_Rankings)
[http://www.comscore.com/Press_Events/Press_Releases/2010/3/c...](http://www.comscore.com/Press_Events/Press_Releases/2010/3/comScore_Releases_February_2010_U.S._Search_Engine_Rankings)
[http://www.comscore.com/Press_Events/Press_Releases/2010/4/c...](http://www.comscore.com/Press_Events/Press_Releases/2010/4/comScore_Releases_March_2010_U.S._Search_Engine_Rankings)
)

You get still get a Google US Search revenue of $0.12 per query and profit of
$0.07.

The US is getting 15 Billion queries a month which makes that market worth
$1.6B a month, and one percent of that is $160M a month x 12 months, which
would make 1% of the search market worth $1.9 Billion in revenue give or take
several hundred $ Million.

Makes me feel pretty good about trying to build a financial news search engine
out of Newsley: <http://newsley.com/k/Company/google/77/>

------
awa
But this presume all of Google's revenue are from search ads, this might have
been more accurate in 2007 when the article was written but now with youtube,
android and gmail this is not that correct.

Also, note google market cap has remained static or dropped during this
period. The stock market loves growth and Google was one of the wonder kids on
the block, Apple is new one and Google is becoming an laggard in terms of
growth and the stock price and market cap growth reflects that.

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cryptoz
Google is seeing 200,000 new Android activations _every day_ (or, the entire
population of Canada every five months or so). This November, Google is
releasing a new Operating System. How can you possibly say that Google is
becoming "laggard in terms of growth"?

AND given that if Apple grows, Google grows (more iPhones = more Google
revenue through iPhone search ads), it seems clear to me that Google is not
slowing down at all but is in fact geared to continue growing immensely.

~~~
SoftwareMaven
How much revenue is Google getting from these 200k Android activations? How
much will it get from GoogleOS?

The growth being referred to is revenue growth. Sun showed very well that
giving away everything is not the path to happy shareholders.

I believe Google is capable of continued revenue growth, but now they are
going to have to fight for it like everybody else. I actually think their one
engineer for every non-engineer hire is going to hurt them in those efforts,
though.

~~~
cryptoz
> Sun showed very well that giving away everything is not the path to happy
> shareholders.

Well, Google has shown that giving away everything _does_ lead to happy
shareholders. Google only sells one thing: ads. (Okay, they sell a bit of
hardware here and there to large enterprises, but they don't make a ton of
money from that from what I understand).

I don't know how much revenue Google gets from Android activations nor do I
know how much they will get from Chrome OS. I assume that they get a bit from
each sale, but I'd bet that amount is very small compared to the ad clicks
once the user starts searching on the device.

~~~
awa
Well, they have also tried to make revenue in other ways but haven't done well
with Google checkout and Google Apps for Enterprise, if they are so happy with
ads they wouldn't be doing Google Apps which is basically not their main forte
(enterprise customers, actual support, non-free web apps) Dependence on ads
for money is like the Google's Achilles heel right now.

