Google’s Chief Economist Hal Varian took the stage today at Web 2.0 Expo to break down the totality of Google’s yearly economic value in the US. He spoke about two elements of value: The value of Google to users and the value of Google to advertisers.
In order to estimate the value of Google to advertisers, Varian used the vx – c(x) model (where v = value per click, x = number of clicks and c(x) = cost of clicks) and then did some “back-of-the-napkin” math.
The bottom line? Google’s value to publishers and advertisers is $54 billion.
In order to calculate the value of Google to users, Varian cited the “A Day Without A Search Engine” study, which plotted the time spent by students searching for the answers to questions in a library against that spent by those who used Google to get their information. Students who searched in the library ended up averaging 22 minutes to find what they needed whereas students using Google took an average of 7 minutes, saving 15 minutes.
Because of a question “demand curve” (which holds that the cheaper question asking is in terms of time, the more questions we ask), Varian did some more “back-of-the-napkin” math and tried to glean how much time Google saves the average US user daily.
Varian came to the conclusion that Google saves us 3.75 minutes per day, and then used the average US hourly earnings numbers ($22) to calculate that Google saves users $1.37 a day. That number multiplied by 365 days in a year equals $500. Varian then multiplied that $500 number by 130 million, the number of people employed in the US, to get to $65 billion value in savings for users.
Adding those two bottom line numbers $65 billion + $54 billion together results in the rough ballpark of the total value of Google to US users ($119 billion), Varian holds. For comparison Google’s global market cap is $187.04 billion.
But that $119 billion number doesn’t take into account extraneous factors like the value to non-employed, etc. Says Varian, “You should think about these numbers as an underestimate. The value of getting answers to questions immediately is a pretty big deal.”
Google provides search and advertising services, which together aim to organize and monetize the world’s information. In addition to its dominant search engine, it offers a plethora of online tools and platforms including: Gmail, Maps, YouTube, and Google+, the company’s extension into the social space. Most of its Web-based products are free, funded by Google’s highly integrated online advertising platforms AdWords and AdSense. Google promotes the idea that advertising should be highly targeted and relevant to users thus providing...