Doing the math: Why 1% of search market share is worth over $1 Billion (2007) | Hacker News Reader

Doing the math: Why 1% of search market share is worth over $1 Billion (2007)

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33 pointsrradu18 comments

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? ;-)

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

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

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.

There market cap is currently 159.07B world GDP = ~61.06 Trillion.

So, they are currently worth about 0.26% of world GDP. Or more specificly Google's revenue is 23.651 billion (2009) so they represent about 0.039% of world GDP.

PS: Not bad for a 12 year old company.

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.

Your last equation is tautological, since all it amounts to is "Google's revenue in a country comes from money invested in customer acquisition."

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.

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.

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

Good call - done.

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

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...) 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/2010/3/c... http://www.comscore.com/Press_Events/Press_Releases/2010/4/c... )

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/

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.

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.

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.

> 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.

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.

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