Jul 032012

I touched on Google’s proud announcement of the $80 billion it has contributed to the US economy as proclaimed in its “Google’s Economic Impact: United States 2011” document. I wanted to take some time to wrap up my thoughts on the piece and tie it into a larger issue I have with Google. In short, it continues a theme that the company has problems with the truth.

On its face (which is also how the entire tech universe has been interpreting it), $80 billion being poured into a struggling economy seems like a great thing. The economic impact document is scant on details, but the gist of it is that Google contributes to the economy in three ways: through the business it generates through Search and AdWords, through the money it dispenses through its AdSense program and by the advertising it gives to non-profits through its Google Grants program. What is not included, as clearly stated in the report:

We also have not estimated the economic impact our employees provide, or that of other major products like Google Maps and YouTube. So while we’re confident in our estimates, consider them a lower bound on Google’s true economic impact.

In other words, how the academic community interprets economic impact is not the topic of “Google’s Economic Impact”.

A Few Words about Economic Impact

An economic impact statement is a tool commonly used by development entities to justify the burden they place upon an area’s resources. The generally accepted logic works like this: an entity that spends money and/or employs people creates benefits that ripple through the economy. For example, money spent by the entity goes to businesses for the purchase of supplies. Employees voluntarily spend money locally on businesses as well and also provide an added boost in the form of taxes paid. These are commonly referred to as “direct impacts”. There’s is also a fractional effect that this money has “downstream”: at a certain tipping point when enough money is spent on a local business, that business hires more people for example. These “downstream impacts” are called “indirect impacts” and can be secondary or even tertiary. The takeaway here is that economic impact is created by spending and/or job creation.

The Major Component of Google’s Economic Impact Does Neither of These Things

As I mentioned above and in a prior post, it is almost certain that Google’s Search and AdWords component of its economic impact is the major source of its $80 billion impact calculation. This is pretty easy to conclude based on the fact that all of the “success stories” that make up half of Google’s presentation (one for every state) feature AdWords or credit Google Search as the cause of their happiness. If Google’s AdSense spend were a major player in the impact statement, Google isn’t saying anything about it. The irony here, of course, is that money given to website hosts in the form of AdSense dollars actually fits the definition of something that constitutes economic impact quite well.

Google’s AdWords and Google’s Search undoubtedly makes it easier for people to find businesses. This does not equate into people using these businesses. As anyone running a business will tell you, getting your brand in front of peoples’ eyeballs is a small part of what it takes to generate a sale. Your business needs to sell a worthy product or provide a worthy service. Your business needs to provide this product or service at a competitive price. Even if the algorithms that powered Google’s search and ad program were perfect, just being seen by a customer is not the same as that customer engaging a business. Google, at best, is a facilitator, not an impact generator. Taking Google’s logic and extending it, the people who print Walmart’s circulars should be able to take credit for all the money spent at Walmart.

But It’s Worse Than That

Not only is Google claiming that facilitating a business’s relationship with its potential customers constitutes an “economic contribution”, they’re claiming that every dollar that gets spent by businesses using its AdWords program is multiplied eight times. Getting back to traditional economic impact analyses for a moment, even when an entity can take credit for spending a dollar in an economy, that dollar dramatically loses its economic impact when it winds its way through the secondary and tertiary layers of the spending tree. For Google to claim that a single dollar spent on its AdWords program yields eight dollars of benefit is absurd for 2 reasons. It assumes that that dollar spend on AdWords is directly responsible for spending on a business, which is not true because it is not the only factor in a purchasing decision. In a traditional economic impact sense, one dollar would never – even under the most liberal interpretation of indirect impacts – be responsible for eight dollars in spending. Google’s use of the term “Economic Impact Statement” is worse than stretching the definition of the term: it takes the process of creating economic benefit through spending and employment and guts it for a tech press either too stupid or too dazzled to ask actual questions pertaining to what Google is boasting about.

Does Google make finding places to spend money on the right things easier? Without question. Does Google’s AdWords program convey some additional benefit to the businesses employing it? Certainly. What AdWords does not do is create eight dollars of economic benefit for every dollar spent on AdWords. Much like the questions surrounding Google’s estimation of Android activations (do these include flashed ROMs? Does it include cheap Baidu knock-offs running Android?) or the laugher statement that people signed into Google services constitutes active users of the Google+ ghost town, Google’s use of the term “Economic Impact Statement” to describe the benefit to the economy from businesses using AdWords is at best disingenuous. Their document is nothing more than a promotional brochure for their AdWords service not-so-cleverly veiled as propaganda trumpeting how much money Google pumps into the economy.

 Posted by at 9:29 am

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