Tuesday, September 6, 2016

Google Ad Revenue or Where's My Money?

The post below is incomplete. I started it four years ago. In a sense it is the post that killed this BLOG. 

To be clear, I was never in this for the money but reailizing that 

A. Google is making the bulk of what little profit there is off of my work and
B. That I'd have to live to be three or four centuries old to see my tiny earnings

kind of killed my enthusiasm.

I'm not saying Google is doing anything wrong here. This is business, and nobody was forcing me to write or post here. Once I understood what was going on I chose to do other things with my free time.

I'm not going to update the numbers, and I only did a quick pass through to locate obvious typos. 

I doubt many will read this and my thinking could be faulty or the situation may have changed. I'm mostly putting this out there because it has bugged me off and on that I never finished this or published. 


I've been mostly indulging the tech geek side of my personality here recently. I'm going to bring things a bit more into alignment with this entry. My plan is to illustrate just how disruptive Google has been to both traditional and non traditional content providers. To be clear, when I say disruptive I'm talking about Google's impressive ability to shift revenues out of other peoples pocket and into theirs. This isn't a crime and they aren't doing anything wrong but the law of thermodynamics stats that where there are winners there will also be losers. If you're a content producer you've likely be on the loser side of this equation for reasons I'm going to explain below.

It's easy to forget that Google hasn't been around all that long. In 2001 their revenues were just eighty six million dollars. That isn't chump change but by 2011 revenues had grown to just under thirty eight BILLION dollars. 

In 2001 about three quarters of Google's revenues came from advertising. In 2011 that number had jumped to ninety six percent. In their public financial numbers Google breaks ad revenues down into two categories, those generated by their own web sites and revenues generated by Google network members.

In 2011 sixty six percent of ad revenues were generated by Google with the other thirty percent being generated by Google network member sites. That translates to just under ten point five billion dollars generated by member web sites.

Publicly traded companies have a lot of flexibility in how detailed they want to be when they report their financials as being too detailed could give information that would put them at a competitive disadvantage. That flexibility is often used to provide emphasis for things companies do want talked about while obscuring things they are less interested in having discussed. The fact that Google breaks out the numbers for their Network members on the revenue side isn't surprising. That is revenue that costs them a lot less money as they are not providing the content or do as much work to get it.

Google chooses not to separate Network member numbers on the cost side of things. The most likely reason for this is they don't want to show how profitable that revenue is in comparison to the other two thirds or so of the advertising pie. There are costs associated with Network revenue since Google has to write and maintain the software that enables the delivery of ads to Network members but those costs are unlikely to be anywhere as high as for ad revenue . They lump all of their non ad related costs into the same bucket as well. Since these make up less than five percent of the total I'm going to ignore them for the rest of this analysis to keep things from getting any more complicated. A lot of this is guess work anyway.

Here are all the numbers. You don't have to spend a lot of time looking at them but do look at the percentages at the end because they are interesting and will be the primary topic of the rest of this analysis.

Revenue 2007 2008 2009 2010 2011
Google Ad Revenue $10,625 $14,414 $15,723 $19,444 $26,145
Network Ad Revenue $5,788 $6,715 $7,166 $8,792 $10,386
Total Ad Revenue $16,413 $21,129 $22,889 $28,236 $36,531
Network Ad Revenue % of Total 35% 32% 35% 35% 35%
Traffic Acquisition $4,934 $5,939 $6,169 $7,317 $8,811
Other $1,715 $2,683 $2,675 $3,100 $4,377
R&D $2,120 $2,793 $2,843 $3,762 $5,162
Sales & Marketing $1,461 $1,946 $1,984 $2,799 $4,589
G&A $1,279 $1,803 $1,668 $1,962 $2,724
Total $11,509 $15,164 $15,339 $18,940 $25,663
Overall Profit % 30% 28% 33% 33% 30%
Google Ad Profit $ $10,625 $14,414 $15,723 $19,444 $26,145
Network Ad Profi $ $3,985 $4,402 $4,651 $5,704 $6,094
Google Ad Costs $9,719 $12,616 $12,824 $15,852 $21,371
Network Ad Costs $1,803 $2,313 $2,515 $3,088 $4,292
Google Ad Profit % 9% 12% 18% 18% 18%
Network Ad Profit % 69% 66% 65% 65% 59%

All the data in the tables above is publicly available. In fact you can find data back to 2001 at the following link.


Google breaks costs down into five categories listed below along with how I apportioned the costs between Google and their Network Member websites.

Traffic Acquisition: All costs were attributed to Google since Network members are responsible for their own traffic acquisition.

Other Costs: This includes stock based compensation. To be conservative I assigned costs proportionally between Google and their Network Member sites based on revenue. This is the % listed beside "Network Ad Revenue % of Total" above.

Research & Development: Costs were again attributed proportionally as detailed above under "Other Costs". I'm being very generous to Google here as the R&D costs for their Network Member sites has to be lower than it is for Google's own sites. I'm assuming blogger related revenues are considered Network Member related revenue and blogger didn't write itself.

Sales & Marketing: All costs were attributed to Google since so far as I know they don't advertise Network Member sites.

General & Administrative: Costs were assigned proportionally as described above under "Other Costs" and "Research & Development". This is again generous to Google as G&A related costs for Network Member sites must be smaller than for their own sites.

I'm going to reprint a portion of the table above here

Profit % by Revenue Type20072008200920102011

Google Ad Profit % 9% 12% 18% 18% 18%
Network Ad Profit % 69% 66% 65% 65% 59%

Keep in mind I was arguably generous to Google in apportioning costs. Even so

Yearly Advertising Revenues in Millions