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. 

-Mike

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%
Costs
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.

http://investor.google.com/financial/2011/tables.html

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 Type

2007

2008

2009

2010

2011

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

Lytro Illum Unboxing

My Lytro Illum arrived today. I put in my pre-order early on day one so it's been a bit of a long wait. I was an early adopted of the first Illum as well. That camera felt and behaved like a technology preview. The Illum is much more refined and would have been a worthy first generation product. I've had almost no hands on time with it but here is a collection of pictures showing me unboxing it in my car along with some comments.

The packaging was brilliant from a design perspective. Clearly somebody put a lot of well reasoned thought into both the functionality and aesthetics. 

The camera is every bit as impressive looking in person as it is in the pictures we've been seeing for the past few months. Again, great industrial design. The controls seems reasonable as well from an ergonomic perspective but I haven't had anywhere near enough time at this point to be sure.

First edition #14! It pays to be fast I guess. 

The lens cap is light years better designed than the one that came with the original Lytro. The lens hood looks nice as well and is a much appreciated standard feature.

The hood, lens strap, battery and other components all come individually boxed.

The battery is proprietary which isn't unusual. I'm hoping the price will be reasonable when Lytro offers them for sale individually.

Initial boot time was short and flashy.

There were a series of fairly standard menus for setup.

NOTE: The Illum does NOT come with an SD card. You'll need a 2GB+ capacity card of your own if you want to use your Illum as anything other than a rather expensive piece of modern industrial art. Luckily I had a 64GB SD card with me so this step didn't slow me down.

The step pictured above did indeed take several minutes so I started taking pictures of other stuff.

And back to the setup screens.

It's nice but not unique that they step through the basics of taking pictures. Particularly since Light Field photography is so much different from standard picture taking.

That's it for now. I'll have more comments and reviews on my Lytro Illum over the coming weeks.

Related Articles:

• A closer look at the Lytro Illum, the futuristic new light-field camera
• Hands on: Will Lytro's Illum camera, aimed at photographers, live up to its vision?
• LYTRO ILLUM: The first high-end camera that harnesses the power of Light Field

Lightfield Photography Part 2 (Lytro Illum)

Lytro Illum  (Photo credit: KoFahu meets the Mitropa)

I talked a lot in the previous part of this article about how light field photography works and why it's useful. In this part I'm going to focus primarily on the enhancements to the Illum which is the recently announced second generations Lytro camera. I'm going to focus mostly on why the enhancements in the Illum are potentially useful even for serious photographers.

As I opined before, too much emphasis is put on the Lytro's ability to refocus. The fact of the matter is that this ability to refocus comes at a cost. I've often referred to the first generation Lytro as a great proof of concept and it was; but it wasn't without some fairly significant faults. Those faults caused a fair amount of consternation in some circles and are likely causing Lytro some headwinds right now. If you read any of the comment sections associated with articles written about the Illum you'll know what I'm talking about.

In my opinion Lytro made a mistake in their marketing of the first generation camera. That mistake was in focusing too much on the megapixels captured while avoiding at all costs any mention of the resolution of exported 2D images. On the one hand this was understandable. 1.1 megapixels stopped being an impressive resolution a decade or more ago. The limited resolution was also at odds with their desire to present the Lytro camera as a premium product at a premium price. In addition it was generally difficult to get a good quality picture even at the 1.1 megapixel export resolution. Pictures were often soft and colors were subdued and muted in my experience. It was rare that I ended up with a final image that wasn't mediocre at best. This is not a good outcome for a camera that has as its major selling point the ability to refocus so that you can avoid bad pictures.

In addition there were aspects of the hardware that bugged me. The biggest was the LCD. The small dimensions were inevitable given the industrial design but the quality was less than stellar. It was dim and had poor viewing angles which made the camera difficult to use. My other hardware related gripe is the lens cap. It never stayed on as the magnet was weak. Consequently I was always losing it. Having said that, I loved the concept and the technology and have been looking forward to Lytro's second generation camera for awhile now.

Enter the Illum, a product that on paper promises to be a significant improvement over its older sibling. The design is slick and modern looking with a definite nod to digital SLR's.

The lens is a permanent part of the body and features an impressive 30-250 mm zoom range with a constant F/2.0. What does that mean in layman's terms?  Basically you get everything from a fairly wide angle to an 8x zoom with excellent light capture across the entire range. The ability to capture light is important as it relates directly to the quality of the picture. This is true of any camera but even more so in the case of light field photography.

Our eyes and brain are a great team. They work in tandem to create a visual experience that is generally smooth and glossy. Normal camera's don't have a sophisticated human brain doing real time processing which is why it can be difficult to get a good picture.

Getting a well focused image requires an appropriate depth of field, (AKA focus point) and either a whole lot of light so that the exposure time is short or a tripod and long exposure time. The Illum doesn't have the human brain but it does have a whole lot of smarts and technology built in that should make it easier to take good pictures.

The first advantage the Illum has over most cameras is that 2.0 F-stop rating. The thing to know about F-stops is that the lower the number the faster the lens. Put another way, as the number decreases the lens is capable of letting in more light because it can open wider in a given period of time. Normally that is a bit of a trade off as more light means a shallower focus range. Large F-Stop numbers mean that most or all of a picture you take will be in focus while small F-stops mean you'll have a steadily narrower focus range as the F-stop number decreases. This isn't a problem for the Lytro as capturing the light field allows an image to be rendered that is in focus over a much wider range of distances. In effect you get the wide depth of field advantage of a high F-Stop but with the high light capturing capability of a much smaller F-Stop which should translate into better quality pictures in situations such as sporting events where fast shutter speeds are needed.

The Illum's 40 mega ray censor will capture roughly four times the light rays that the original did. This in turn translates to 4 mega pixel 2D images. That 4 mega pixel export number is likely a compromise that provides reasonable output in a wide range of scenarios. Macro images and images a very limited depth of field could likely be rendered at higher resolutions with good results as the light rays captured would originate from a much narrower depth of field range and thus provide more data(light rays) at a given focus depth with which to render an image. Of course the inverse is true as well. The wider the available focus range the less data will be available at a given focus point to render from. This may explain why Lytro images can look soft. Lytro basically has two choices when they don't have a lot of data at a given focus point. They can interpolate between available light rays or look at light rays that may provide additional information but not be ideal for a given focus point. In all likely hood I suspect they do a bit of both.

The LCD may be the biggest upgrade of all though. As I mentioned above, the original Lytro's LCD was... sub optimal. The dimness, limited viewing angles and small size meant that I was often shooting blind. The Illum's much larger screen and ability to tilt will inevitably lead to a better experience. How much better remains to be seen but I'm fairly optimistic. My Cannon EOS 70D has an LCD that rotates and moves in a lot of ways that the Illum's won't but it won't tilt back without rotating it 180 degrees out from the body. This provides a similar but not identical experience and after trying it out I think I'm going to like the Illum a lot. The best shot is often taken from lower than eye level, particularly when you're tall as I am. Being able to look down and easily see the framing for the shot is very useful.

The UI on the original Lytro was spartan. That was because of the tiny touch screen and  limited processing power. The Illum's Snapdragon 800 processor has four cores which will enable a much better user experience. One feature shown in the pre production models is the ability to visualize what will be within the refocusing range. That alone is worth the price of admission. It was always frustrating to me when I'd take a picture, load it into the Lytro management software and then not be able to refocus as I wanted.

Of course the big question is will all of this be worth four times what the original Lytro cost? I pre ordered mine and as an owner of the first generation camera I got an additional ~$250 discount. That was good enough for me to pull the trigger so I'll be able to explore first hand what this camera does in another month or two. I have some thoughts on the pricing that I'm going to reserve for the next part of this series.

Related Articles:

• Lytro's Illum Can Do Something No Other Advanced Camera Can
• Lytro's new Illum camera brings light-field tech to pros (and it could change photos forever)