Dec 03, 2018 - 04:15 PM
I doubt Google would make more money by charging 1 cent per click. Let's do a little back of the napkin calculation.
- Google gets about 105 billion visits per month, so lets assume 105 billion searches per month.
- Google's revenue in 2017 was $110 billion
- Going with your suggestion of charging 1 cent per search that would be 105 billion searches times 1 cent, which would be a $1 billion in revenue per month.
- Over 12 months that would be $12 billion almost a tenth as much as their current revenue of $110 billion.
So theoretically, clearly Google would have to charge at least 10 cent per search to be in the same revenue range as their current "free, ad supported business" model.
So, what if they charged 10 cent per search? That would be $120 billion in revenue, slightly more than they make now. But here are some caveats:
- By charging for search, there is a percentage of users who would never pay. There is a lot of friction created by introducing payment, even if the dollar cost is really low. Just ask SaaS companies. You would therefore need to charge quite a bit more than 10 cents per search to get to the same revenue as the free model, further reducing the number of people using the service. This brings me to the next point...
- While there are not classic "network effects" (the value of the service increases with more users) like say Facebook, Google is the best search product there is because they have more data than everyone else, a result of getting the most queries. Because they get more queries than everyone else, they can improve their algorithms faster and get you more relevant results. This advantage disappears when you start charging.
Lastly, charging advertisers on a per click basis affords more opportunities for monetization. Say I am looking for a DUI lawyer (one of the highest CPC searches).
I may click on several ads to learn about each lawyer in my local area, so I can pick the one best suited to handle my cases. Google gets paid multiple times for the same search. Whereas if they charge per search, they get paid roughly once.
So there you have it. Search is one of the few businesses where an ad supported model leads to more revenue and profits than having people pay for a product.
Dec 13, 2018 - 05:51 PM
I agree 100% with Jasper’s answer. I doubt Google is willing to make such a risky move. Google does not have to charge for their searches since their money comes purely from advertising among few other things. Moderate estimates put this figure at around 96% of Google’s total revenue.
One thing we need to understand in the economics of Google Search and its business model is that there two sides to it. One is the supply side, where Google has perfected the art of selling Ads via its Adwords platform.
The demand side is that users need to find results on Google for their various queries and at the same time advertisers need traffic to send to the sites in order to sell their products.
So let’s get down to the logic, then the math. Google’s currency is the user’s search stats. Before Google can make any money off advertisers on its Google AdWords platform, they need the billions of search users to visit the site.
It is due to the surge in search traffic that advertisers see value in showing their ads on Google Search. So what happens when Google charges approximately 1 cent per search?
I am not so sure about the current stats, but as at last year, there were approximately 40,000 Google searches per second. This translated to about 3.5 billion searches per day. So if Google charge per search, they would earn $35 million a day! Good money. But to tell you the truth, people would search a lot less if they were charged money per search.
This would lessen appeal from advertisers to sell their ads on Google’s platform. Since most chunk of Google’s earnings come from the ads, they would have a slightly lowered earnings from ads hence it would defeat the purpose of charging the many users.
In summary, here are some scenarios that will likely play out should Google adopt the radical approach of charging users per search:
1. Alternatives will rise:
Another dimension from a purely economic perspective is that other platforms are yet to charge for searches. In addition, since all people are rational consumers, and the end justifies the means, people would prefer to flock sites such as Bing, DuckDuckGo, Ask, etc. that provide similar services at no cost.
2. Loss of Revenue
For a short while, Google will keep making money out of app downloads and advertising but competitors will up their ante and ramp up filters in a clutch effort to lay Google’s tombstone. Since people will have flocked Google’s alternatives, those who make money out of Ads on YouTube and Blogs will be jobless and eventually leave.
3. Twitter and Social Media Uproar
Since this change will be buried deep in emails titled: “Our Terms Have Changed”, many people will have no clue and will only find out about it when they will be prompted to enter their card details before making a search.
They will come up with hashtags like #MeToo and #IHateGoogle on Instagram and Twitter as news channels have a field day bashing Google’s sudden change of Policy.
China, where Google is already banned, will be ‘LOL-ing’ at us. Posts on Sina Weibo and WeChat will detail how Google was evil from the state and attempt to sanitize their earlier ban on the network saying; “We told you!”
4. Deeper Memorizing
We don’t seem to find the use of bookmarks fond as we can always Google up some link or article we read a while back and have suddenly forgotten it. But since we will have to pay for every search, it will be imperative that we always bookmark links that we have earned hardly. Bookmarks will get regular use and we will never take any search for granted, quite literally!5. Google will die!
This is quite a bold yet radical prediction, but Google will ultimately die. I know Bing can’t wait to inscribe the words: RIP Google on the search giant’s tombstone. This ultimate fall of Google won’t be as sudden as their change of terms and policy but it will be gradual with its genesis on the drastic fall of Google’s shares.
The world markets, starting with Asia - who always opens first- will have a drastic response from allied companies. MSFT’s shares will rise, and Yahoo’s might finally resurrect due to a strategic blunder from Google.
As the company suffers an eternal death, Google’s CEO will face the axe soon enough. Sooner, or later, a company or a group of companies will rise to the occasion and replace Google as the world’s search giant.
We can hardly tell what would actually happen but this is just my two cents!
Dec 14, 2018 - 12:01 AM
posted on behalf of HN user: ineedasername per fair use policy:
First: A penny is a lot for a search. Maybe not in First world countries, but in the developing world where average annual income can be a few hundred dollars, a penny per search could add up to a discernible % of your income.
Second: Even granting the premise that the cost wouldn't be a factor, this would add too much friction to the user experience. Given any alternative, much less one that returned halfway decent results, most people wouldn't bother with the hassle of setting up a payment account.
Think about how Craigslist demolished the newspaper Classifieds business in an incredibly short period of time. They were pretty cheap, the local paper might charge $5 to start, but everyone used them for services, for job listings, etc., so you got lots of eyeballs on your ad.
In aggregate these used to be roughly 40% of ad revenue for a paper. It's estimated that by 2000, there was nearly $20billion in such revenue.
There was, however, a lot (relatively) of friction for the average user: Fill out a form, get a check or money order, mail it in... Then came Craigslist. It was free. You didn't even need to login, you just typed and hit enter.
When it went nationwide in the early 00's, it went viral fast, and in a matter of about 2 years it was all but over for printed classifieds. (Ebay was of course the other murderer, but "For Sale" classifieds were only a fraction of the volume, so I attribute this primarily to Craigslist.
It's the story of how a company that even today grosses under $1billion in revenue killed a market that was 20x that size in the US alone.)