Monday, August 31, 2009

Gambling or Google Adsense?

Now that Google is a decade old, employs over 20,000 people worldwide, has a market capitalization of nearly $150 billion (USD), earns over $20 billion (USD) in annual revenue and produced at least three billionaires, we finally have a clear definition of what google is. Michael Arrington of TechCrunch interviewed Eric Schmidt, Google's CEO, and asked the simple question, What is Google? His reply was:

"I think of Google as a set of overlapping things. It’s a consumer platform, consumer phenomenon of which search is its fundamental activity, but there are many other things you can do than search…I think of Google as an advertising company who services the broader advertising industry in the ways that you know. And the first and the second are inter-related. The third is I think of us as a network of partners and infrastructure. I don’t know how many billions of dollars we hand to everybody. But by the time you look at the publishers, the use of AdSense and so forth, it’s literally billions of dollars going through Google and to other people which we hope fund additional software, additional web applications, additional content and so forth and we care a lot about that."

It is always food for thought when large corporations conveniently define themselves so generally that it leaves the door open for endless expansion (ie. Xerox- The Document Company). However, the statement referencing the billions of dollars that Google "hands to everybody" trough the AdSense program caught my attention. The percentage share of advertising revenue that Google AdSense publishers get from Google is always subject to open debate and speculation, as Google has never officially announced or revealed the revenue share it gives out and distributes to websites’ partners and publishers. In 2005, the New York Times estimated that the magic figure was around 79%. That means for every dollar that google makes in advertising dollars, 79 cents is paid to AdSense publishers and partners.

While it is nothing short of genius for Google strategist to create such a clever revenue stream it is eerily reminiscent of the casino business model. An average payout ratio for a casino is at least 95% (20% greater than the AdSense payout), which begs the question, is it better to gamble or subscribe to AdSense?

The answer to this question has probably been published in a doctoral dissertation. However, there is one mantra that absolutely applies to both the casino model and the AdSense model, "The house always wins."