Check out Don Dodge's recent article, entitled 'Why 1% of search market share is worth over $1 Billion'. His math concludes that each search query produces $0.12 ad revenue, which gives a value of $1B for just 1% of total search market share. Don is from Microsoft and this post was a response to the latest ComScore search market share numbers, showing that Google increased its market share lead to about 50%. Yahoo has about 27%, Microsoft 10%, AOL 5%, and Ask.com has 5%. So let's look closer at the numbers...
Fact #1 - Don Dodge's math implies a $2B valuation in 2.5 years
The graph below is from a Forrester research document published in May, 2005. According to this, the total online ad spending is expected to jump 50% in 2.5 years, from $20.3B to $29.4B.
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Now check out how closely that graph reflected the reality in the last couple of years. Google's annual revenues were:
- $6,138.56 B in 2005
- $10,604.92 B in 2006
This 72% boost compares with the 33% increase on the graph for the same time period. The difference is understandable because Google, as the leading ad network operator, should have a larger growth in earnings than others.
Hence, when we consider this derivation and Don Dodge's propositions true, we conclude that a 100% increase in revenues and valuation from Google is highly likely to happen in the next 2.5 years.
Fact #2 - Reaching Google's numbers with another method
OK, now let's try an alternative method to analyze Google's numbers:
Facts:
- Google's last quarter revenues was $3.664B
- which implies to monthly revenues of $1.221B
- which implies to daily revenues of $40.7 M
- There are approximately 1.2 B internet users worldwide
- Google holds 50% of the search market
- 53% of Google revenues come from search, 37% from AdSense
Considering these facts, we can quickly reach the rough conclusion that Google makes $1 per internet user. But not all of the revenues come from Google Search - they control only 50% of the search market, but the whole web is organically getting covered by Google ads via AdSense and AdWords. Therefore, even if you perform your searches from Yahoo or Live, you may end up being directed to a long tail web page powered by Google AdSense. Another way to look at it - if you use Google as your favourite search engine, you may be giving them $2 per month. But even if you you use a different search engine, you may still give ~$0.5 via Adsense and the Long Tail.
Lastly, ask yourself this: approximately how many times a month do you click on ads shown by your search engine? Four, ten, twenty, forty? Note that each ad approximately generates something in the range of $0.1 to $0.5; this will lead you to parallel results with the above.
Conclusion
To sum up, things are certainly not so linear - but as new internet advertising methods emerge and internet penetration increases with projects like Potenco and One Laptop Per Child in under-developed countries, online advertising revenues will keep boosting at unbelievable rates!
Disclosure: Emre Sokullu works for Hakia, one of the search engines mentioned in Don Dodge's post.
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