Google Touts Its Role, State by State, in U.S. Economic Growth

5/25/10Follow @wroush

Google unveiled the results of its first state-by-state analysis of the company’s impact on regional economies at press events in 10 cities on Tuesday, including Cambridge, MA, Detroit, and Seattle. For the most part, Google measured the value it generates when local advertisers and Web publishers use its AdWords and AdSense platforms for Web advertising.

Overall, Google claimed that transactions enabled by its search and advertising tools added up to $54 billion across the United States in 2009. About one-fourth of that that activity, $14.13 billion, took place in California. New York felt the second-biggest Google impact, with $6.27 billion in advertising-driven activity, followed by Illinois at $3.24 billion and Texas at $3.18 billion. Xconomy’s other home states of Massachusetts, Michigan, and Washington saw total economic value of $2.2 billion, $906 million, and $2.8 billion, respectively.

“‘What is the value of Google to local businesses?’ is a question we’ve often heard from the press, from advertisers, and from partners,” said Brian Schmidt, director of sales for Google Boston, at a press conference Tuesday at the Pemberton Farms market and garden center in Cambridge. “We take it seriously and we wanted to put some serious thought behind it.”

Advertising on Google is a “growth engine” for local businesses, Schmidt argued. He said that 43,000 of the 175,000 businesses in Massachusetts have advertised on Google. That includes Pemberton Farms, which allocates about 60 percent of its overall advertising budget to buying online ads matched to search keywords such as “gift basket” and “fruit basket,” according to co-owner Mark Saidnawey.

“The actual economic return to the state [of Massachusetts] via our advertising programs totals over $2 billion for 2009 alone. That is a really big number,” Schmidt said. “What’s important to note here is that we are not a California company. We are headquartered in Silicon Valley and that’s our focus, but we’ve built a focus in Massachusetts that we’re proud of. We’ve hired over 200 people, but more importantly we are empowering businesses in Massachusetts.”

Brian SchmidtGoogle calculated its economic-impact numbers by assuming that the dollars advertisers spend buying keyword-based advertising on its search pages through the AdWords program have a multiplier effect on their businesses. (After all, the whole point of advertising on Google is to entice Web surfers to click on your ad, arrive at your website, and become customers.) Hal Varian, Google’s chief economist, says businesses earn an average of $2 for every $1 that they spend on AdWords ads.

But when Google factors in not just revenue from AdWords advertising but revenue from clicks on natural search results—which outnumber AdWords clicks by about 5 to 1, acccording to third-party researchers—the multiplier effect grows even larger. Overall, the company calculates that for every dollar AdWords advertisers spend, they get back about eight dollars. (The exact formula that Google used can be seen here in more detail.)

A number of state and local officials attended the Cambridge press event, including Greg Bialecki, Secretary of the Executive Office of Housing and Economic Development under Massachusetts Governor Deval Patrick. In interviews with Xconomy and elsewhere, Bialecki has often promoted high-tech innovation as a path to economic recovery and growth for the state. “When we talk about the ‘innovation economy,’ sometimes people say ‘It sounds like you’re helping high-tech businesses but not … Next Page »

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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