Photo: Associated Press
But what got people REALLY jazzed was the disclosure that Google is now doing $2.5 billion of “non-text” revenue and $1 billion of mobile revenue.
The message: Google’s not a one-trick pony anymore!
Don’t fall for this one: Google’s still very much a one-trick pony.
- The $1 billion of mobile revenue is still “search” revenue–not some huge new revenue stream. In the years since Google has been growing this $1 billion of mobile search revenue, the regular-old search revenue has growth $10+ billion.
COMMENT FROM GOOGLE: The $1 billion figure is not all search revenue — it includes all revenue from ads on non-PC platforms, including search, display, in-app etc. (We estimate–and think it’s safe to assume– that the vast majority of this mobile revenue is search. Google did not comment further.)
- The “$2.5 billion of non-text revenue” is less than 10% of Google’s total revenue, which is now ~$30 billion.
- The $2.5 billion includes businesses that Google has had for a decade, such as AdSense. (The network business that places display ads on third-party sites, including this one).
COMMENT FROM GOOGLE: The $2.5 billion figure doesn’t include the revenue generated by text ads through AdSense for Search or AdSense for Content. (What Google means here is that AdSense for Content (Google’s ad-network business) sometimes serves text ads and sometimes serves display ads–and that only the display ads are counted in the $2.5 billion. That’s fine. In our opinion it doesn’t change the point above.)
- The $2.5 billion includes DoubleClick, which is ad serving,
- Half of the $2.5 billion, AdSense and DoubleClick, are not likely growing any faster than Google as a whole, and, most importantly,
- The $2.5 billion is gross revenue, not net revenue, and it is therefore far less profitable for the company than the majority of Google’s revenue.
This last point is critical.
The reason Google is so amazingly profitable is that it keeps 100% of the revenue for AdWords–the sponsored search results that appear on Google’s search pages.
Since Google has not yet stooped so low as to serve display and video ads on its own pages, however, it has to share display revenue with content partners. The average split for this display revenue is probably on the order of 70% to the partner and 30% for Google.
The same goes for YouTube: Google does not produce videos itself, so it has to share revenue with partners. The same revenue split–70% for the partner, 30% for Google–is probably a good estimate here, too.
COMMENT FROM GOOGLE: Not all revenue generated by YouTube is shared with partners (i.e., ads on the YT homepage). ( We estimate (and think it’s safe to assume) that the majority of YouTube revenue is shared with partners. Google would not comment further on what percentage of YouTube revenue comes from the home page.)
For the DoubleClick ad-serving business, Google does keep all the revenue.
So, put that all together and what do you get?
Google likely passes at least 50% of its $2.5 billion of non-text ad revenue through to content partners. This means that, on a “net revenue” basis, Google’s non-text ad business generates only $1-$1.25 billion of revenue, or only about 5% of Google’s total revenue.
Because display and video ads are more costly to sell and serve than text ads, moreover, the operating profit associated with them is probably lower than the operating profit for search ads.
As a result, Google’s non-text ad business, including YouTube, likely contributes less than 5% of Google’s profit.
Lastly, AdSense and DoubleClick, which have been around for 10-15 years, aren’t likely growing any faster than Google’s overall revenue, so this part of the “non-text” pie won’t be expanding. YouTube is growing faster, and is a much-better business than the chorus of YouTube-deniers want to admit, but it’s still relatively tiny compared to Google as a whole.
So, Google’s still a one-trick pony.
The good news is that its one trick–search–is one of the most amazing tricks anyone has ever seen.