A Google Tax Isn't Going To Give Publishers The Payout They Think It Will

Business Models

from the too-many-pockets,-too-little-profit dept

Somehow newspaper publishers — especially those located in Europe — believe the road to recovery is paved with income siphoned off Google. There have been plenty of proposed “snippet taxes” and other demands Google pay online publications for sending traffic their way. So far, nothing has panned out as the papers had hoped. In extreme cases, Google has offered to just stop sending any traffic their way by pulling out of the snippet-taxed market.

The newspapers claim Google would be nothing without them, which is, at best, extremely dubious. There’s a wealth of news and information out there that doesn’t come from legacy newspaper publishers. The internet isn’t going to be bereft of news services if certain papers decide to pull the plug because Google isn’t propping them up.

But even if they were right about this, there’s a very good chance Google can’t save them from drying up and blowing away. Media consultant Thomas Baekdal has done the math on proposed snippet taxes. Even with Google serving up more than a trillion search results a year, there’s no money in taxing clicks.

Baekdal’s back-of-the-envelope math starts out big — the only thing publications see when they start demanding link/snippet taxes:

First of all, Google is big, in fact, the current estimate is that Google is serving up between 1.5 to 2 trillion searches per year.

That amounts to 125 billion searches per month.

Google also makes a lot of money. In the last quarter, it made a stunning $26 billion, of which $4.1 billion was profit.

This is where most publications stop when griping about Google’s billions in comparison to their declining net worths. Assuming the equation is zero sum is only part of the problem. The rest of it’s the math they don’t feel like doing. But Baekdal follows through. Not all of this profit is related to Google’s searches. Alphabet — Google’s parent company — has a lot of irons in the internet fire, some of them actually profitable. Stripping everything out but search revenue, we end up with this:

Google Search has a revenue of $4.65 billion per month, of which about $700 million (not billion) is profit per month.

Smaller, but still hundreds of millions more in profit than most papers make. Again, these are dollar signs in publications’ eyes, each of them apparently believing a revenue-“sharing” plan forcibly applied to Google with net thousands of dollars in new revenue for each participant.

Not so:

Now, we can take the $700 million in profit and divide that by the 125 billion searches to get the profit per search query.

The result is that Google makes… $0.0056 per search query.

That’s almost nothing, even for a publication receiving millions of hits via Google every month. As Baekdal does the math, the revenue per month is obviously nothing compared to what publications believe it should be. Even with every search monetized by Google’s ad placement (which nets higher revenue for Google and more to “share” with publications), the total payout for a site receiving 3 million hits per month (Baekdal uses Denmark’s largest paper as an example) would be between $930-1000/month. Not exactly business model-saving $$$. And not every search is monetized, so the payout would likely be even less.

Nate Hoffelder of the Digital Reader points out Baekdal’s math is slightly off, thanks to a misconception about how the snippet tax would be collected.

Baekdal made a couple goofs in his calculations (he thought Google would be paying for clicks rather than for impressions)…

But even so, there’s no money there:

Google is making under 4 cents per search, and turning a profit of around a half a cent per search.

Of course, that is an average across all of Google’s search results, and it includes search terms and even whole verticals which are not monetized (Google News, for example). And that is also a global average and not based on EU revenues, so it is not 100% applicable. (And those calculations are based on a bunch of unsupported assumptions.)

Leaving those caveats aside, the point that matters is that news publishers want Google to pay for the use of their links and snippets. This means that Google would need to take that 3.7 cents and divide it between all of the relevant links returned with each click of the search button (after taking a cut for itself).

That money is not going to go nearly as far as the news publishers think.

Would having this math in front them cause publishers to rethink their plans to divert Google’s “billions” into their own pockets? Probably not. Not understanding how this all actually works is extremely helpful when demanding a billion-dollar tech company start handing over cash for directing more traffic to the publications’ sites. The very premise is beyond stupid, but it gets even more stupid when each publisher acts like the biggest cut of an apparently minuscule payout won’t have to be shared with every other publisher whose sites end up in the same search results.

If these publications are dying, it’s not because of Google. And they apparently have enough cash flow to pay lawyers and lobbyists to keep pushing local governments to craft anti-internet legislation on their behalf.

Filed Under: newspapers, publishing
Companies: google