The day Google swapped paid and natural search

SPECIAL REPORT

We shouldn't kid ourselves – Google may present itself as a handy information-finding tool but the figures tell a different story.

Last year, an astonishing 97 per cent of Google's total revenues came from online advertising. This company is less a search engine than an advertising giant, with a phenomenal knack for monetising search. And like all companies, we mustn't forget that it's in the business of making money.

How does Google make its money?

Google's online advertising revenues come from selling PPC adspace – the sponsored links that appear to the right of (and sometimes above) natural search results. Every time somebody clicks on a sponsored link, the advertiser makes a payment through AdWords that can be upwards of £40 for hyper-competitive industries like finance and gambling. However, the majority of clicks are on natural results for which Google receives no money.

But what would happen to Google's bottom line if someone at Mountain View suddenly changed things around? What if Google moved its PPC ads to the main area of the screen and bumped its natural results to the right-hand side? Here at theEword, we decided to crunch a few numbers and find out.

How much does Google earn from online advertising?

The first step is working out how much Google gets from PPC marketing:

• According to the company's own figures, Google generated $22.9 billion (£15.6 billion) from advertising in 2009.

What proportion of searchers click on Google PPC ads?

Next, we need to consider the percentage of clicks aimed at PPC ads:

• As a general rule of thumb, it is thought around 35 per cent of clicks go on paid results while 65 per cent go on natural results currently.
• If Google suddenly swapped round the columns, we could assume for the sake of argument that these proportions would swap round as well. So that would give 65 per cent of clicks going on paid results and 35 per cent going on natural results.

How much would Google earn by swapping paid and natural search results?

This is the really big question. Cue some more back-of-an-envelope calculations:

• Google earns $22.9 billion when 35 per cent of clicks go on paid ads.
• To find out how much Google earns per 1 per cent of clicks on paid ads, we need to do 22.9/35=0.65.
• To find out how much Google would earn if 65 per cent of clicks went on paid ads, we need to do 0.65*65=42.5. So Google would earn $42.5 billion (£28.9 billion) in online advertising revenues.

Well, there you have it; Google would earn an extra $19.6 billion (£13.3 billion) per year if it suddenly swapped paid and natural search results. That's a whopping 85 per cent leap in online advertising revenues.

How would Google's new revenues compare?

Although an overwhelming 97 per cent of Google's revenues come from online advertising, to make a fair comparison with other companies we have to include the remaining 3 per cent:

• Google generated $0.8 billion (£0.5 billion) in other revenues in 2009, which would not be affected by switching paid and natural search results.
• Add that to our new online advertising revenues (42.5+0.5=43) and Google's total revenues would now be $43 billion (£29.3 billion).

In search terms, Google's two main rivals are Yahoo and Microsoft. The former already lags behind with Yahoo's total revenues reaching just $6.5 billion (£4.4 billion) in 2009, but this experiment would put Google completely out of sight.

As for the latter, it earns money from a much broader range of products and services (Windows, Office, Windows Phone 7 Series, Kin), meaning Microsoft's total revenues are a much healthier $58.4 billion (£39.8 billion) to the year ending June 2009. However, this little experiment would put Google within striking distance and leave Microsoft looking nervously over its shoulder.

A dose of reality

Ok, let's not get too carried away. If Google swapped its paid and natural search results, it's a tad simplistic to say there would be an instant 85 per cent hike in online advertising revenues. There would obviously be a huge backlash as searchers found themselves unable to locate the pages they're used to – some might gravitate over to the right-hand side column while others might abandon Google altogether. The Manchester search engine marketing sector would also be distinctly nonplussed! But the figures suggest it's not an altogether ludicrous idea. After all, Google is in the business of making money.