Recently, Yahoo! began to use their new ad system Panama and hopes to reduce the gap of money-making power between Google and Yahoo. From an article on December 26, 2006 of Business Week, I got to know that Tim Boyd, a financial analyst of Caris & Co. estimated that Google makes 20 cents per search while Yahoo! makes 10 cents per search. During a visit, I told this number to a friend. My friend said he got a different number and sometimes the number from a financial analyst should be double-checked. I agree with the viewpoint of my friend. Moreover, Jon Bentley also suggested that we should use “back-of-the-envelope” calculations, a standard fare in engineering schools. Here is my “back-of-the-envelope” calculation about the Google’s money-making power.
In Q3 2006, the total revenue of Google is $2.690 Billion according to Google income statement. According to Nielson//NetRating data, Google received 2.776 Billion queries (49% US search share) in July 2006, 3.003 Billion queries (50%) in August 2006, and 2.826 Billion queries (50%) in September 2006. Thus in Q3 2006, there are 8.605 Billion queries submitted to Google. If we assume that all revenue of Google comes from Ad (AdWord or AdSense), then on average Google makes $2.690Billion / 8.605Billion query = $0.31/query, i.e., 31 cents per query.
In Q4 2006, the total revenue of Google is 3.205 Billion. According to Nielson//NetRating data, Google received 3.022 Billion queries (50%) in October 2006, 3.098 Billion queries (50%) in November 2006, and 3.036 Billion queries (51%) queries in December 2006. Thus in Q4 2006, there are 9.156 Billion queries submitted to Google. On average Google makes $3.022 Billion / $9.156 Billion query = $0.33/query, i.e., 33 cents per query.
From the simple calculation of Q3 2006 and Q4 2006, we can see Google indeed makes around 30 cents per query on average. Since Yahoo! revenue comes from diverse sources, it is difficult to compute the Yahoo! number according to the number of Nielson/NetRating and Financial report.
