Determining Google’s Local Revenues

Earlier this year, Piper Jaffray analyst Safa Rashtchy estimated that 10% of Google’s advertising revenues were local. It was the first such estimate I had seen. That estimate appeared in a NY Times article following a Google earnings release in April. Google CEO Eric Schmidt was also quoted as saying, “Locally targeted ads are an increasingly meaningful contributor to revenue, and much more is coming.”

I recently did my own analysis and calculation of that question. I came to the conclusion that, rather than 10% of revenues, about 8% of Google’s US revenues are attributable to local (via Google.com results only — not AdSense clicks). Projecting out Google earnings through the end of the year that would mean approximately $365 million or so in US paid search revenues would be attributable to local for the FY 2006.

This estimate could be quite incorrect (and low), but I was pretty careful about it. It’s based on public Google data, but also on third-party metrics and a range of assumptions, which could be flawed. I haven’t spoken to anyone at Google about it. But I’m looking for them to tell me if I’m close or way off.

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5 Responses to “Determining Google’s Local Revenues”

  1. Media Blog Says:

    How is local being defined?

    Is local a national business buying local keywords? Or is local a local business advertising on Google?

    For example, I can search for “Bakersfield plumbers” and get at least eight national sites, directories of plumbers in the paid search, but not one plumber in Bakersfield (though Google’s organic local/map serves up some relevant results).

    It’s great that locally targeted ads are increasingly important to Google, but until the local plumber starts using AdWords/AdSense, local media isn’t too disrupted.

  2. earlpearl Says:

    Those are both fascinating percentages and numbers. They put a reality basis on all the projections that are made on the growth of local spending on the web.

    As a webmaster and local business person that assists some local businesses with their web presence I see extraordinary growth in this area. I suspect that using the YP to find “realistic local alternatives” for local shoppers is still more reliable, more comprehensive and thorough then using local searches of any type but this will continue to change over time. Thanks for the estimates.

    I have a financial and financial analysis background. I’m going to try my own efforts at reviewing G’s financials and see what I come up with and get back to you.

    Interesting stuff.

    Dave

  3. earlpearl Says:

    Greg: I don’t know if there are estimates for total number of local type searches…but I put some numbers to your numbers to try and come up with an estimate.

    LOL: This could be way way way off…but here goes.

    Assume G’s take on each ad hit of the $365 million was $0.40– That would lead to 912 million clicks on local type ads. Assume that visitors click on ads 35% of the time. (why I don’t know) That leads to 2.607 billion searches where local type ads show. Assume that 80% of the searches were truly local in nature–That leads to 2.09 billion searches for local type sites. Then add percentages of that for the volume of local type searches on Y and MSN.

    Are there statistics or estimates on volume of local searches?

    My numbers could be so far off its silly–but I’m still curious if there are estimates or statistics for this type of search.

    Dave

  4. Greg Sterling Says:

    Per comScore: 850m local searches monthly; Google (30% share) = 255m per month or 3.06bn annually.

    I believe this undercounts the actual number and type of local lookups going on, but those are the metrics I relied upon, among others.

  5. earlpearl Says:

    Greg: Why would you assume G at only 30% share when they seem to be closer to 40-50% industry wide. The few sites I review have G local queries skewed to a higher percentage though those few sites do not comprise a relevant sample.

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