Before we delve into the different ways in which search engines generate that revenue, letís examine what the numbers mean for the search engines.
The question we will try to answer is what is the value of a single percentage point of search engine market share in terms of revenue and market capitalization? In other words, if a particular search engine gets 1% of all search engine queries, how much would it be generating in terms of revenue and how much would its stock be valued at the stock exchange.
The numbers are very high, as we should see. But a little mathematics first ( a little tedious, but Iím sure you can follow it!).
By the end of 2007, search market share looked something like this:
1. Should we even begin to consider that AOL and Ask.com leave the search market and try their luck elsewhere because of a measly 5% each in terms of market share? Quite simply, no!
2. Also, the monthly search queries generated in the United States alone for 3 months in 2007 stood something like this:
So all together, Google did about 10.1 billion searches in the US in the first three months of 2007, and earned revenues of $3.66 billion dollars in those 3 months.
3. It would be easy to say, at this point that the revenue per search for Google would be $0.36 ($3.66billion/10.1 billion). Unfortunately, itís not so easy. By doing that we would be comparing US searches to total revenue. So a little more math!
4. We can split up the $3.66 billion quite neatly like this
AdSense serves as ads to other websites, and not ads on the search engine. Google allows webmasters to put ads on their own sites. When a user clicks on an ad, the advertiser pays Google for the click and Google splits up the revenue with the site owner. AdSense does not generate revenues through searches.
5. So, revenues per search will be $1.23billion/10.1 billion searches which equals $0.12 revenue for every search performed. You might argue that Googleís wouldnít have earned any revenues from AdSense if it wasnít for its search engine, so we should divide all US revenues by the number of US searches which puts us at $0.19 per search.
6. Letís use the number $0.12 per search in revenue for search engines. There were 7.3 billion total searches performed in March 2007. So, a search engine with 1% search share would be getting 73 million searches. So the revenue it earns in a month? $0.12 x 73m = $8.76 million a month and $105.1 million a year.
Evidently, having 1% search share is not too bad. It only gets better.
7. The stock market values a 1% market share at between $1 billion and $3 billion, and more than 10 times the annual revenue. Using this multiple, a 1 % market share generate not only $105.1 million revenue, but also $ 1 billion in total market cap.
Now we all get why AOL, Ask.com and so many others are still fighting hard for every 1% of search market share. The search engine business generates huge revenues and profits for even the firms with smallest of market share.
We understand that the above reasoning might be hard to read and understand, so we have presented it in an easier way below.