I haven’t heard it expressed this way before, but I would suggest that Google has inadvertantly hit upon the world’s ultimate marketplace, and I don’t think many non-Internet-savy people have realized this:
“Google has created, owns and unilaterally controls the largest marketplace for every single word and phrase in every major language of this world.”
Forget the NYSE or NASDAQ, the real action is in AdWords. Except there is no intrinsic value to a Google AdWord, which is simply a word or phrase that advertisers bid on so their ads appear when an Internet user types that word into the Google search engine. In the advertising biz, this is “Search PPC”, Pay-Per-Click for search terms, and it’s responsible for 99% of Google’s $1.5 Billion quarterly revenue.
Advertisers try to outbid each other for a given phrase, say “red shoes,” so their ads appear favorably displayed at any given moment. Bidding is secret, and an ad’s ultimate placement depends on non-price factors determined by Google, such as what percent of users actually click on the ad and the “relevance” of the ad’s text. Each advertiser’s willingness to bid is determined by how effectively they can gain value from a future visitor – do they actually sell a pair of red shoes, for example.
My company, Degrees.com bids on tens to hundreds of thousands of words, from “college” to “online online business degree”, etc. Every word has a Google bid price which changes daily, even hourly, and has a different expected performance for us, in terms of how attractive a visitor clicking on the ad for that word is.
Instead of being a creative advertising executive, I’m really an analytical stock portfolio manager, with several hundred thousand stocks to watch daily, even on nights and weekends. Sheesh, and I thought it was tough to buy a mutual fund for my IRA…
But the point is that each word is its own marketplace — there are different advertisers and different bid prices (values) for every single word. Google’s revenue is a direct sum of keyword spending by all advertisers for all these words. But since advertisers only pay when a user actually clicks on their ads, the potential spend is many times larger, perhaps thousands. Unleashing this potential spend into actual spend is Google’s profit mission.
Google assumes powerful (dangerous?) market control, as well. More ideas on that in the next post.