Google recently released a report highlighting stories about the direct impact that AdWords, AdSense, Google Grants and their search engine have made on the U.S. economy.   The report states that, “In 2009 Google generated a total of $54 billion of economic activity for American businesses.”  In this article, we’ll look closer on how Google is estimating its economic impact on US businesses.

Google considered four parts in its calculation.

1. AdWords Revenue – Revenue they received from AdWords on search results

2. AdSense Payments – Payments made to AdSense Partners from Google

3. In-Kind Donations – Money given to non-profits from Google

4. Search Click Value – Estimated value of a search click.

Google’s Chief Economist, Hal Varian explains that on average, businesses gain $2 of revenue from every dollar spent on AdWords.  That generates profit of $1.  This assumes that businesses are maximizing revenue with the use of AdWords.  Additionally, researchers have estimated that users are 5.3 times more likely to click on search links than ad links when both are present on a page.   Google rounded 5.3 down to 5 for sake of ease.  Hal calculates that from the 5 free search clicks, businesses will receive approximately $7 in revenue.  To sum up, Hal states, “The average economic value of natural and paid search is $8 profit for every $1 spent, or 8 times our AdWords revenue in each state.”

Google’s estimate may or may not be legitimate.  They had to assume multiple factors in their report because it is nearly impossible to trace every single penny of revenue created from Google’s technology.   An alternate approach may have been to interview several AdWords businesses and report the average of all of their results.  However, this still leaves holes in the formula.

So why did Google release this report?  Was it in an attempt to combat recent privacy and anti-trust complaints?  Was it to increase AdWords revenue?  Whether or not you believe Google’s report, we cannot deny the vast impact Google has made on the world of Internet marketing for businesses worldwide.

Google’s report and video can be found here: