October 14 | No Comments|
As many have already seen, Google just posted some great third quarter figures. Both revenue and operating income were each up 23%, and Traffic Acquisition Costs (the revenue paid to AdSense partners) were at an all-time low of 25.7% of ad revenue. They also broke out some never-before-released sales figures: $2.5 billion a year for non-text display ads, and $1 billion for Google’s mobile search (driven mostly by use of their Android OS). But one part of the conference call caught my attention:
This is why we’re incredibly proud of Google Instant. Many of you guys speculated that we launched Instant to make more money. Well, let me tell you, that’s simply not the case. We launched Instant because it’s so much better for the user. In fact, from a revenue standpoint, its impact has been very minimal. And from a resource standpoint, it’s actually pretty expensive. So why did we do it? Well, we believe from a user standpoint, Instant is outstanding—and the data that we’re seeing actually bears this out.
The above was from Jonathan Rosenberg, Google’s SVP of Product Management. So, Google Instant was an expensive, non-revenue-producing upgrade to their lucrative search product. They did it, said Rosenberg, because it’s a huge improvement to the user experience. But how can that be measured? This got me thinking about what kind of metrics are truly important to Google in a broader economic sense. In Google’s financial reports they tout improvement in metrics like Traffic Acquisition Costs, Cost-Per-Click, and total number of Paid Clicks. All important to their business, but none that really capture Google’s overall business model. The most important metric to Google, I believe, is Revenue per Unit of User’s Time (or RUUT, for short).
Translating Time into Profit
Time is the ultimate scarce resource. Most businesses capture a portion of their customer’s wallets in exchange for a good or service. But businesses like Google (and TV networks, and most new media/web-based companies) capture a portion of customer’s time first, then translate that time into revenue.
Because time is scarce, when consumers choose to devote their time to a product or service, they are doing it at the exclusion of something else. So that company is literally capturing their customer’s time. Before Google and other search engines, when people wanted to “find” something, they went about it a multitude of ways: white & yellow pages, classifieds, a library or bookstore, or just plain leaving your house and searching (hard to believe, I know). These things took up a lot of people’s time.
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