Google Events Offer a Defense to Criticism

Tue, May 25, 2010 at 6:30 pm

    Google Inc. highlighted its positive impact on small business and the broader economy through a report and series of news conferences on Tuesday, at a point when the online giant is facing mounting criticism over its privacy practices and alleged anti-competitive behavior.

    The Mountain View company released an internal analysis that found it generated an estimated $54 billion in economic activity throughout the United States last year, led by $14.1 billion in California. Google on Tuesday held news events at 11 small businesses across the country that it said benefited from its offerings, including the Happy Hound Play and Daycare in Oakland.

    Some observers said the move was, at least in part, a public relations tactic designed to mitigate recent controversies surrounding the company. Those would include antitrust claims and scrutiny from competitors and the government, as well as the recent revelation that Google vehicles equipped to collect data for its mapping services had inadvertently captured personal information from unencrypted wireless networks.

    “There’s a heavy PR element,” said Greg Sterling, founding principal of Sterling Market Intelligence. “It wants to show that it’s a friend to small business and that it contributes to the health of the economy broadly; that it’s not this huge corporation taking over the world.”

    But at least one vocal critic of the company said the report overstates Google’s contributions. The company didn’t generate this economic activity so much as facilitate it, said John Simpson of Consumer Watchdog. There were other businesses that connected companies with customers before Google was founded 12 years ago, and the report failed to take into account lost revenue and jobs within those industries, notably media and advertising, he said.

    “They often say themselves that they’re a very disruptive company,” Simpson said. “If you want to sit down and do a serious analysis of the economic impact, you’ve got to take both sides of all this into account.”

    Google tallied its economic contributions by estimating the business generated by its search engine and the ads served up with queries; the amount of money generated for third-party online publishers through the ads it places on those sites; and the money it gives away directly through its nonprofit arm.

    Many assumptions

    Calculations for the latter two categories were straightforward, but the first required several assumptions, which the report called conservative.

    The company estimates that businesses bring in $2 in revenue for every $1 they spend on AdWords, Google’s online search advertising program. The model was developed by Hal Varian, Google’s chief economist, based on the observed activity of a large sample of advertisers, according to the report.

    Separately, the company makes the assumption, based on the work of two independent academic researchers, that businesses receive five clicks on their search results for every one click on their search ads.

    Public companies typically stick to reporting their internal financials, rather than playing up economic ripple effects. But it’s not unheard of.

    In 2004, as Wal-Mart Stores Inc. was facing stiff public and union opposition to its plans to open 40 Supercenters in California, the company rolled out full-page ads in major newspapers emphasizing its contributions to the Golden State.

    The ads noted that the company handed over $650 million in California sales tax revenue the previous year and bought more than $8 billion in goods and services from 4,600 state businesses.

    Dennis Woodside, vice president of Americas operations at Google, denied the allegation that the report was designed to deflect criticism. Rather, he said, the goal was to provide greater transparency of the company’s business model and to help small businesses understand the benefits of working with Google.

    “The reality is, Google is an engine for economic growth for small business,” he said, during the Oakland news conference.

    Happy customer

    Suzanne Golter, the owner of Happy Hound, agreed. She has been advertising on Google since opening her businesses more than six years ago, and estimates that 70 percent of her customers arrive via the company’s search engine or AdWords.

    She now employs 33 people and plans to open a second dog day care facility next year.

    “I don’t think I’d be as successful as I am today without Google,” she said.

    E-mail James Temple at jtemple@sfchronicle.com.

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