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Go Figure: Google Wants You to Spend More Time on Google!

“I have learned to not have an opinion on how people choose to spend their time. We just want to spend them — have them spend more time on Google doing it.”- Eric Schmidt to Gwen Ifill at The Washington Ideas Forum, 10/5/11

This week, Google executive chairman Eric Schmidt reminded us all just how much Google’s incentives have changed in search. Once upon a time, Google was a pure search engine focused on directing users as quickly as possible to websites most relevant to the user’s query. Today, however, Google has expanded into other products and services because its incentive now is to steer users to its own web pages and away from websites that compete for traffic and advertising sales. That’s how Google makes money – or more money than it would if it just sent you to the most relevant site. At least that’s what you find if you read its latest SEC 10-K filing carefully:

“The operating margin we realize on revenues generated from ads placed on our Google Network members’ websites through our AdSense program is significantly lower than the operating margin we realize from revenues generated from ads placed on our websites because most of the advertiser fees from ads served on Google Network members’ websites are shared with our Google Network members. For the past five years, growth in advertising revenues from our websites has generally exceeded that from our Google Network members’ websites. This trend has had a positive impact on our operating margins, and we expect that this will continue for the foreseeable future, although the relative rate of growth in revenues from our websites compared to the rate of growth in revenues from our Google Network members’ websites may vary over time.” (Google Form 10-K filing, 12/31/10)

Yet, Google says its services are “free” – its $29.3 billion in revenue in 2010 came from somewhere: the advertisers that are trying to reach customers, which end up paying the billions of dollars that Google collects mostly by steering users to its own products (in 2010, 69% of all Google revenue came from ads placed on its own sites while only 31% came from other websites).