Google's Economic Impact Reports Lack Credibility; Mislead the Public, Policy Makers, and Media

As the FTC and other antitrust enforcers consider whether Google is abusing its dominant position in Internet search, and how that harms consumers and the economy, FairSearch.org decided to take a closer look at Google’s own comments about its “benefits.”

For the past two years, Google issued annual reports touting its impact on economic activity in the United States. Here’s the 2010 announcement from The Official Google Blog: “…we’re announcing that in 2009 we generated a total of $54 billion of economic activity for American businesses, website publishers and non-profits.”

The company upped those figures for 2010: “Across the U.S., Google’s search and advertising tools provided $64 billion of economic activity in 2010.” Understandably, it earned them some great local headlines, cleverly timed for release during National Small Business Week.

The problem?

Well, let’s just say we might not always want to take Google at its word.

A new study released today offers “the first comprehensive analysis, by an independent economist, of the credibility of Google’s claims and the extent to which they reflect economic reality.” (Full disclosure: FairSearch.org commissioned the study, but its Ph.D. economist author retained complete editorial control over his research findings and conclusions, and the opinions expressed in his report and summary of it.)

The economist’s findings are quite illuminating:

• Google’s claims about its contribution to the U.S. economy are grossly exaggerated; can deceive policy makers, news media, and the public; and should not be trusted.

• Google’s overestimate was at least 100 times the value of the actual contribution of its search engine. Google takes credit for economic activity that is mostly generated by other economic agents. In reality, the contribution of Google’s search engine to the economy is very small, amounting to at most only 1% of the overestimated economic contribution claimed by Google in its reports.

• Google’s net impact on the economy could well be negative after accounting for the impacts of its dominance and market power. Google has consistently generated percent net (profit) margins that are between 4 and 8 times the U.S. corporate average, indicating that advertisers’ costs are likely higher than they would be in a competitive market environment.

• Google’s misleading claims were largely the result of fatally flawed, inaccurate assumptions. Google’s analysis  contradicted economic logic, did not take into account  obvious costs of doing business, ignored the results of previous empirical economic studies, and failed to consider negative economic impacts of the company’s market dominance.

Read the full report for yourself here.