Backup & Beyond (mostly beyond)

Google is key to our business! We spend a lot of time studying how people looking for online backup solutions found us – through the organic & paid results on Google.

Besides this affinity for many things ‘Google’, three other events inspired this post:

a) Google announced its quarterly results earlier this month. Though revenues were almost stagnant, Google managed to deliver a higher net income of $ 1.48 bn (Qtr ending June 30, 2009)

b) Techcrunch says Bing users are twice as likely to click on ads than Google users.

c) I clicked on the ‘I’m feeling lucky’ button on Google today – more out of curiosity than out of habit! This got me thinking…

Who clicks the ‘I’m feeling Lucky’ button anyway?

So, I googled it up (note the subtle irony here) and came across a very interesting article from Nov 2007 ; here’s an excerpt:

Google cofounder Sergey Brin told public radio’s Marketplace that around one percent of all Google searches go through the “I’m Feeling Lucky” button. Because the button takes users directly to the top search result, Google doesn’t get to show search ads on one percent of all its searches. That costs the company around $110 million in annual revenue, according to Rapt’s Tom Chavez. So why does Google keep such a costly button around? “It’s possible to become too dry, too corporate, too much about making money. I think what’s delightful about ‘I’m Feeling Lucky’ is that it reminds you there are real people here,” Google exec Marissa Mayer explained, or at least tried to.

So Google left $110 million on the table two years ago! Let’s try and recalculate the figure now…

a) Google’s annual revenue in 2008 was $22 billion – about twice its revenues in 2006. 66% of Google’s revenues are from Google owned sites. I’m simply assuming that Google.com (and other country sites) account for about 50%, and properties like Gmail and other Google sites account for the balance 16%. In effect, I’m assuming that search from Google homepage(s) contributes to $11bn of the total $22bn revenue.

b) Lets assume that the ‘1% of people click on I’m Feeling Lucky’ still holds. In fact, I suspect that this number would be higher considering the increasing number of newbie net users especially in developing countries! You’d expect the people who click on “I’m Feling Lucky” to be net newbies and unable to really differentiate between organic and paid results. Those well crafted & well placed ads (like ours!) would attract their attention a lot more.

c) If the average Bing user is twice as likely as the average Google user to click on an ad, I’d argue that the average ‘I’m feeling lucky’ clicker, had he clicked on the money making ‘Google Search’ button instead, would be at least thrice as likely to click on an ad. Hence the ‘I’m feeling Lucky’ guys could account for (almost) 3% of ‘opportunity’ revenues

So, let’s do the math…

$11bn in annual revenues x a conservative 3% =

$ 330mn in increased revenues – simply by removing the ‘I’m feeling lucky’ button!

What does this do for the bottom-line?

There is no direct cost (of revenue/goods sold) for this ad inventory – unlike the ad inventory from the content network where about 75% of the revenues are paid out to the content network partner. Hence this is $330mn of PURE Gross Profit! Google typically spends 30% of its revenues in R&D & G&A expenses. Assuming this ratio applies for the incremental revenues, and taking that expense figure of 30% out ($100mn) , you’d expect them to add a whopping $230mn annually to their net income – simply by removing the ‘I’m feeling lucky’ button!

This $230mn translates to an increase (in net income) of over 5%

I believe this is too tempting an opportunity for Google to pass up! When the going is good, its easy to say stuff like “It’s possible to become too dry, too corporate, too much about making money… “ . In the current economic climate, you can expect Google to milk every opportunity they have. After all, they still ‘answer’ to Wall Street!

Considering all this, the “I’m Feeling Lucky” opportunity is too much of a potential cash cow (or sitting duck, or low hanging fruit – pick your metaphor) to pass by. Remember, it translates into a direct increase of 5% in net income!

Of course, when it happens, Google won’t tell you the real reason! Expect to hear something like…

“…extensive research conducted by Google showed that the absence of the I’m Feeling Lucky button translated to a user taking 6 milliseconds less – to reach the results page he was looking for. As much as the ‘I’m Feeling Lucky’ is a part of Google history, removing it makes for an enhanced user experience, and finally, Google is all about the user’s experience. So, with a heavy heart…”

As some people say, It’s all about the Money, Honey!

Remember, you saw it here first!

The above post was written by Lakshmanan (Lux) Narayan of Vembu Technologies. Vembu Technologies is a backup software vendor whose product, StoreGrid, powers the online backup services of a large number of service providers across the globe. Besides remote backup, StoreGrid is also used for on premise backups of workstations and servers at various companies & universities.