Fantastic insights with a few suggesstions that I'd like to propose.
> - Google’s 2022 revenue was $250B. (We’ll assume that’s all ads.)
> How much would Google have to charge to break even?
Google also had $80B in pure profit which means break even point is $170B. That includes nearly 200K employees. It is reasonable to assume that running a search operation, especially one that does not require any ad sales personel, would require much less people and infrastructure. I will be generous and assume 50k people needed to provide search service. That means ~$45B in cost needed to break even, or 5 times less than your starting point.
So the new math becomes:
$50B/yr / 4B people = ~$1/month/person
Much more doable.
> - 8B people in the world; we’ll assume only 4B people have internet access to the web.
> What does the world income distribution look like? [1]
> 60% of the world population survives on < $10/day ($300/month) for their household (multiple people).
It is also reasonable to assume that the most of those which do not have access to internet, belong to the <$10/day income group. So most of 4B with web access woud be able to pay $1/mo for search, especially if the search results have their best interest in mind.
Since $1/month will suffice to cover the entire search cost, increasing that to just $2/mo that will be paid by the richest could also solve the problem of providing access to search to the poorest and get the other 4B people searching. Nice!
(btw I think this should not be a job of a private company, but goverments should provide public search engines, similar to public libraries, which are not providing the utility that they once did - but this is a whole another matter).
So I'd reckon it is doable.
> One perspective to consider is that the rich (advertisers) are subsidizing the poor (information access) via ads. That sounds like a net positive to me?
This would hold true only if the quality of such provided information is not affected by ads as a business model. However we now know that is not true, and quality of search has detoriated a lot in the last decade as documented by many discussions here. Simple reason is misalignment of incentives between the users and the search engine, and this will be the case as long as the provided search results are paid for by the advertisers, and not by the users. So what is really the value of information provided, if it does not have my best interest in mind?
> Yet people would sooner reach for an ad-blocker than pay the “small monthly fee” even in nations as rich as the U.S.
That is correct, but at least YouTube Premium exists (unlike Google Premium), giving an opportunity for people who don't want ads to pay, opportunity that 25 million people took, paying a $12/month subscription [1]. Drop that down to $1/mo and maybe YouTube will not need to run ads? So if anything, this just proves the point of viability of this as a business model. Furthermore, 800 million devices having an adblocker installed already, make it the largest protest against a business model in the human history.
Disclosure: I work for Kagi, a paid search engine. I absolutely admire the search technology Google built (that we use) and people that work there (who we work with). I also believe that the days of the ad-supported business model for search are over, and in the future (~10 years) this will exists only with a 'for entertainment purposes only' label, because that will most accurately describe the level of trust we can have in the information served by this business model.
Thanks for taking the time to put together a well-reasoned argument. I had adopted some of your assumptions in a follow-up response to my other reply. [1] While I don't disagree with the perspective you've provided, in fact some points make a lot of sense, I think it misses the forest for the trees.
My point-by-point response should be read respectfully, since you've taken the time to do the same, I do not mean to sound argumentative. :)
> It is reasonable to assume that running a search operation, especially one that does not require any ad sales personel, would require much less people and infrastructure.
This is a reasonable assumption for running a steady-state business, but I challenge the worldview. Google does not exist in a vacuum without competitors, and contrary to what most outsiders believe, we're constantly iterating, innovating, and improving on Search alone to provide a better product and compete with our competitors. Google can't rest on its laurels.
A lot of laymen take Google Search's progress as inevitable, but I can assure you it's not. Consider the example of YouTube Snippets in Google Search. That feature was created within the last 5 years. The average person has used and found value in that new feature. (Both anecdotally and quantitatively.) That wasn't an easy feature to ideate, create, develop, or deliver. It took a lot of effort by a lot of smart people.
That's just one new feature. Google Search has been delivering several new features consistently.
Therefore I disagree with this assumption. If Google Search chose to run in steady-state, it'd soon find itself dethroned.
> That means ~$45B in cost needed to break even, or 5 times less than your starting point.
No, the financials don't work this way. [2] GOOG's Cost of Revenue is 50% Revenue. Cost of Revenue is your infrastructure, your financial floor, you can't go below this cost. Employees are accounted for under Operating Expense, specifically, your Sales under SG&A ($35B) and engineers under R&D ($35B).
So, if you'd like to banish all salespersons, you'd only save $35B. (Of which Ad Sales is only a part because Google sells many other things.)
> It is also reasonable to assume that the most of those which do not have access to internet, belong to the <$10/day income group.
This is not a reasonable assumption. Many people surviving on < $10/day have a low bandwidth cellular connection that they utilize for their family. Hence why Google innovated here with offline maps and landmark map directions for families that can only spare a little bit of bandwidth to calculate their route, and then make their way there without online point-by-point directions.
> quality of search has detoriated a lot in the last decade as documented by many discussions here
HN is a unrepresentative sample of the world population with respect to wealth, income, knowledge, interests, etc. I wouldn't consider HN as documentation for this. In fact, once again, the real-world data disagrees with HN's characterization.
> YouTube Premium exists (unlike Google Premium), giving an opportunity for people who don't want ads to pay, opportunity that 25 million people took, paying a $12/month subscription. So if anything, this just proves the point of viability of this as a business model.
That proves a 5-10% take-rate from YouTube's MAU. :) Which changes the break-even math on delivering a service. With a 5-10% take-rate on "Google Premium", your price must be 10-20x higher.
> - Google’s 2022 revenue was $250B. (We’ll assume that’s all ads.)
> How much would Google have to charge to break even?
Google also had $80B in pure profit which means break even point is $170B. That includes nearly 200K employees. It is reasonable to assume that running a search operation, especially one that does not require any ad sales personel, would require much less people and infrastructure. I will be generous and assume 50k people needed to provide search service. That means ~$45B in cost needed to break even, or 5 times less than your starting point.
So the new math becomes: $50B/yr / 4B people = ~$1/month/person
Much more doable.
> - 8B people in the world; we’ll assume only 4B people have internet access to the web.
> What does the world income distribution look like? [1]
> 60% of the world population survives on < $10/day ($300/month) for their household (multiple people).
It is also reasonable to assume that the most of those which do not have access to internet, belong to the <$10/day income group. So most of 4B with web access woud be able to pay $1/mo for search, especially if the search results have their best interest in mind.
Since $1/month will suffice to cover the entire search cost, increasing that to just $2/mo that will be paid by the richest could also solve the problem of providing access to search to the poorest and get the other 4B people searching. Nice!
(btw I think this should not be a job of a private company, but goverments should provide public search engines, similar to public libraries, which are not providing the utility that they once did - but this is a whole another matter).
So I'd reckon it is doable.
> One perspective to consider is that the rich (advertisers) are subsidizing the poor (information access) via ads. That sounds like a net positive to me?
This would hold true only if the quality of such provided information is not affected by ads as a business model. However we now know that is not true, and quality of search has detoriated a lot in the last decade as documented by many discussions here. Simple reason is misalignment of incentives between the users and the search engine, and this will be the case as long as the provided search results are paid for by the advertisers, and not by the users. So what is really the value of information provided, if it does not have my best interest in mind?
> Yet people would sooner reach for an ad-blocker than pay the “small monthly fee” even in nations as rich as the U.S.
That is correct, but at least YouTube Premium exists (unlike Google Premium), giving an opportunity for people who don't want ads to pay, opportunity that 25 million people took, paying a $12/month subscription [1]. Drop that down to $1/mo and maybe YouTube will not need to run ads? So if anything, this just proves the point of viability of this as a business model. Furthermore, 800 million devices having an adblocker installed already, make it the largest protest against a business model in the human history.
Disclosure: I work for Kagi, a paid search engine. I absolutely admire the search technology Google built (that we use) and people that work there (who we work with). I also believe that the days of the ad-supported business model for search are over, and in the future (~10 years) this will exists only with a 'for entertainment purposes only' label, because that will most accurately describe the level of trust we can have in the information served by this business model.
[1] https://www.statista.com/statistics/1261865/youtube-premium-...