It's Rishi

In my prior post, I briefly noted how search-engines/aggregators profit off of content that publishers create for them. I shared my thoughts on this topic with a couple friends today and while nothing discussed was enlightening, I figured I might as well throw up a quick post. Since Google is the largest search engine, I’ll use them as an example.

Google is so profitable because they control lots of Web advertising space. They build control of advertising space 3 ways (listed in order of descending profitability):
Inherit – Google inherits ad space from every person who has ever published any sort of Web content and made it accessible. The easy way to think about it is that the more content there is on the Web, the more possible search result pages exist. Each search result page has advertising space. Cost: Developing and operating the search engine which is expensive. But, on a per (ad space) unit basis, the cost is very tiny fractions of a penny.
Create – Google creates ad space by building it’s own applications and sticking AdSense on it. The goal is to build applications/services which result in disproportionately large # of page views and whose pages would likely to contain content for which there would be advertising interest for. E.g. Search, GMail, Maps (for the purpose of Local info and advertising), Froogle. Cost: Same logic as above but the per unit cost is not quite as small because page view volume is not nearly as high compared to Search. Also AdSense ad space is not as lucrative as AdWords because it is less targeted.
Buy – Offering AdSense to publishers. Cost: % of ad revenue. Much less profitable compared to the prior two methods.

While each of these three methods have varying profit margins, they all share one thing in common: making ad space out of content that other people create. It’s the exact opposite of traditional media companies. It’s such a great business to be in and that’s why entrepreneurs get excited about the notion of structured data on the Web because it means they can build great aggregators and get rich. =)

Quick blabber about Google:
Google began life as a search company. Google built a fantastic rapport with its users by offering a tremendously useful, free service. Since then, they have evolved into an advertising company. When Google added advertising, they were able convince users that the ads actually helped the user because the ads were contextual. All advertising is contextual to some extent, but people aren’t thanking TV networks for airing pizza commercials during football games. The commercials help you figure out what to eat while watching the game… right? Google has become the only advertising company in the world that people love. It’s both brilliant and fascinating.