This sceptred isle is probably much more profitable for Google than the US operation.
Not so long ago car salesmen used to call Britain “Treasure Island”, because they could charge much higher prices here than on the continent. It wasn’t because the cars needed right-hand drive; Japan drove on the left too but had nothing like the price disparity. No, Britain was just a special case of us handing over our money to, mostly, foreign carmakers.
And so with Google. The UK really is its Treasure Island. Almost from the moment it started selling advertising space on its search engine here, the revenues generated have been more than 10% of its total – the only country in the world where that’s the case. You can find out for yourself on Google’s financials page, which goes back to 2004 (when it first began detailing results). For the most recent quarter, announced last week, the UK made up 11% of revenue; the US was only 47%.
That amazing concentration of internet activity here means Google UK will easily overtake ITV as the biggest recipient of advertising expenditure this year; it’s on course to be worth much more than £2.4bn at current growth rates. Not that ITV is hanging about, but our analysis – which includes the confounding element of “traffic acquisition costs” (TAC), or how much it costs Google to get the adverts or how much it has to pay partners – already allows for that.
TAC, by the way, is a large part of why Microsoft is losing money hand over fist with its Bing search engine: last year it was spending roughly for every of advertising it got. Google, by contrast, has pushed TAC down to 25 cents per . That might be partly why Microsoft loses roughly 0m every quarter on Bing, while Google is cruising past bn per quarter.
Even better for Google is that this sceptred isle is probably much more profitable for it than the US operation: it doesn’t have a huge headquarters with endlessly circulating electric buses (though it does have two nice offices near London’s Victoria station) and it doesn’t require server farms to work across huge distances as in the US. We’re a high-spending, highly connected country with a lot of people who speak the same language as its home country. Perhaps the surprise is that we’re only 11% of its revenue.
But there are signs of trouble in paradise. The Daily Mail’s Alex Brummer penned an extraordinary 2,000-word rant against, well, the fact that Google is, you know, a very big company which lets you search for things, and claimed that “One only has to switch on the computer, call up the Google search engine and type in the name of a star like Adele to understand why the digital channel is such a threat to the UK’s performers, and for that matter our whole creative industry. Nine out of the first 10 websites which pop up on Google’s search engine are run by pirates who have downloaded Adele’s output and offer it online far more cheaply than official copyrighted sites and high street retailers.” Hmm. When I typed “Adele” into Google UK’s search box (and for that matter into Bing’s), I got her official website and variations on it.
Brummer though also offered background grumbling about the fact No 10’s strategist Steve Hilton is married to Rachel Whetstone, Google’s UK head of communications. And that Google has told David Cameron it couldn’t have set up in the UK because of our copyright laws. Certainly the famous paper “Anatomy of a Large-Scale Hypertextual Web Search Engine” explaining Google’s original design contained the bold claim they had downloaded the internet on to a desktop machine (“The repository contains the full HTML of every web page”). True, it was compressed, and it was only 1997, but the obvious gigantic infringement would have given British lawyers the vapours. You copied the internet?
Still, if the Daily Mail is running bizarrely anti-Google pieces, something must be up with middle England. Maybe they have an inkling of its enigmatic power. The mood won’t have been lightened among those it would want to call its friends on British technology websites such as Pocket Lint, Electric Pig, TechEye, Techradar, and many others who woke up on Wednesday to find Google’s engineers had tweaked its algorithms in its “Panda” update – and effectively killed their search traffic, often a major source of income. Did Google offer any clues about why they’d been downgraded? No.
It was a stark reminder of who wields the power online. ITV may be thought of by some as a dinosaur, unable to change. But Google can be worse: mysterious, gnomic. Treasure Island we may be. But we’d hoped the treasure would be buried here, not taken away.
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