FairSearch Accuses Google of “Grossly” Exaggerating Contribution to Economy

The FairSearch Coalition released a report today, which it calls “an independent critical analysis of reports released by Google about its purported 2009 and 2010 economic impact in the U.S.”

Economist Allen Rosenfeld was commissioned by FairSearch to review Google’s reports, and compare them against economic literature and standard practices, the organization tells WebProNews, adding that he retained full editorial control over his conclusions, findings, and opinions expressed in the report.

“Rosenfeld concluded that Google overestimated its potential economic impact by more than 100x, and did not even take into account the negative economic effects (higher advertising costs that are passed on to consumers) of one company dominating a market to the extent that Google does (more than 70% of search in U.S., a higher % of search ad revenue; and more than 90% of search in most of Europe),” a representative for FairSearch said. “In Rosenfeld’s opinion, if that impact were to be taken into account, Google’s net economic impact could be negative.”



“As the FTC and other antitrust enforcers scrutinize Google’s business, and whether it abuses its dominance and how that harms consumers, innovation and competition, it’s important to look closely at any claims by Google that it is after anything other than inflating its own profits at everyone else’s expense,” they added.



Robert Birge, Chief Marketing Officer of KAYAK (a founding member of FairSearch.org), offered the following statement: “The Google tax isn’t obvious, but it’s very real. As Google has become the starting place for most people on the Internet, companies large and small have to pay a toll in order to just show up on the consideration list. These costs are real, they are substantial, and they get passed along to the end user even if they are hidden.”

Under the “main findings and conclusions” section of the report, Rosenfeld writes:

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.

The full report by Rosenfeld can be found here (pdf). We’ve reached out to Google for comment on this. We’ll update accordingly.

Earlier this month, FairSearch launched a site called “Searchville,” dedicated to blasting Google’s business practices.