[xp84]

The notion that every information service should be free with ads is one of the main poisons that have made the cesspool that is the net today. Imagine how different the incentives would be if Facebook and Google just made money by making their endusers happy enough to keep their memberships active with a small monthly fee. Their customers would be the end users, instead of being the advertisers.

[Denzel]

Reality doesn’t lend support toward your arguments. I assume you’re from a first-world country, based upon your comment.

- Google’s 2022 revenue was $250B. (We’ll assume that’s all ads.)

- 8B people in the world; we’ll assume only 4B people have internet access to the web.

How much would Google have to charge to break even?

$250B/yr / 4B people = $62.5/yr/person = $5/month/person

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).

We expect more than half the world’s population to pay more than 2% of their income for a single service? To put that in a first-world perspective, that’s $100/month for someone earning $60k; $200/month for someone earning $120k; etc. Does the average American spend that amount of money per month on a single web service?

Well of course, you may say, let’s charge more for those who earn more so we can ease the pain on those who earn less! That sounds great in theory, but once again, how many people do you know dropping $200/month on a web service even if they can afford it?

Back to two of your points:

1. “Imagine how different the incentives would be” - Yes, imagine, only the wealthy would have access to state-of-the-art search for the web and other services, further increasing the disparity between the two groups. Consider, maybe, that ads represent one of the greatest wealth transfers in our history. 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?

2. “Keep their memberships active with a small monthly fee” — YouTube premium exists. What do you think the uptake is on that? YouTube has provided immeasurable benefit to people across the world in the form of knowledge, resources, training, etc. Yet people would sooner reach for an ad-blocker than pay the “small monthly fee” even in nations as rich as the U.S.

What causes you to believe that people will pay even more than that for Google’s other services?

Disclosure: I work for Google. The opinions and data represented in this post are my own, and not representative of my employer.

[1]: https://www.pewresearch.org/fact-tank/2021/07/21/are-you-in-...

[CuriousSkeptic]

First if all, thanks for that argument, haven’t considered the math in this perspective before. Will need to let this simmer a bit.

One immediate flaw though, you starting premise is that the current revenue is needed to break even on such a service. Is there an argument to support this claim as well?

[Denzel]

I’d call it an assumption, not so much a flaw. :) We can make other assumptions.

To break even, Google would at least need to cover their expenses. Google had $200B in expenses for 2022, with a net profit of $50B. So, that won’t really change the math.

Especially when we consider the fact that the take-rate would be much less than 100%. Maybe 5-10% is a fair take-rate assumption? (Seems fair since YouTube has roughly 50M paid subscribers on 1B MAUs, 5%, from the public data I’m seeing.)

At 5-10% take-rate, the service would cost 10-20x more to break even ($50-$100/month on average) which would be a nonstarter for the global middle class and lower.

One could make the argument then for Google to lower its costs in an effort to lower the consumer’s price, but then we must realize this runs opposite of innovation. Investment is necessary for innovation, and profits are necessary for investment. Without profits, there’s no more innovation.

[moneywoes]

Does that google figure include YouTube?

[freediver]

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.

[1] https://www.statista.com/statistics/1261865/youtube-premium-...

[Denzel]

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.

[1]: https://news.ycombinator.com/item?id=34301742

[2]: https://finance.yahoo.com/quote/GOOG/financials?p=GOOG