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A short time ago I wrote an article confessing my suspicions about Google being too similar to Enron.  When you are confronted with a situation where not everything seems right, you should start checking facts.  Just start with something simple, and see what you really find out.  Enron didn’t steal for so long because they were such good thieves!  Enron stole for so long because nobody asked them the hard questions about where they were making money.  Everything I hear about Madoff is the same story: Even though it looked too good to be true, nobody checked.

Well, does Google’s revenue look too good to be true?

• Google reported 6.5 billion dollars in revenue in the most recent quarter from advertising alone.
• Google reports that 66% of that revenue was from advertising on the Google website.  The rest was from Google network sites (probably adsense type systems).  I mention this because regular site owners can earn money by placing ads from Google on their pages.  Naturally, there is some motivation for some site owners to click their own ads for their own benefit.  The 66% of revenue on Google sites all goes to Google, so there shouldn’t be any fake clicks.
• This leaves around 4.4 billion dollars in revenue in 3 months from people clicking on ads on Google’s pages.  Google uses pay-per-click ads so the money only comes from users clicking ads.  Nobody really pays for their ad to be seen and not clicked.
• The price of a single click on a Google ad can go for as little as 5 cents, and sometimes a bit over $50.  The $50 clicks are usually for local lawyers and don’t get clicked very often.  Most likely the average price per click is below one dollar, but I don’t have the statistics.  I only have my own experience from my own Google ad campaigns, and those of my clients.  Conservatively, I would put the average cost of a click a bit higher because the topmost ads cost more, and are clicked most often.  How does two dollars sound as an estimate?
• At an average of $2 per click, this would mean that Google managed to get over two billion ad clicks in 3 months!

I know people buy a ton of things on the internet, and that some users just love using Google.  From my own experience I know that using Google’s Adwords ads is an excellent way to find customers who are ready to buy your products.  When I explain how Google’s advertising works to ordinary people, I always get a similar response:

But nobody clicks on those ads!

It is true, I almost never click on ads when I am doing a Google search.  In fact, my experience with Google ads shows that the click-through-rate on a Google ad is rarely above 2%!  In most practical cases the rates are much lower, since there are often ads on multiple pages where hardly anybody clicks.

Look at the English-speaking world population for a while.  No, look at the English-speaking population of the world with access to a computer, who can afford to buy a product online.  Is it really a big enough group of people to produce 2 billion clicks on Google ads in 3 months?  I realize that a long tail phenomenon is at work, and that there are probably people who click a whole bunch of ads.  This would also mean that there are hundreds of millions of people who never click an ad!

Let’s start asking real questions:

• Does the revenue earned by Google make sense, given what we can extrapolate about the population?
• Does the possibility exist that Google has fudged the numbers?
• If Google was making money from some other source, would it be difficult to disguise the source by saying the money came from ad clicks?
• If Google was selling your personal information to corporations or intelligence agencies, would it be possible for them to pretend it was advertising revenue?

Google has only one real source of income, and that is advertising.  The only way to believe Google is telling the whole truth about their income is to believe that all the money they earn eventually started from regular businesses paying for their ads to show up on Google.  Since the vast majority of people I ask never click ads, I have to assume that most of the ad clicking is done by a relatively small number of people.  Since nearly all the businesses I talk to have never even heard of Adwords, I have to assume that the ad buying is done by a relatively small number of businesses.

Are these two groups of ad-clickers and ad-buyers really enough to generate 4.4 billion dollars in 3 months?

I have been talking for years about how Google is the most Enron-like company out there.  Now I find out that Google has plans for trading energy!  A quick overview of my Google/Enron arguments:

• Adwords! Google makes nearly all of their money through a process that is only completely transparent to themselves.  Adwords advertising is what makes Google its money.  Everything else is small change.  It takes a lot of $1 clicks to turn into billions of dollars a year, but everybody I talk to says they “never click them” or “nobody clicks those ads!”
• The smartest guys in the room! This documentary film about Enron is starting to seem eerily familiar when I watch Google.  Hire the smartest people you can find, so it gives the illusion that you are really doing something.  Now, if anybody questions how you are able to make so much money, you can just say they are stupid because they don’t understand!
• The Black Swan! This phenomenon refers to the idea that because all the swans you see are white, black swans must be impossible.  A company grows from nothing into the the most dominant force on the internet in just a few years.  It must be perfect!  Its stock will never go down!  They have never made a mistake, so they never will!  Hooray?  Be careful.

I understand that Google probably uses more electricity than anybody other than the national security agency, so it makes sense that they would want to get more involved with energy trading.  Google makes a lot of money, so they should be involved with banking too right?

The problem is that the public trusts Google too much.

Companies that make massive entries into new and unrelated businesses often fail spectacularly.  When you get a bunch of smart people together to make money, the last thing you should do is trust them.  Do you want the information Google stores about you influencing your power bill?  Do you want to upgrade your thermostat to a cool new one from Google?  What if it provides you with free wifi?  Yes I’m joking, but Google isn’t.