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The Economics of Google

Economics of Google

When Google first moved to its Palo Alto headquarters in 1999, it had only 19 employees. Fast forward to July 2007 – Google now employs 19,835 workers. 37% are in sales and marketing and 37.5% in research and development. Google spends about $72 million a year on employee meals – a whopping $3,629 per employee. Where does Google get all its money? 97% of its revenue comes from advertising, a figure that has grown from $19 million in 1999 to $23,650,500 in 2009.

What has precipitated Google's massive growth and prosperity? A series of judicious acquisitions may be partially responsible for this success. Google's first press release in 1999 detailed a $25 million dollar round of investments from Sequoia Capital and Kleiner Perkins. A year later, Google began its journey of acquisition, acquiring 87 companies worldwide.

A sampling of the most expensive of these acquisitions follows:

April 2003 – Applied Semantics – $102,000,000

July 2005 – Current Communications Group – $100,000,000

December 2005 – AOL Broadband – $1,000,000,000

January 2006 – dMarc Broadcasting – $102,000,000

October 2006 – YouTube – $1,650,000,000

December 2006 – Endoxon – $28,000,000

April 2007 – Double Click – $3,100,000,000

June 2007 – Feed Burner – $100,000,000

July 2007 – Grand Central VoiceOver – $45,000,000

July 2007 – Postini Communications – $625,000,000

August 2009 – On2 – $106,600,000

November 2009 – AdMob – $750,000,000

November 2009 – Gizmo5 – $30,000,000

February 2010 – Aardvark – $50,000,000

April 2010 – BumpTop – $30,000,000

With each acquisition, Google's revenues have only increased. In 2000, Google grossed $18 million in revenue. Just six years later, Google posted revenue of $10.6 billion. In 2009, Google's assets were valued at $40.5 billion. These strategic acquisitions have boosted the company's revenue because they were immediately integrated into Google-branded initiatives like AdSense, Google Voice, Android, Google Maps, and Gmail. Despite these many acquisitions and Google's ever-increasing revenue, Google stock has never split.

So what's the overall economic impact of a company like Google? While the corporation's co-founders, Larry Page and Sergey Brin, only get a token salary of $1, their net worth is about $17.5 billion each. In 2009, Google generated about $54 billion in US economic activity. At the GSMA Summit in Barcelona recently, Google CEO Eric Schmidt stated that Google will become more personalized in the future, a move that may only increase its ubiquitous presence in modern culture.

According to Schmidt, "Google search will become more and more personalized, but that will also depend on the amount of information the customer is ready to share about himself.” If the venture proves as successful as Google's past track record, then the company has nowhere to go but up.