A Google Tax Isn't Going To Give Publishers The Payout They Think It Will

from the too-many-pockets,-too-little-profit dept

Somehow newspaper publishers — especially those located in Europe — believe the road to recovery is paved with income siphoned off Google. There have been plenty of proposed “snippet taxes” and other demands Google pay online publications for sending traffic their way. So far, nothing has panned out as the papers had hoped. In extreme cases, Google has offered to just stop sending any traffic their way by pulling out of the snippet-taxed market.

The newspapers claim Google would be nothing without them, which is, at best, extremely dubious. There’s a wealth of news and information out there that doesn’t come from legacy newspaper publishers. The internet isn’t going to be bereft of news services if certain papers decide to pull the plug because Google isn’t propping them up.

But even if they were right about this, there’s a very good chance Google can’t save them from drying up and blowing away. Media consultant Thomas Baekdal has done the math on proposed snippet taxes. Even with Google serving up more than a trillion search results a year, there’s no money in taxing clicks.

Baekdal’s back-of-the-envelope math starts out big — the only thing publications see when they start demanding link/snippet taxes:

First of all, Google is big, in fact, the current estimate is that Google is serving up between 1.5 to 2 trillion searches per year.

That amounts to 125 billion searches per month.

Google also makes a lot of money. In the last quarter, it made a stunning $26 billion, of which $4.1 billion was profit.

This is where most publications stop when griping about Google’s billions in comparison to their declining net worths. Assuming the equation is zero sum is only part of the problem. The rest of it’s the math they don’t feel like doing. But Baekdal follows through. Not all of this profit is related to Google’s searches. Alphabet — Google’s parent company — has a lot of irons in the internet fire, some of them actually profitable. Stripping everything out but search revenue, we end up with this:

Google Search has a revenue of $4.65 billion per month, of which about $700 million (not billion) is profit per month.

Smaller, but still hundreds of millions more in profit than most papers make. Again, these are dollar signs in publications’ eyes, each of them apparently believing a revenue-“sharing” plan forcibly applied to Google with net thousands of dollars in new revenue for each participant.

Not so:

Now, we can take the $700 million in profit and divide that by the 125 billion searches to get the profit per search query.

The result is that Google makes… $0.0056 per search query.

That’s almost nothing, even for a publication receiving millions of hits via Google every month. As Baekdal does the math, the revenue per month is obviously nothing compared to what publications believe it should be. Even with every search monetized by Google’s ad placement (which nets higher revenue for Google and more to “share” with publications), the total payout for a site receiving 3 million hits per month (Baekdal uses Denmark’s largest paper as an example) would be between $930-1000/month. Not exactly business model-saving $$$. And not every search is monetized, so the payout would likely be even less.

Nate Hoffelder of the Digital Reader points out Baekdal’s math is slightly off, thanks to a misconception about how the snippet tax would be collected.

Baekdal made a couple goofs in his calculations (he thought Google would be paying for clicks rather than for impressions)…

But even so, there’s no money there:

Google is making under 4 cents per search, and turning a profit of around a half a cent per search.

Of course, that is an average across all of Google’s search results, and it includes search terms and even whole verticals which are not monetized (Google News, for example). And that is also a global average and not based on EU revenues, so it is not 100% applicable. (And those calculations are based on a bunch of unsupported assumptions.)

Leaving those caveats aside, the point that matters is that news publishers want Google to pay for the use of their links and snippets. This means that Google would need to take that 3.7 cents and divide it between all of the relevant links returned with each click of the search button (after taking a cut for itself).

That money is not going to go nearly as far as the news publishers think.

Would having this math in front them cause publishers to rethink their plans to divert Google’s “billions” into their own pockets? Probably not. Not understanding how this all actually works is extremely helpful when demanding a billion-dollar tech company start handing over cash for directing more traffic to the publications’ sites. The very premise is beyond stupid, but it gets even more stupid when each publisher acts like the biggest cut of an apparently minuscule payout won’t have to be shared with every other publisher whose sites end up in the same search results.

If these publications are dying, it’s not because of Google. And they apparently have enough cash flow to pay lawyers and lobbyists to keep pushing local governments to craft anti-internet legislation on their behalf.

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Comments on “A Google Tax Isn't Going To Give Publishers The Payout They Think It Will”

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43 Comments
That One Guy (profile) says:

The questions left unasked

It would be interesting to ask those proposing such taxes flat out how much they think Google makes per ‘use’ of their content and what they think ‘their share’ of that should be percentage wise. Don’t let them dodge the questions by using the usual ‘fair share’ language, insist on clear answers to ‘how much do they make and what do you think your cut should be?’

Allowing them to continue framing the issue as ‘Google makes lots of money. Google uses our stuff in their search results. Therefore we should be making lots of money too’ allows them to dodge the reality of the situation pointed out here, that for all their ‘Google is stealing the food out of our mouths’ rhetoric the amount Google ‘gets’ from them(completely ignoring for the moment what Google gives them) is a lot smaller than they want people to think, and that if they’re struggling it likely has less to do with Google and more to do with them and a changing market.

Roger Strong (profile) says:

In the European "right to be forgotten" cases, they’re demanding that stories be removed from Google’s search engines for countries outside Europe. It doesn’t matter where the server is or what region it serves; the user’s location is what counts.

Does that not mean that the user’s location is what counts for snippet taxes? If a US user views snippets in a US server’s search results – and a European newspaper receives a fee for it – are they doing business in the US? Shouldn’t they be paying US taxes for that income?

If so, low-wage countries could set up click farms to generate tax income. If not, the newspapers could save themselves using click farms in low wage countries.

PaulT (profile) says:

Re: Question

I’d presume so, given that Google News doesn’t carry ads. That’s another thing these people keep missing – literally go to news.google.com and look for ads. See anything? No? Where’s the revenue coming from? For Google, it’s a sticky feature to keep people coming to them for other searches. For newspapers, I’m not sure what they want a cut of (other than the implicit “everything”.

renato (profile) says:

Re: Re: Question

For Google, it’s a sticky feature to keep people coming to them for other searches.

It makes everything more complex, but then you have to consider that google is choosing not to monetize it (probably to avoid claims such as they are promoting a specific view or a conflict of interests), but they are still extracting value from it by making people keep using google for other stuff.

For newspapers, I’m not sure what they want a cut of (other than the implicit "everything".

Apart for being fooled by the wrong math about how much money is involved, I would guess it might have something related to those researches showing that people don’t read the news anymore, but just look at the headlines and move on. They perceive it as making them lose some potential money and then when they notice their revenue is getting lower, they just attribute it to "google is stealing our money".

I think because of that, it is not so simple as just say to them that they are actually getting more money thanks to google news, but you also have to address the bigger issue of the changes on the news sector caused by the internet.

Anonymous Coward says:

Re: Re: Re: Question

but you also have to address the bigger issue of the changes on the news sector caused by the internet.

That is not a problem for governments to solve, but rather for news sectors to evolve or go under. Despite what the news barons think, they have no legal right to a guaranteed profit, or even a continuing business.

Anonymous Coward says:

Re: Re: Re:3 Question

It is still a problem for the newspapers to address. I think that their main problem is that they have an entrenched bureaucracy and ways of working that involve too many people in producing the news, and that obviously puts them at a disadvantage when competing with blogger. It is a common problem with legacy industries, like the labels, they are not geared down to compete in a market where individuals can compete with an organization.

renato (profile) says:

Re: Re: Re:4 Question

Yes, it is a problem for the newspapers to address, but it also something bigger as news is not only a market product but also a public service.

I do not know in detail how do they produce their original news (not the bullshit that everyone rewrites a little fact and call it news), but its quality and volume is much higher than the average blogger. I think we will miss it more than we think when they start closing doors.

Anonymous Coward says:

Re: Re: Re:5 Question

The newspapers are not the only source of news, and these days are secondary to TV. It is not only the bloggers, some of whom do quality analysis pieces, but their very audience who are now active in gathering and disseminating news via social media who are competing with them as news and infomation sources.

PaulT (profile) says:

Re: Re: Re: Question

“they are still extracting value from it by making people keep using google for other stuff.”

Sure, that’s what I was referring to. But, that makes it much harder to claim money back for the newspapers. They can’t account for any direct traffic, so they have to quantify some proportion of search and other traffic that would not be there if Google weren’t using news as a loss leader. That will never be anything more than a wild guess.

“I would guess it might have something related to those researches showing that people don’t read the news anymore, but just look at the headlines and move on”

Which, to be honest, speaks a lot to how newspapers have devolved into repackaging AP feeds and clickbaiting (meaning that there’s nothing of additional value past the headline) than anything Google’s doing. I will click through, personally, but I’ll be giving resulting ad revenue to UK newspapers rather than the ones in Spain where I’m located as Spain decided to get them to remove Spanish publishers.

The problem is that same as it’s been since before this conversation started – the ways in which newspapers used to make money have disappeared thanks to the internet – but it’s not due to Google. They used to depend on things like physical subscriptions, classified ads, job & property listings, etc. These have gone, or have to be shared with specialists. What’s left is the news itself, and they have to work out how to make money from that. Google are sending them more traffic than before, they just have to monetise it. But, it’s easier to say “Google are making lots of money and we should get some” than it is to monetise the current marketplace.

renato (profile) says:

Re: Re: Re:2 Question

Sure, that’s what I was referring to. But, that makes it much harder to claim money back for the newspapers. They can’t account for any direct traffic, so they have to quantify some proportion of search and other traffic that would not be there if Google weren’t using news as a loss leader. That will never be anything more than a wild guess.

It make it impossible to calculate it directly, but I don’t think that those previous estimates (~3.7 cent of revenue and 0.5 of profit) are that far. Better data would help to reduce some distortions, like a value by country and not an aggregate of the whole world. If the news sector want to claim that there is a hidden revenue and profit on google news, this looks enough. Will they get any of that money? Of course not.

Which, to be honest, speaks a lot to how newspapers have devolved into repackaging AP feeds and clickbaiting (meaning that there’s nothing of additional value past the headline) than anything Google’s doing. I will click through, personally, but I’ll be giving resulting ad revenue to UK newspapers rather than the ones in Spain where I’m located as Spain decided to get them to remove Spanish publishers.

Which is actually very sad. Sure, they made a lot of "stupid" moves (that sometimes were their only option), but there was no possible solution for the problem.

That One Guy (profile) says:

Re: Re: Re:3 Question

It make it impossible to calculate it directly, but I don’t think that those previous estimates (~3.7 cent of revenue and 0.5 of profit) are that far. Better data would help to reduce some distortions, like a value by country and not an aggregate of the whole world. If the news sector want to claim that there is a hidden revenue and profit on google news, this looks enough. Will they get any of that money? Of course not.

If you want to say they should get a cut from Google then they should get a cut of only the profits from the service ‘their’ content is showing up on. If that service doesn’t actually make money directly why should they get a cut from other parts of the company?

However, if we’re going to be throwing around numbers I’m curious as to your estimate for how much the newspapers should owe Google for the traffic sent their way? Because if you/they want to go down the road of ‘Google is using our stuff. Google is making money. We deserve some of that money’ then it only seems fair for them to start paying for the service Google is providing them, currently free of charge. Most companies pay to get others to provide them advertising and traffic, it seems only ‘fair’ that they start doing so as well.

renato (profile) says:

Re: Re: Re:4 Question

If you want to say they should get a cut from Google then they should get a cut of only the profits from the service ‘their’ content is showing up on. If that service doesn’t actually make money directly why should they get a cut from other parts of the company?

I’ve never say they should get money from google, which they never will. But you cannot say that google doesn’t profit from google news, it is just not direct as receiving from ads on those pages. They want to keep their position as the only alternative for searching things on the internet (Does bing still exist?) so they can monetize it more efficiently. It is the same as facebook trying to maintain its users from exiting the site to increase their revenue. It is obvious that they do not profit directly from every operation, but those are investments to build a better market position.

Because if you/they want to go down the road of ‘Google is using our stuff.

It is, but as it was already said that those companies are also better with this than without it. If they are so shortsighted to think they are being exploited, let them take their content off and then keep their business as usual (and then shut down).

That One Guy (profile) says:

Re: Re: Re:5 Question

It is obvious that they do not profit directly from every operation, but those are investments to build a better market position.

Almost certainly, my objection is to the idea that they should get a cut of the general profits, despite the fact that the part they are involved in isn’t one that’s making money directly. Even ignoring the other problems with demanding money to be advertised, if the particular part they are involved in isn’t making money then they shouldn’t get any.

renato (profile) says:

Re: Re: Re:6 Question

If they are entitled any money, it should come from the general profit, because their part is artificially made to obtain no revenue. It is similar to the big Hollywood studios saying that an AA movie did not profit because they spent millions buying cocaine from themselves and in the end they "lost" money.

That One Guy (profile) says:

Re: Re: Re:7 Question

If they are entitled any money, it should come from the general profit, because their part is artificially made to obtain no revenue.

Why? How much of the rest of Google’s business are they responsible for?

I imagine the reasoning behind not monetizing the news section is a mix between wanting the service to be as hassle free as possible so more people use it, and ads not working as well for something like that(if you search for X then ads relating to X make sense, whereas general news is a lot harder to match up). The odds of it having anything to do with deliberately losing out on any notable amount of money for any complex or nefarious reason is likely close to zero.

Schmames says:

Shooting themselves in the foot

One of my biggest gripes about german new sites is that they now encapsulate all of their headers and in some cases article summaries in pictures just so they can’t be indexed. The problem with this is that, as a student of learning German, I can’t copy and paste words into translation software. It makes we want to look for other sources of material.

ryuugami says:

Re: Shooting themselves in the foot

they now encapsulate all of their headers and in some cases article summaries in pictures just so they can’t be indexed

You could try telling them about robots.txt, which exists for that exact purpose.

The problem with this is that, as a student of learning German, I can’t copy and paste words into translation software.

Not to mention all of the wasted bandwidth, as well as completely screwing over blind people.

… now that I think about it, doesn’t that last part actually make the entire practice illegal?

That One Guy (profile) says:

Re: Re: Shooting themselves in the foot

You could try telling them about robots.txt, which exists for that exact purpose.

I can pretty much guarantee you that the majority of those whining about a Google Tax know full well that they could easily stop Google from indexing their pages and not show up in their searches(and in fact if memory serves it’s possible to set it up such that they show up normally but not on the Google news section), but doing so would defeat the actual purpose, which is to get the extra traffic Google sends them and get paid for it.

Anonymous Coward says:

this is typical of businesses that refuse to do anything they should to save themselves, in particular, fail to adapt to the digital age. always expecting someone else to do the work while you reap the benefit/profit is never a good strategy. it’s the same with industries that think the best way to remain in the past and therefore in charge of what they have gotten used to over previous decades (yes, i’m talking about Hollywood and the rest of the entertainment industries!) is to bribe politicians, law enforcement and courts, then get as many people as possible locked up in jail! sooner or later, that strategy backfires, the people stand up against the atrocities and those responsible end up getting the back draft!!

Joel Coehoorn says:

Putting the Genie back in the Bottle

The Newspapers already know all this. Getting money from Google isn’t the goal. They know there’s not enough here to help them.

The point of the snippet tax is to make certain things unprofitable for Google, such that Google is forced to either lose a _**lot**_ of money or handicap Google News and certain kinds of Google searches to no longer be really useful.

In short, they want to put the genie in the bottle and go back to the “Good ole Days”, as if that were still possible.

TheResidentSkeptic (profile) says:

The math is irrelevant

As reality doesn’t enter their picture of the world, neither does the math matter.

Each country (yes, I know there are 195… that’s the point) will just tax Google 4% of their annual revenue (not profit).

This will cause google to go bankrupt and out of business.

And as we all know, google *is* the internet, so that will shut it down, and people will go back to reading the newspaper every morning.

Problem solved.

/ in their dreams /

ArkieGuy (profile) says:

Pay for Impression

What does “per impression” mean? Say I do a search for “cord cutting” and get 13.2 MILLION results, are all of those “impressions”?

If so, let’s do the math…. Assuming Google “profit shares” 100% of the 1/2 cent per search profit across all of those “impressions”, each site would get 1/26.4 millionth of a cent!

Since that rounds to 0 cents, I think they are already getting what they are asking for. 🙂

Anonymous Coward says:

Re: Pay for Impression

“Impression” generally refers to a unique visit to an ad within a time frame. How they track it can vary greatly, but roughly if you see the same ad twice, you only count as a single impression.

Likewise, if you do 50 searches and see 50 different ads, that’s 1 unique impression for each ad.

Now, I’d assume it would be per link shown on the page that would count towards creating the ad impression, so say you get 20 results per page, that’s how the revenue would supposedly be divided.

Which is still a meaningless amount.

Anonymous Coward says:

I want them to get their Snip tax. I’m all for it. Then Google can just stop linking to all of them. Just kill them all off that much quicker.

Then they can stop bitching. Why complain so much about Google doing snips and yet at any time they can do a simple robot.txt file and Google will completely ignore them. Of course they don’t want that. They want things both ways.

Narcissus (profile) says:

Innovate?

Seems to me the solution is simple:
– Set up a company seeded with money from the (whole) news industry.
– Build a new search engine, possibly buy news.com from Cnet.
– Ask all news outlets to put no-index for Google in their robot.txt.
– Make sure all news websites are indexed in the new search engine
– grab all the Google moneyz

If they’re so convinced Google is only turning a profit because of them it seems fairly easy to grab that sweet dough. If news is only available on that search engine I’m sure people will go there to find news.

Then they could (gasp) innovate as well. Make personalized newsfeeds, create algorithms to determine what is fake news and what is real, set up Patreon-like crowdfunding for special news stories etc. etc.

The fact that this does not yet exist is proof that they also know there is not much money in it. So, just waiting for a handout is much easier.

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