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How does Blogger make any money?
Introduction
Blogger, as many of you already know, is a free web-based blogging application that’s now owned by Google. Blogger not only gives you the blogging application for free, you also get free web hosting for your blog. So how does Google make any money if they’re giving away the product for free?
Where’s the revenue?
It was easy to see how the old Blogger was supposed to make money. Blogger offered you a free service that had a limited feature set, but then you had to pay a recurring fee to upgrade to the more powerful Blogger Pro. And it was the same story with the web hosting. If you wanted more bandwidth and to get rid of the banner ads, you had to pay money to upgrade.
But then Google bought Blogger and Blogger went to a totally free pricing model. Currently there is nothing to buy at Blogger. How is there any money in it if it’s free?
The only obvious source of income is from the ads that appear at the top of Blogger hosted blogs.
Advertising is how the Google search engine makes money. But the advertising revenue per page view is surely a lot lower for Blogger than for the Google search engine. People using the Google search engine are searching for something specific, so it’s probably about ten to twenty times more likely that they will see an ad at the top or right side of the screen that they will be interested in. I have ads on my blog, so I know how little interest there is in them.
So how much money might Google be making from those Blogger ads? Well I did some calculations, and I assumed that Blogger has 1.5 million blogs, but only 300,000 of them are active, and that the average active blog gets 25 page views per day (most blogs don’t get very many visits). With these numbers, Google might be making $2 million per year in advertising revenue. It might cost Google $500,000 per year for the storage space, servers, bandwidth, and personnel to host all those sites and run the Blogger application. So Google is making a $1.5 million profit.
Now that we’ve calculated that Google is making $1.5 million from the advertising, we must subract the cost of programming and marketing Blogger. If there are 20 employees in the Blogger division (there were only six when Google bought Blogger, I’m assuming there was some expansion), and the average employee is making $100,000 per year (these are high paid computer programmers we’re talking about), that’s another $2 million in expenses. So now Blogger is losing $500,000 per year. Or maybe there are fewer employees or more ad revenue and Google is breaking even.
My conclusion is that Blogger in its current state is not a big source of profit for Google, and that chances are better than even that Google is losing money on Blogger.
Other purposes of Blogger
If Blogger is not profitable, then what’s its purpose? Well here are some theories.
(1) Delayed profits. Google wants Blogger to be to blogging software as Microsoft is to operating systems. Once Google controls the entire blogosphere, suddenly they will start charging money for the service, and there won’t be any other place to go because all the competition will be out of business. After all, it’s hard to compete with a free product.
(2) Synergy with the Google search engine. Maybe by searching through all the Blogger posts, Google can use this mass of information to enhance its search engine results? Critics to this theory have pointed out that Google can already spider these pages, so what additional value is there to controlling the database where the Blogger posts are stored?
(3) Another synergy theory. By owning Blogger, Google has access to the referral logs for hundreds of thousands of active blogs. Google normally can’t see the referral logs for the websites it spiders. Maybe Google’s computer scientists think that the referral logs might contain information that could be used to produce better search engine results?
(4) The clueless theory. Google’s management figured that blogs were the next big thing, and they wanted a piece of the action even though they have no clue how it will actually bring profit to the company.
I do not know
After all this analysis, I’ve come to the conclusion that I still don’t know how Google thinks that Blogger will make money. If anyone has any ideas, feel free to comment.
posted Thursday, June 17, 2004
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8 Comments:
By
Byrne Hobart:
Think of Blogger as a low-cost call option on the entire blogging industry. If you envision a world in which having a blog is as common as having an email address (and at Google, when they think they do think big), owning a bloggin service as a minor part of a larger searching firm makes sense. For now, as you've noted, the company won't much impact Google's bottom line. But with all their influence and muscle, Google can direct users to blogs and make these blogs lucrative. You can think of it in terms of network effects -- the number of bloggers has reached the critical mass wherein they are all creating enough high-quality content to keep any new user entertained, boosting ad revenue and name recognition. I believe the usual theory is that revenue for a network like Blogger expands at a speed approaching the square of the rate at which users join -- a 20% annual increase in users leads to a something-like 44% annual increase in revenues. With that kind of growth, and few extra expenses needed to support it, Blogger makes sense as a great investment. And what's a couple million dollars to a company that's about to raise $2.7 billion, anyway?
posted at 6/18/2004 1:48 PM
By
Paul:
Here in Korea almost everyone has a blog. Google's competitor's in Korea have a lot of features I have almost never seen on american websites. Some of the features are asian in nature, but blog seems to be a common ground.
You might not believe it, but people pay around 15usd for an customized animated cartoon avatar to be displayed on thier blog at Yahoo's Korean Blog service. Some people pay even more than that.
Paul Tutherow
posted at 6/19/2004 9:17 AM
By
curtis:
You've mentioned that Google may like the referral logs- another reason (that is much like this one) is that Google's engine loves new content- and thus blogs are the friends of Google. One of the main ways Google's engine decides what pages are "important" to contribute to the PageRank system is how often they are updated- and blogs are updated all the time. Second, blogs make networks- as we've seen with the "waffles" campaign against John Kerry, the linking effect is extremely powerful.
Google needs blogs to make its engine work, because essentially they can "harvest" the linking power of the entire blogsphere, and quickly. Google may dance non-blogspot blogs once every few weeks, but I'm almost certain it is dynamically dancing the ones at blogspot to keep the engine results fresh. In this way, we at blogspot are doing Google's work for them, which isn't that bad of a thing. As long as Google keeps blogging fresh and trendy, their search engine will remain in the no. 1 spot- and as long as blogspot stays up, Google has a definite edge.
posted at 6/21/2004 10:53 AM
By
Calico Cat:
In response to Curtis above, I get the impression from Google that Blogger blogs get no special treatment from Google. And being spidered more often would be special treatment.
It is generally believed that sites with higher PageRanks get spidered more often. It is also believed that Google remembers which pages get updated more often, and those are also spidered more frequently. (Why waste processing power re-spidering a page that is unlikely to have changed?)
My blog seems to get spidered pretty often because it doesn't take too long before any new content I add shows up in the search results (usually happens within two days). But I suspect that any blog with the same PageRank would fare just as well.
posted at 6/21/2004 2:40 PM
By
curtis:
This post has been removed by a blog administrator.
posted at 6/21/2004 4:40 PM
By
curtis:
Sorry- first comment was poorly worded and confusing:
What I had said was that my comment about google spidering blogspot more often was pure speculation, however, I'm quite sure that google gains a lot of searching advantage from the linking at blogger and blogspot- and having every blogspot post filtered through the Google system has got to make it easier to spider and cache.
Once again, pure speculation.
posted at 6/21/2004 4:43 PM
By
Ross Franklin:
If it's true that Google does not make any money from Blogger at all, then I might guess that they just maintain the service to get people more familiar with them. This is a tactic used by tons of companies. The purpose is only get get more people to know their name and what services they offer.
When people know a company very well, and use their services on a regular basis, they are much more likely to know about other services the company offers, and also more likely to use those other services if they need them.
Microsoft does this all the time. Microsoft makes most their money from Windows and Office. Just those two right there make up an enormous part of their profits. Everything else that Microsoft does for free, or low cost (Hotmail, MSN, XBox, Other software they publish, computer peripherals like mice, keyboards, and joysticks to name a few,) is mostly to get people to familiar with them.
posted at 9/10/2004 12:51 PM
By
The Wanderer:
If at all google is not making a profit with its blogger, I think they might have bought it as Ross said for people to become familiar with their brand, but I also feel that they have taken a wait and see approach as well. The full potential of the blog has not been realised yet and its still very early to see how this can be used in a business context, but the guys running google probably see this as a gold mine, they just have to hit the vein for the money to come in and I think they're right.
posted at 1/12/2005 1:43 AM
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