Economic Impact of Open Source on Small Business: A Case Study

Chapter 8. Appendix

AdWords Impact Model

Assumptions used to build the model:

1. Total ad spending by SMBs ⇒ average of these two $5.4 billion in 2010, according to this article ^[14] from BIA/Kelsey.

   $2,300 * # of SMBs in 2011. This survey estimates online ad spend at $2,300 per SMB in 2011.

2. Share of ad spending on Google AdWords ~29%. This is a product of the numbers below. By 2010, 37% of online ad spending will go to paid search. ^[15]

   Google owns 80% of ad spend on paid search. ^[16]

   37% * 80% = 29.6%

3. Google multiplier = 8. ^[17] We conservatively estimate that for every $1 a business spends on AdWords, it receives $8 in revenue through Google Search and AdWords. Thus, to derive the economic value received by advertisers, we multiply our AdWords revenue on Google.com search results in 2011—what advertisers spent—by 8.

   • Google owns 80% of ad spend on paid search. ^[18]

Model '(Total online ad spending by SMBs) $5.4 billion * (share of ad spending on Google AdWords) ⇒ 37% (online search) * 80% (Google share) * 8 (this is the Google multiplier: $1 of ad spending ⇒ $8 revenue) = Economic impact of Google AdWords = $12.8 billion

• US Census Data for SMBs in 2010 ^[19]:

  • 5.3 million

• We looked at a number of sources to estimate the share of SMBs who are off-line. The most creditable, up-to-date source estimated that 30% of SMBs were offline ^[20]

  • SMBs offline = 5,300,000 * 30% = 1,590,000
  • SMBs online = 5,300,000 * 70% = 3,710,000

(# of SMBs without a website ) 1,590,000 * ( EconImp_Goog_SMB ...