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Economic Impact of Open Source on Small Business: A Case Study by Mike Hendrickson, Tim O'Reilly, Roger Magoulas

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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 ...

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