Thursday, April 23, 2009

Google: a study in economics

Google became popular by helping us find what we want on the Internet. Google search results are always helpful. Gmail is easy to use. Google sites and blogs are convenient to set up and share. I am merely a casual user, yet I feel lucky that Google has come into existence. The rich set of Google tools available are clearly the product of a bunch of smart people working really hard.

On its face, this is mysterious. The rise of Google to produce so many nice things for Internet users is a boon to the common person. Every day, Google employees are working hard to create tools they think I would like. They are very good at doing this: I love using anything Google. But, I know no Google employees and I doubt that Google cares about me as a person, so this begs the question: Why would smart people work so hard to make me happy?

In the Wealth of Nations, Adam Smith had something to say about this:

Every individual...generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it....by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.
So, there we have it. Google is guided by an invisible hand. Google wants me to be happy because making me happy makes Google money. That's a good reason to make me happy, but I have never written Google a check -- nor has anyone I know. Wherein lies the cash cow?

I was recently exposed to one of Google's money-making enterprises when I looked into placing ads on this blog. I had been exposed to Google ads before, but I never really appreciated what Google was doing because I was busy enjoying Google's other services.

Like everything else that Google does, Google is incredibly good at placing targeted ads in unobtrusive places. If you do a Google search for "Houseplant," eight advertisements regarding where you can buy houseplants appear next to your search results. There's even a sponsored link to a professional agency that provides advice regarding how to care for houseplants.

What's smart about this? By conducting the search, you told Google that you want to know something about houseplants. Google provided you with good information (see search results), but Google also provided those who profit from selling houseplants access to your eyes. That's a service worth paying for, and companies do pay Google for it. There's Google's cash cow.

Back to my ads on this blog. I never told Google what ads to place, but the ads are mysteriously on point. I blogged about our houseplant, "Bob." Google placed houseplant ads. I blogged about unions and academic research. Google linked my readers to something called "Labor Unions Research." Someone at Google wrote a very innovative computer program.

Now, that's targeted advertising and its success is a testament to Google's vision. For now, just enjoy the many services Google provides and give thanks to "the invisible hand" for bringing Google to the market.

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