Google does not run a web hosting business, but according to Lew Moornan at Racklabs in his blog entry, Google’s Dangerous Trade, Google actually makes more profit on your hosting product through their Adwords business.
In his post, he asserts that Google has the ultimate model, which I agree too.
“Web hosting” as a keyword on Google gets searched 2 million times a month.
The top spot right now goes for about $15 per click.
Let’s say the average hoster converts 10% of those clicks to customers (a pretty aggressive assumption).
That means for every $10/month hosting account converted, Google is getting $150 ($15 per click x 10 clicks needed for a sale).
Without any marginal cost (ok, serving that search page probably costs .00001 cents or something tiny) that is almost ALL profit.
Now, let’s compare that to the hoster: let’s assume a 30% profit margin for a 30 month life (which is high in both profit and customer life). That is only $90 of profits ($10/month * .30 margin *30 months) over the life of the customer.
We don’t currently advertise on Google Adwords, but nevertheless this is an intriguing fact.
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