Google figures in need of an advanced search
By Julian Lee | smh.com.au | 05 May
You may have thought Google sold ads, the market and analysts probably thought it sold ads - and many of them - but Google's accountants take quite a different and, yes, more creative view.
Despite its near total dominance of the search advertising market, Google does not make one red cent through advertising, according to its latest set of accounts.
Instead Google Australia, which analysts estimates makes about $700 million a year from Australian advertisers, is a mere "service provider" that makes about a sixth of that collecting fees from its head office and a subsidiary in Ireland.
Documents filed with the corporate regulator show Google's revenues last year were $110 million - some way short of the real figure.
The company, which employs 350 people in Australia and dominates the burgeoning search advertising market, paid $714,457 in tax and made a loss of $4.4 million last year.
Google's main revenue stream comes from selling search terms to advertisers through its AdWords program. But, according to a note in Google's accounts, it has a "service agreement" with the US listed parent company, Google Inc, for research and development services.
Head office pays the Australian subsidiary a licence fee to use its Maps and Wave products, both of them developed on these shores.
Australia is also paid a fee by Ireland to provide sales and marketing support; Australian advertisers using AdWords are billed by Google Ireland, where corporation tax is just 12.5 per cent, compared with 30 per cent in Australia.
A Google spokeswoman failed to explain the discrepancy but said that it "gives back" to Australia as well as to the world in "lots of ways" by developing innovative products that help businesses start up online.
She did confirm revenues were from service fees and not from selling ads. Analysts say the latest accounts are a far cry from the reality. The researcher Frost & Sullivan estimates Google's revenue in 2008, the most recent year for which it has figures, to be $538 million. Based on a growth rate of 23 per cent last year Google's revenues could be as much as $666 million this year .
An analyst with Frost & Sullivan, Ryan Taibel, said: "If you look at the financial statements and what their estimated revenues are then they are woefully understating their true position here. What Google are making here is much greater than this final statement."
Neal Stoughton, head of banking and finance at the Australian School of Business, said complex inter-company contracts allowed Google to dictate how much revenue it declared. "This is another form of transfer pricing," he said.
First published by Smh.com.au on May 05 2010
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