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Google effect generates billions in economic activity

updated 05:35 pm EST, Mon December 24, 2007

The Google effect

The internet has become a very profitable place to run business, especially since Google's IPO in 2004, when a mass amount of money started flowing through the virtual economy, causing some to coin the term "the Google effect". As Google's stock took off, employees began cashing in options, prompting some to buy luxuries like $15,000 custom bikes, and $650,00 boats. reports that Mercury News recently unveiled an analysis of company documents filed with the Securities and Exchange Commission reveal that Google generated more than $19 billion from 2004 to 2006, which could have exceeded $50 billion, due to the multiplier effect - every dollar of spending theoretically creates two or three dollars in economic activity.

An unclear amount of this money left the Bay Area - where Google's base of operations is located - in the form of investments, as employees put money into international companies and the company contracted with odd-ball suppliers. Some of the funds were easy to track, with Village Imports specialty foods thanking Google for the most significant part of its business. Food suppliers from France are even feeling the effects, as suppliers send out loads of Pont l'Eveque and Bucheron cheeses to Google.

The Google effect seems to affect more than product sales, however, after persuading investors to put money into information services after the market had fallen 62-percent from 2001 to 2003. Investments in the sector totaled to $972 million, and by the end of last year, the figure had risen to $2.4 billion. Google's example helped Chinese advertising company Focus Media Holding and search engine Baidu, as they went public a year after Google.

Outside of the office, Google employees have tried to replicate the economic multiplier theory by funding non-profit organizations, while Olana Hirsch Khan - formerly of Google - became CEO of, an organization that helps entrepreneurs in developing countries get businesses off the ground.

Some analysts predict that the Google effect could be in a falling stage right now, since despite having a strong sales growth, and an increasing overall value, Google stock is no longer the performer it once was, and sales growth falls a bit each quarter. Google has also slowed down the pace at which it hires new employees.

by MacNN Staff



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