HALF MOON BAY, Calif. – Google News is free and has zero ads. So what’s it worth to Google? About $100 million.
That’s the figure Google vice president Marissa Mayer, who heads search products and user experience, threw out during a Tuesday lunch session at Fortune’s Brainstorm Tech conference in Half Moon Bay, Calif. How does she put a value on a product that doesn’t directly make money? The online giant figures that Google News funnels readers over to the main Google search engine, where they do searches that do produce ads. And that’s a nice business. Think of Google News as a $100 million search referral machine.
Mayer’s observation about Google News sheds some light on the company’s broader strategy for driving traffic to its search engine – a strategy that has helped the company build a dominant market share lead over rivals Yahoo (YHOO) and Microsoft (MSFT). It’s not all about the search engine itself. Google is happy to build popular products that don’t make any money on their own but tie users into a broader Google ecosystem. It’s like Vegas casinos that offer cheap buffets to get people into the building, knowing a lot of them will end up playing slots.
Mayer said that’s the way Google thinks about monetizing digital consumer health records. The company is one of many working to make it convenient for people to store and access their medical records online, a move that proponents say will improve health care by empowering consumers. But Mayer said that after some internal discussions, Google brass decided not to put ads on health record pages.
Salesforce.com CEO Marc Benioff, who was sitting in on the lunch session, challenged the decision: Why not let consumers opt into health record ads? Mayer said it’s not worth it. For one, the inventory of health record ads wouldn’t be sizeable enough to draw serious ad dollars. Add to that the criticism Google would draw from privacy advocates, and there’s not much point.
But that doesn’t mean Google’s doing health records as charity. Mayer and the rest of Google leadership are counting on the Google News model: If people come to Google for their health records, they’ll end up using the search engine to buy prescriptions, find doctors, whatever. And in the process, Google will cash in.