How does Blogger make any money?

Introduction

Blogger, as many of you already know, is a free web-based blogging application that’s now owned by Google. Blogger not only gives you the blogging application for free, you also get free web hosting for your blog. So how does Google make any money if they’re giving away the product for free?

Where’s the revenue?

It was easy to see how the old Blogger was supposed to make money. Blogger offered you a free service that had a limited feature set, but then you had to pay a recurring fee to upgrade to the more powerful Blogger Pro. And it was the same story with the web hosting. If you wanted more bandwidth and to get rid of the banner ads, you had to pay money to upgrade.

But then Google bought Blogger and Blogger went to a totally free pricing model. Currently there is nothing to buy at Blogger. How is there any money in it if it’s free?

The only obvious source of income is from the ads that appear at the top of Blogger hosted blogs.

Advertising is how the Google search engine makes money. But the advertising revenue per page view is surely a lot lower for Blogger than for the Google search engine. People using the Google search engine are searching for something specific, so it’s probably about ten to twenty times more likely that they will see an ad at the top or right side of the screen that they will be interested in. I have ads on my blog, so I know how little interest there is in them.

So how much money might Google be making from those Blogger ads? Well I did some calculations, and I assumed that Blogger has 1.5 million blogs, but only 300,000 of them are active, and that the average active blog gets 25 page views per day (most blogs don’t get very many visits). With these numbers, Google might be making $2 million per year in advertising revenue. It might cost Google $500,000 per year for the storage space, servers, bandwidth, and personnel to host all those sites and run the Blogger application. So Google is making a $1.5 million profit.

Now that we’ve calculated that Google is making $1.5 million from the advertising, we must subract the cost of programming and marketing Blogger. If there are 20 employees in the Blogger division (there were only six when Google bought Blogger, I’m assuming there was some expansion), and the average employee is making $100,000 per year (these are high paid computer programmers we’re talking about), that’s another $2 million in expenses. So now Blogger is losing $500,000 per year. Or maybe there are fewer employees or more ad revenue and Google is breaking even.

My conclusion is that Blogger in its current state is not a big source of profit for Google, and that chances are better than even that Google is losing money on Blogger.

Other purposes of Blogger

If Blogger is not profitable, then what’s its purpose? Well here are some theories.

(1) Delayed profits. Google wants Blogger to be to blogging software as Microsoft is to operating systems. Once Google controls the entire blogosphere, suddenly they will start charging money for the service, and there won’t be any other place to go because all the competition will be out of business. After all, it’s hard to compete with a free product.

(2) Synergy with the Google search engine. Maybe by searching through all the Blogger posts, Google can use this mass of information to enhance its search engine results? Critics to this theory have pointed out that Google can already spider these pages, so what additional value is there to controlling the database where the Blogger posts are stored?

(3) Another synergy theory. By owning Blogger, Google has access to the referral logs for hundreds of thousands of active blogs. Google normally can’t see the referral logs for the websites it spiders. Maybe Google’s computer scientists think that the referral logs might contain information that could be used to produce better search engine results?

(4) The clueless theory. Google’s management figured that blogs were the next big thing, and they wanted a piece of the action even though they have no clue how it will actually bring profit to the company.

I do not know

After all this analysis, I’ve come to the conclusion that I still don’t know how Google thinks that Blogger will make money. If anyone has any ideas, feel free to comment.