Hardik Thakkar on Web Development, Internet Economics and other unrelated things

The folks at official Google Blog recently posted a proud entry about an article published in USA Today titled ‘Google’s Hidden Payroll’ where several instances were cited of web-publishers in developing countries relying for their income on Google. It is something indeed to be proud of, to be involved in accelerating development where there is a lot of scope for it.

However, reading the article in USA today, especially in regards to the amount of money mentioned there and applying some simple economics I couldn’t help speculating a more far fetched effect the webpublishers of the developing countries could have on the whole economy of the online ad industry.

The “feel good” factor put forward by the article was that despite payouts being as low as $200 the amounts when converted in payee’s home currency become significant income for the payee because of other economic factors that come into play. I believe it is precisely this which is going bring in a lot of changes.

I am limiting this article to India and USA only, similar comparisons may be made.
Ok, now let’s talk some figures:
A recent survey at problogger showed average monthly income earned per publisher from adsense stands at $988.34 , approximately $1000. Now let’s stick to that figure as see how it compares to country wise income rates.
USA’s Gross National Income (GNI) Per Capita stands at $34280 (crudely this means that an average person from US earns this much in a year) according at a 2002 World Bank report. Now, let’s compare this with GNI Per Capita of India, which stands at $620, or for more fair comparison, let’s just take GNI Per Capita of “Indian Middle Class” who might be capable of buying basic things like a PC, etc to be potential AdSense publishers, this middle class is a 250 million strong population (population of USA is 295 million) and their GNI Per Capita stands at $2000 (do note that we are not grossing up USA GNI per capita in similar manner to be conservative).

Back to Problogger survey, average $1000 monthly translates to $12000 per annum. This figure is not even half of the USA GNI per Capita (GNIPC from now on), whereas it is 6 times multiple of GNIPC of Indian middle class. So, a USA publisher earning the “average” adsense income will be earning less than the average income of people in his country by more than half, on the other hand an Indian publisher with same earnings would be by far a rich guy(or gal) in his country.Thus, an Indian publisher derives much more utility from $1000 than his USA counterpart.

An important point to be noted is that unlike almost all other forms of businesses there are no entry barriers stopping non-residents of USA from joining the AdSense program.
Ok, so basically Indians enjoy their AdSense earnings more than their US counterparts, so whats the big deal? The big deal is that this just does not end here so simply. Because of the much higher utility derivable from those $1000 many more Indians will be attracted to AdSense. The ‘equilibrium effect’ I mention in the title is basically this:

Right now the average earning from adsense is such that people of US who are not currently adsense publishers will not be instigated to go through the trouble of setting up blogs/websites to make money from adsense. This is not the case for India, the average earning being six times their neighbors, Indians will surely be instigated to take some extra steps to learn web-publishing and become adsense publishers. As more and more Indians enter into the adsense program, there would be an excess supply of advertising slots, as a result advertisers will have to bid lesser to get their ads shown. This will result into decrease in the ‘average earnings’. This should decrease to a level at which Indian publishers will not be too excited about entering the bandwagon either and finally restore an equilibrium.

So, when the supposed equilibrium is reached the end result will be cpc rates will be certainly much lower than today and so will be average earnings per publisher.

Do note that this is just a theoretical scenario and there are several factors which can cause it to not exactly go this way.

In the next post I will be talking about those factors, feel free to drop in your comments about this article or about any of those factors that you can think about.