Last year, Google generated $54 billion of economic activity for American businesses, website publishers 
and non–profits. That’s according to a study released today by the search giant, which has embarked upon a campaign to show Google is not only creating value for Google, but for American businesses, the economy, and job-seekers as well.

And now that Google is an active presence on Capital Hill, it’s a move doubtless calculated to portray the company as an economic engine to lawmakers, too, as privacy regulation activity comes slowly into focus. Google is telling its story through the stories of its small business advertisers – a tactic adopted by the IAB in its recent lobbying efforts as well. To underscore the political motivation behind the study, Google breaks down, on a state-by-state basis, which politicians are leveraging Google to communicate with constituents. For example, in New Jersey they name Governor Chris Christie and 11 state Senators and Representatives who communicate with constituents through official YouTube channels.

Google’s 62-page Economic Impact Report breaks down the ecomic impact of advertising on Google state-by-state, and ad product by ad product (AdWords, AdSense adn Google Grants), coming to the conslusion that for every dollar advertisers spend with the company, they get an $8 return on their investment. The company is careful to point out that Google products not directly related to advertising, e.g. YouTube and GoogleMaps, were not factored into the equation. It also takes pains to say the $54 billion figure is “conservative”.

Each state features a story in the report: a bookstore in Indiana, a manufacturer in Georgia, a dog daycare center in California are three examples of businesses that tell their stories. Statements such as “AdWords generates 90 percent of our business,” are typical.

The methodology used for calculating the value of AdSense is relatively simple: the estimated
amount Google paid publishers in 2009
for placing our ads next to their content. Google Grants was the total amount
spent by recipients in 2009 out of their $10,000 monthly allotment. The AdWords calculation, explained in depth in the report, is more complex and based on assumptions made by economists observing CPC activity across a large smaple of advertisers.
In short, the company assumes businesses make an average of $2 in revenue for every
$1 spent on AdWords (a $1 profit). And, that businesses receive an average five
clicks on their search results for every single click on their
ads. Allowing for differences between the value of an organic click versus a paid click, Google says, “We conservatively estimate that for every $1 a
business spends on AdWords, they receive an average of $8 in
profit through Google Search and AdWords. Thus, to derive
the economic value received by advertisers, we multiply our
AdWords revenue on search results in
2009 – what advertisers
spent – by 8.”

Google’s methodolgy will doubtless be hotly debated, but is nevertheless an interesting glimpse into how the search giant, which has access to all the data, crunches their own numbers.