It means that any expense you spend on Y isn't really an expense, since the money goes right back into your pocket.

So not only do you get the extra income from other people buying Y, buy you can operate at higher margins than everyone else in X because Y is available to you at cost.

EDIT: On further thought it seems no different than being vertically integrated.

> It means that any expense you spend on Y isn't really an expense, since the money goes right back into your pocket.

If you do the accounting in this way, then you make that much less profit on your service, so it winds up being the same as if you are making a greater profit, but count the cost of Y at market value.

> So not only do you get the extra income from other people buying Y, buy you can operate at higher margins than everyone else in X because Y is available to you at cost.

This isn't any different than if Y and Z are different, but you use the excess profits from Z to subsidize your business in X.

That's not how auctions work. Let's say A owns advertising business X and shopping business Y. Now, if B who only owns shopping business Z will be paying their competitors. If A bids higher, money still flows black to them regardless of the profit/loss. But Z is forced to bid much higher to get any traffic! This can be used to inflate the price to any level. Sure, others can also inflate the prices but if you try that then the money goes to A and you lose that money but it's not true for A. In this Google operates like A.

Edit: Google has lot more data about a visitor and which enables them to predict more. So, they can sell their competitors (in shopping business) the impressions which never convert while selling the impressions which are highly likely to convert to their own shopping business.

> So, they can sell their competitors (in shopping business) the impressions which never convert while selling the impressions which are highly likely to convert to their own shopping business.

If they do that, then their competitors should notice and then pay them less for giving them bad impressions, so they're just taking money out of one pocket and putting it in another.

This scenario only works out if their competitors are less competent -- but in that case, seems like Google would do well?