How Does Google Make Money? – 77% Ads but What About the rest?

You’ve seen all those ads each time you’ve searched on Google. Have you ever wondered how does Google make money with them? Google Main Competitors Google Main Consumer Products and Services Google has a core business model which is online advertising. However, it has acquired a number of companies over the years expanding its range of

Gary Fox

How Does Google Make Money

How Does Google Make Money? – 77% Ads but What About the rest?

You’ve seen all those ads each time you’ve searched on Google.

Have you ever wondered how does Google make money with them?

Company name: Google (A subsidiary of Alphabet Inc.)
Ticker symbol: GOOGL(Class A) and GOOG(Class C)
Annual revenue: $305.63 billion
Profit | Net Income: $73.795 billion (2023)
Link: Google
Year founded: 1998
Founders: Larry Page, Sergey Brin
Company CEO: ‎Sundar Pichai‎
Headquarters: Mountain View, USA
Number of employees: 182,502 Full Time Employees (2023)
Type of business: Public

Google Main Competitors

  • Microsoft
  • AOL
  • Facebook
  • Apple
  • Amazon
  • Samsung
  • Baidu

Google Main Consumer Products and Services

  • Android
  • Chromecast
  • FitBit
  • Google Ads
  • Google Cast
  • Google Chrome
  • Google G-Suite
  • Google Pay
  • Google Pixel
  • Google Play
  • Google Music
  • Nest
  • Wear OS
  • YouTube

How Does Google Make Money?

Figures from 2023 indicate that Google processed approximately 3.8 trillion searches per year. This estimate is based on an average of over 100 billion searches per month, highlighting the immense scale and reach of Google’s search engine globally. In total, 77.3% of Google’s revenue in 2023 was generated from advertisements related to this search volume.

Google has a core business model which is online advertising. However, it has acquired a number of companies over the years expanding its range of products and services e.g. FitBit.

In 2023, Google’s advertising segment generated $237.855 billion in revenue, representing a growth from the previous year’s $224.473 billion. The net income for Google in 2023 was $73.795 billion, indicating a substantial increase from $59.972 billion in 2022. This segment notably accounts for a significant portion of Alphabet’s overall business, representing approximately 77.3% of the total annual revenue, which amounted to $307.394 billion in 2023

If add-in Google Cloud then you reach 88% of what you could argue is its core business – tech, cloud services, infrastructure and streaming services like YouTube.

Google is pursuing products – expanding its range of hardware often through acquisitions such as Net and Fitbit. But will these payoff for Google int he long run?

The goal of our advertising products is to deliver relevant ads at just the right time and to give people useful commercial information, regardless of the device they’re using.

From Google 2023 10k Report

Google and Its Advertising

Google splits their advertising into two categories:

  1. Performance advertising
  2. Brand advertising

Performance advertising

The rapid rise of ad blocking has dramatically changed the world on online advertising.

Over 18% of people who use the internet now use an ad blocker.

That means that 1 in 5 people might not see you ad which is money wasted.

That’s where performance advertising comes in.

Performance advertising lets our advertisers connect with users while driving measurable results.

Google

What Is Cost Per Click?

Performance-based advertising is when you pay only if a customer takes an action like clicking on a link.

Clicking links are tracked. Cost Per Click (CPC) is a measure for the average cost per click over a period of time an ad runs.

In Google AdWords, your final CPC will be determined by your ad’s Quality Score, your maximum CPC bid, and your Ad Rank.

Ad Rank is used to decide where the ad appears and what other ad formats will show with the ad.

Google Ad Rank Explanation
How Does Google Make Money – ad rank explained

Brand Advertising

Brand advertising helps enhance users’ awareness of and affinity with advertisers’ products and services,through videos, text, images, and other interactive ads that run across various devices.

Google

As Google highlights brand advertising is more about generating brand awareness. Typically advertisers pay for cost per impressions (CPM) and want to reach a much broader audience.

CPM bidding is the most common option for advertisers who are targeting the Display Network as this is the best option if you are trying to increase or improve your brand visibility.

How Google Makes Money

1. Advertising

Google’s advertising revenues remain its primary source of income, contributing approximately 80% of Alphabet’s total revenues. Here are the key components:

  • Search Advertising: This is Google’s most significant revenue stream. In 2023, advertising on Google sites generated roughly $168 billion, which is a substantial portion of Alphabet’s total revenue.
  • YouTube Advertising: YouTube ads generated about $29 billion in 2023. This includes revenue from ads played on videos, as well as subscription services like YouTube Premium and YouTube TV.
  • Google Network Members’ properties: This includes revenue from AdSense, which helps publishers earn money by placing ads on their websites. In 2023, this segment brought in approximately $31 billion.

2. Google Cloud Platform (GCP)

  • Cloud Services: GCP is a rapidly growing segment of Alphabet’s portfolio, contributing $25 billion in 2023. It offers computing resources, data storage, and various other services that compete directly with Amazon Web Services and Microsoft Azure.

3. Google Play and Hardware

  • Google Play: This includes revenue from app sales, in-app purchases, and digital content subscriptions on Google Play. In 2023, it generated around $12 billion.
  • Hardware: Sales from Google’s hardware products, such as Google Pixel phones, Google Home, and Nest devices, contributed approximately $8 billion to the revenue in 2023.

4. Other Bets

  • Other Alphabet Businesses: Referred to as “Other Bets” within Alphabet’s financial reporting, this includes companies like Waymo (self-driving technology) and Verily (life sciences). Although these ventures are less profitable and still in early stages, they generated around $2 billion in 2023. Despite their current minimal financial impact, these investments are crucial for future growth and diversification.

Financial Strategy and Growth

Overall, Alphabet reported a total revenue of approximately $248 billion in 2023, with an operating income of $68 billion. The advertising segments collectively contribute a massive share, underscoring Google’s dominance in digital advertising. Meanwhile, Google Cloud and Play Store represent growing segments with potential for greater revenue contributions in the future.

Notes on Google’s Revenue

Alphabet is a collection of businesses — the largest of which is Google. All non-Google businesses collectively are reported as ‘Other Bets’.

Google Search & otherGoogle NetworkGoogle Other
Google AdsAdMob and AdSenseGoogle Play (sales of apps and in-app purchases)
Google Nest
Home Products
PixelBooks
Pixel Phones
Other devices
YouTube Premium & YouTube TV
Notes on What is Included in Each Segment
Google Search & otherGoogle NetworkGoogle Other
Google AdsAdMob and AdSenseGoogle Play (sales of apps and in-app purchases
Google Nest
Notes on What is Included in Each Segment

Google Advertising Model Explained

With over 83% of Google’s earning coming from advertising, you’re probably wondering how it all works.

How Does Google Make Money From Advertisements?

To understand how Google makes money you need to understand the different types of advertising platforms. There are four main platforms advertisers use:

  1. Adwords
  2. Adsense
  3. Admob
  4. YouTube

1. Adwords

Ad Examples
Google Ads Examples

Nearly every you time you search on Google you will be presented with ads that dominate the top search results.

As explained before these ads are paid for by advertisers. Each time you click on an ad link Google earns money. How much just depends on how the value of the keyword and how much competition there is.

Google Shopping

You might be wondering how does Google make money from its shopping section?

Google Shopping allows consumers to search for, compare, and shop for physical products across different retailers who have paid to advertise their products. This is also known as a Comparison Shopping Engine (CSE). Google Shopping results show up as thumbnail images that display each product’s retailer and price.

As an advertiser, you can decide to set up a campaign for Google shopping using Adwords.

2020 04 29 20 10 44
Google Ads Examples

2. Adsense

A huge number of publishers on the internet make money by signing up to display Google ads.

After a publisher signs up to Adsense and adding the code to the website, Google will display targeted ads relevant to users’ previous searches, based on its proprietary algorithms.

3. Admob

Admob is where advertisers can sign up to display ads on apps. AdMob provides a way for Google to help app developers earn more money from their apps.

4. YouTube

How Google Makes Money From Youtube
How does Google makes money from YouTube?

YIn 2023, YouTube generated approximately $31.5 billion in revenue, which represents a 7.8% increase compared to the previous year. This revenue accounted for about 10.25% of Google’s total revenue. Despite its significant revenue contribution, specific net income figures for YouTube are not typically disclosed separately by Alphabet, Google’s parent company. This financial performance highlights YouTube’s role as a major contributor to Alphabet’s overall business. For a more detailed breakdown, Alphabet’s financial reports would provide comprehensive insights into the broader financial health of the company

So how does Google make money from YouTube?

YouTube has over 1.9 billion logged in users. But even more astonishing is how much YouTube is used – here are some stats:

Well, if you use YouTube you will have adverts before videos start of they are placed during the video. It all depends on the length of the video.

Advertisers pay for their videos to be placed on high volume videos that are related to their product or service.

Google Hardware Business

Google Products

Google faces stiff competition in the hardware market. Would you bet on Google winning at hardware?

It seems a strange question, but the once pure digital company is diversifying into hardware at a time when others are expanding into digital services e.g. Apple business model.

With China and Asia gaining ground with new hardware brands competition is only going to get tougher.

Google doesn’t do retail or even etail that well, it’s not in its DNA. Compare the Google online shop to Apple.

One is brilliantly designed the other looks like a market more than a focus on individual brands. The Nest branding and value proposition is lost amongst the Google branding. See value proposition examples to get more of an idea on this.

Google doesn’t seem to have got the same focus on design and branding yet. Over the years its interfaces have always been a bit clunky compare to Microsoft and Apple.

I appreciate that hardcore fans of Android and Google might disagree but the user experience is becoming more important. Even Google seems to recognize that.

It has progressively revamped the user interface for a number of its services.

Google Pixel

With the Google Pixel, it is going up against an intensely competitive market with strong players like Apple (iPhone) and Samsung (Galaxy).

In fact, Google Pixel fits into the ‘Others’ part of the global market share for smartphones.

Cleanshot 2024 04 18 At 08.04.46
Smartphone shipments’ share worldwide by vendor from 2015 to 2023 Source: Statista

Google Nest Products

Google Nest Products
The range of Google Nest Products

Google acquired Nest Labs, now Google Nest, in 2014 for $3.2 billion. It seemed at the time that with Google’s wealth and expertise in online advertising, technology a perfect match.

But figures show disappointing results.

I’ve covered a lot so far in this post on how does Google make money. But, there are a few more surprising details to come.

YouTube Premium

Youtube Premium By Google
YouTube Premium Propositions

What is YouTube Premium?

YouTube Premium is a paid membership that gives people an ad-free experience across YouTubeYouTube Music, and YouTube Gaming.

 YouTube Premium (formerly called YouTube Red), is a copy of the Spotify business model, offering both ad and ad-free streaming content.

In 2022, YouTube generated $29.243 billion in advertising revenues, representing a significant component of Alphabet’s total revenue of $282.836 billion​​. This indicates that YouTube’s advertising revenue contributed approximately 10.3% to Alphabet’s overall revenue, highlighting its significant role in its broad array of revenue streams.

In other words, if people don’t subscribe Google gets money from advertisers paying to promote to viewers. On the other hand, it earns money when people subscribe and go ad-free.

Google Cloud

What is Google Cloud?

Google Cloud Platform is a provider of computing resources for deploying and operating applications on the web. In 2023, it accounted for 5.5% of total revenues.

oogle Cloud accounted for a significant portion of Alphabet Inc.’s revenue. Specifically, Google Cloud generated $26.28 billion, marking a substantial growth from the previous year’s revenue of $19.206 billion​​. This revenue growth represents a 37% increase year-over-year, which underscores the expanding influence and market penetration of Google Cloud within Alphabet’s overall business portfolio.

To contextualise Google Cloud’s contribution to Alphabet’s total revenue, Alphabet Inc. reported total revenues of $282.836 billion for the year 2022. Thus, Google Cloud contributed approximately 9.3% to Alphabet’s total revenues for that year​​. This percentage highlights the strategic importance of Google Cloud to Alphabet’s diversification and growth strategy, emphasising its role not just as a revenue generator but also as a driver of innovation and enterprise engagement across Alphabet’s broader ecosystem.

Google Bets – the Future of Google?

What are Google’s other bets?

Other Bets are Google’s investment into new and emerging technologies that might be important for its revenue and growth in the future. Other bets account for 0.4% of Google’s annual revenue in 2023.

Some examples of Google’s other bets

It’s been reported that Google (Alphabet company) is pruning its bets. Some of the ‘other bets’ have proved to be difficult to translate into a commercial proposition.

In 2022, Alphabet Inc.’s “Other Bets” generated revenue of $1.068 billion, which when compared to Alphabet’s total revenue of $282.836 billion for the year, accounts for approximately 0.38% of the total revenue​​. This small percentage highlights the exploratory and developmental nature of the “Other Bets” category, which includes various early-stage projects and companies focusing on technology and life sciences. These ventures are seen as potential growth areas but currently contribute minimally to Alphabet’s overall financial performance.

Here are some of the examples of those ‘other bets’:

  • Waymo is one of the most advanced autonomous vehicle technology firms. The autonomous vehicle market is predicted to be worth $556.67 billion by 2026. No surprise that Google wants to be positioned to seize a slice of that market.
  • Loon is a company whose goal is to bring connectivity to remote parts of the world where cell towers would be too expensive to build. Loon uses solar-powered balloons that float over a remote region and offer network access via onboard networking technologies.
  • Wing is an automated drone delivery service. It provides commercial air delivery services in Canberra, Australia, and Helsinki, Finland as well as certain parts of the US. It already has several commercial partners in the US including Walgreens Boots Alliance Inc and FedEx Corp.
  • Verily is a life science technology unit that includes research into wearables and healthcare products/services. It already partners with several pharmaceuticals for research on such projects as surgical robots and retina scan technology.
  • Sidewalk Labs aims to combine forward-thinking urban design and cutting-edge technology to radically improve urban life.

Summary of How Google Makes Money

Google’s core business model is still its ad business. Google has expanded its portfolio through a number of acquisitions and investments, but many of these ventures have yet to achieve the same scale as this tech giant.

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