You’ve seen all those ads each time you’ve searched on Google.
Have you ever wondered how does Google make money with them?
Did you know that Google parent Alphabet is the fourth U.S. company to pass a $1 trillion market cap!
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How Does Google Make Money?
Google processes over 1.2 trillion searches per year. Each search produces an opportunity for Google to display ads and make money. In total, 83% of Google’s revenue is generated from advertisements.
In 2019, advertising accounted for over 83% of total revenues, which also included YouTube Ads. Other revenue streams include Google Cloud, Hardware e.g. Google Pixel, Google Playstore, and YouTube Premium. In 2019, Google made over $161 billion in total revenue and a net income of $34 billion.
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 2019 10k Report
Google and Its Advertising
Google splits their advertising into two categories:
- Performance advertising
- Brand 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.
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.
Infographic Of How Google Makes Money
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 & other||Google Network||Google Other|
|Google Ads||AdMob and AdSense||Google Play (sales of apps and in-app purchases)|
YouTube Premium & YouTube TV
|Google Search & other||Google Network||Google Other|
|Google Ads||AdMob and AdSense||Google Play (sales of apps and in-app purchases|
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:
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.
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.
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.
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.
YouTube ads revenues increased $3,994 million from 2018 to 2019 and increased $3,005 million from 2017 to 2018.
So how does Google make money from YouTube?
How much does YouTube make each year from YouTube?
In 2019, Google made over $15 billion from YouTube advertising which represents 9.4% of Google’s total revenue.
YouTube has over 1.9billion logged in users. But even more astonishing is how much YouTube is used – here are some stats:
- YouTube is the second largest search engine after Google.
- 500 hours of video are uploaded to YouTube every minute.
- We watch over 1 billion hours of YouTube videos a day, more than Netflix and Facebook video combined.
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 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.
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.
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 released in 2018 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.
What is YouTube Premium?
YouTube Premium is a paid membership that gives people an ad-free experience across YouTube, YouTube Music, and YouTube Gaming.
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.
What is Google Cloud?
Google Cloud Platform is a provider of computing resources for deploying and operating applications on the web. In 2019, it accounted for 5.5% of total revenues.
Google Cloud is still small compared to Amazon AWS which in 2019 had earnings of $35 billion and an estimated market share of 38%.
The cloud infrastructure and applications market will grow by 17% in 2020. That means if all you do is maintain the same market share, your business will grow by 17%.
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 2019.
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.
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.