How Google Earns Money

Google has become as much a part of life as the smartphones that barely leave our hands. You may not always need it, but you always know it’s there. You might have wondered in the past how exactly Google makes money. It’s not like you’re shelling out a dollar each time you search. Well, as the saying goes, if you’re not paying, you’re the product. Google has capitalized big time on ad revenue, probably more so than you even realize. Today we’re going to look at how Google earns money, but first, let’s take a look at where Google stands today. 

The Big Picture

Google is an American technology company that offers internet-related services. They are most well-known for their search engine, but they also specialize in cloud computing, online advertising technologies, software, and hardware. In 2006, Google also acquired YouTube in a deal valued at $1.65 billion. The most visited website in the world is Google.com. Google is in operation in about 220 countries and territories all around the world, although a few governments have put restrictions on certain content in the search results. You can learn more about that and other interesting facts about Google just click here. Google’s parent company is Alphabet Inc., the fifth-largest technology company in the world by revenue. Alphabet’s stock has risen over 200% in the last five years to over $1,200 per share. Revenues were up to over $136.8 billion in 2018, up more than 23% from 2017, and revenues in 2019 are on track to be at least 19% higher. The greatest percentage of these revenues comes from ad sales, but we’ll give those facts and figures in a minute. 

The Beginning

First, let’s see where this thriving company began. In 1996, Google founders Larry Page and Sergey Brin were both Ph.D. students at Stanford University. The idea for their future company came from a research project Page started called BackRub. Brin was intrigued by the concept and soon joined him. To put it very simply, they were looking for a way to map backlinks between websites and rank pages according to the number and significance of links. They wrote a program called BackRub that used a technology they developed called PageRank to achieve this. Before this, search engines based on their rank results on how often a particular search term was found on a webpage. Page and Brin’s algorithm produced more relevant results than any other search engine at that time could at the time. Their first thought was to license this technology, but others failed to see the potential. The pair then decided they would improve the product, secure financing, and then launch Google themselves.

Early Inventors and Launch

This turned out to be much more than a million-dollar idea. Once the product was further developed, investors couldn’t wait to write checks. One of their very first investors, who contributed $100,000 before the company was even incorporated, was Andy Bechtolsheim, the co-founder of Sun Microsystems. After seeing one quick demo, he told Page and Brin, “Instead of us discussing all the details, why don’t I just write you a check?” This was part of a one million dollar funding round in 1998 that included Amazon.com founder Jeff Bezos. The company headquarters was moved to Silicon Valley, and a beta version of Google was launched on September 4, 1998, receiving about 10,000 search queries per day A second funding round in 1999 brought in 25 million dollars in investments. Google dropped the beta designation from its site on September 21, 1999, and thanks to some good early decisions by its founders, the popularity of the site grew quickly. 

The Choice

Google first started selling advertisements in 2000, although Page and Brin were initially against funding their search engine with advertising. They didn’t know it at the time, but this choice would virtually guarantee them a position among the so-called Big Four technology companies in the future, along with Amazon, Apple, and Facebook. Page and Brin were hesitant because they were concerned that it would make their page look cluttered. To avoid this, they stuck to text-based advertisements that were associated with search keywords. In its first year of integrating advertisements, they made about $70 million in ad revenues. Google got a major boost when Yahoo! made Google its default search engine. The company grew rapidly, and a variety of products were introduced over the next few years, including Gmail, the Chrome web browser, Google Drive, and Google Voice. This gave increased opportunities to integrate advertising. The company went public in August 2004 with a market capitalization of more than $23 billion, but they were just getting started.

The Next Level

Google acquired the internet ad company DoubleClick in 2007 for $3.1 billion, which gave them access to a large network of web publishers and advertising agencies. It also gave them new technology to help target advertisements based on user history and the search context. In 2007, ad revenues amounted to $16.4 billion, representing a near $6 billion increase from the year before. In that same year, they also launched AdSense for Mobile, which gave them additional opportunities in the mobile advertising market. But how exactly do these advertising platforms drive profits? 

How Google makes money

The primary advertising program Google utilizes is AdWords. Anytime a search is conducted, the results will likely include suggested pages from an AdWords advertiser. But this is not limited to the search engine. AdWords advertisements have been integrated across all Google platforms, including Gmail, Google Maps, and YouTube. The AdSense network also makes it possible for non-Google websites to include Google display advertising on their pages. Advertisers have to outbid each other to get the coveted top spot in Google advertisements. The more they pay, the higher up the list they move. These payments are made each time someone clicks on their link and can range from a few cents to over $50 per click. When an ad is clicked on a non-Google site, Google splits the revenue with the owner of the site. In this way, Google’s AdSense has become the primary income source for several businesses. It’s a win-win situation since if nobody clicks, the advertiser doesn’t have to pay, but Google is the big winner as their digital ad sales have skyrocketed.

Global Dominance

So just how much does Google rely on ad revenue? Just to give you the numbers. In 2018, Google’s total revenue equaled $136.2 billion. The revenue from advertising alone totaled $116.3 billion, accounting for about 85% of revenues. The total amount spent worldwide on digital advertising in 2018 was 283.35 billion. Based on these numbers, Google has claimed about 41% of the total market share of digital advertising worldwide. When you look at just the US alone, their market share is close to 80%. Nobody else even comes close. Thanks to their patented technology, their proprietary algorithm, and the fact that they host the top search engine which also happens to be the most visited site in the world, they have had virtually no serious competition. Yahoo, AOL, and Microsoft attempted to boost its market share by forming an ad selling strategic partnership in 2011, but they have been underperforming and claim only about 2% of the global market share. One competitor that has shown incredible growth in ad revenues is Facebook, which now holds close to 20% of the digital advertising market. In 2018, they reported $55 billion in ad revenue, representing a 38% increase from the year before. The projection is that their ad revenue could reach close to $100 billion by 2021, but that’s still $16 billion shies of where Google is right now. And Google shows no signs of slowing down. 

The Future

Digital advertising spending is expected to nearly reach $385 billion in 2020. We’ve already shown that Google has cornered the largest portion of this market, so they stand to see the greatest increases in revenue. They have positioned themselves well enough to outpace all competitors in the market, and they are also continually working to improve their algorithm, advance their technology, and make their search results even more personalized, which leads to more ad clicks and greater profits. Both founders, Page and Brin, each agreed to stay with the company at least through 2024, so it may be interesting to see if they renew their commitment or part ways to start something new. Either way, Google is here to stay. 

Closing

There’s no question when it comes to advertising, Google is king. There is just no other company that has the same kind of digital reach, web traffic, and technology to match their advertising platforms at this time. However, this is a highly desirable market that is only projected to grow significantly year after year, so the competition could be heating up as other companies work on developing advanced strategies to try to claim their piece of the pie. The reality is, though, that the vast majority of these brands, including big names like Amazon, Twitter, and Snapchat, are playing catch-up and can only dream of matching Google’s dominance in this field. However, Google might want to watch out for Facebook with their digital ad sales growing exponentially year after year. But we have a feeling Google isn’t too worried about it as they continue to experience the same kind of growth thanks to the continual shift from print to digital advertising. There are so many incredible statistics connected with Google, including the fact that Google receives over 63,000 searches per second. This equals out to 3.8 million searches per minute, 228 million searches every hour, and close to 5.6 billion searches per day. In a year that means, Google receives at least two trillion search requests, and that number is only expected to climb higher as the years go by.

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