Have you ever searched for something like “la la lala la song” on Google and voilá:
You finally have the lyrics to the song that was stuck in your mind for the whole day!
That is the magic of Google, a search engine that we all know and love.
It is definitely one of the most helpful products invented in the last 20 years.
If a question can be answered, then Google will know the answer in less than 0.0002 seconds.
It’s even more amazing that this search power is offered to customers for “free”.
Today, we will cover how Google makes money despite offering most of its products at no cost.
If you are not paying for it, you're not the customer; you're the product being sold.— Andrew Lewis (@andlewis) September 13, 2010
If you ever wondered how Google is making their profits more in detail, keep reading because I will dig deep into the subject.
Note that throughout the article I’m using Google and Alphabet interchangeably.
When it comes to revenue, Google is a behemoth.
It is considered to be among the Big Four technology companies along with Facebook, Amazon, Apple, and Netflix (FAANG).
Google’s parent company Alphabet is the fourth on Forbes’ Top 100 Digital Companies, and it is a trillion-dollar company.
so, how much money did Google make last year?
Google made $110B in 2017, $130B in 2018 and will likely report $148B in 2019.
Let’s explore the Google products that brought such impressive revenue:
The top revenue makers for Google:
- Google Ads
- Google AdSense
- Google Analytics
- Google Pay
- Other Revenue
Google Ads represent more than 80% of Google’s revenue
Ads are used to make profits in many of today’s social media channels, search engines, games, etc.
Google uses them in Google Search, Admob (mobile app ads), and the GDN Google Display Network.
How does Google Ads (Google AdWords) make money?
Google rebranded its advertising feature that used to be called Google AdWords into Google Ads, and it is one of their main channels of profit. Google Ads is one of the features that actually is responsible for the bulk of Google’s profits, more than 80% since it is so widely used.
And that actually makes sense because it is fairly important for any person or company to advertise something on the biggest search engine platform in the world.
It is making sure that plenty of people will see what you’re trying to sell, and you can literally filter out the people that you want to see your ads by many categories.
How does it work?
When you go on Google and search for anything at all, you are presented with a list of search results that are generated by very complex algorithms that Google uses (such as Rankbrain).
The results that you see are the attempt of the algorithms to present you with the information that might be the most relevant to whatever it is that you typed.
Another question is, how does Google know what is relevant to your search and what is not? Enter the world of SEO!
Google makes predictions on what’s relevant using a machine learning algorithm that analyses every single input.
My data, your data, everybody else’s data is what helps this algorithm to predict what is relevant very easily.
An example of this is:
- I search for something and I get 10 results on the first page of Google and I immediately click the third one (because somehow that one is the most relevant to me).
- Google’s algorithms take notice that the majority of people click the third result
- The algorithm learns that the third option is relevant for many people hence it should be moved up
Related: Learn how to improve your SEO
If you do a Google search, you will notice that you will also be presented with suggestions from Google Ads advertisers.
These advertisements go far beyond just Google.com search engine.
Ads might show up on your screen while you’re using Gmail, Google Maps, YouTube, or any other Google sites are results of companies and people advertising through Google Ads.
The point is that not everybody will see the same ads, but they will be personalized through many filters like age, gender, location, interests, etc. Since Google’s audience base is so big, they can segment it pretty well.
And this is why Google is so successful in advertising.
What good would it be to advertise a new electric car model to my grandpa? But if you advertise it to 30-60-year-olds with strong financial status, the ad will work. At least more than it would in the first scenario.
But which ad you’re going to see if there are 20 companies that want to advertise to you in the same industry? The answer is that they bid each other out through an ad auction. The ads that are with higher bids are shown to more people, and those that have lower bids are shown less.
CPC and CPM
Google charges advertisers in 2 ways.
One is on a cost-per-click basis. That means that you pay every time someone clicks on your ad.
The other one is on a cost-per-mille (or pay for 1000 impressions). That means that you pay every time someone sees your ad, regardless if they click or not.
How does Google AdSense make money?
Another source of revenue for Google is its Google AdSense service which is similar to Google Ads but instead of displaying ads on Google’s services, it displays ads on other sites. It is oriented towards publishers (website owners) that can earn out of their platforms by allowing ads to target their visitors.
How does it work?
The way this works is Google’s algorithms analyze your blog and note what type of content you produce.
Then, according to that, it chooses certain ads that are relevant to your site. You can choose the location on which Google can post ads, and change it over time.
For instance, you can notice that I have added ad units throughout my site using Adsense.
When your visitors click on those ads, you receive a percentage of the revenue (68% to be exact), and of course, Google takes the rest of it (32%).
The feature that works on mobile apps is called Google AdMob.
The ads that will go up on your website are not only chosen by the relevance and the keywords. The advertisers, once again here, bid to place their ads on your site in real-time. Those that are highest paying will be the ones to show on your site.
How does Google Analytics make money?
Google Analytics is a tool that helps you analyze the metrics connected to your website and gives you lots of information that you can use to base your business decisions on.
There are many, many possibilities with this free tool, however, the most commonly known are:
- Tracking the number of website visits
- Tracking the duration of those visits
- Tracking the sources of the visits
- Tracking which pages exactly they landed on, visited, etc.
- Used keywords (you can also use Google Search Console)
- Preferred sections of the visitors
- Types of devices visitors come from
How does it work?
The tool tracks all the traffic on your website, blog or social network, and gives you reports that you can customize depending on which metrics you find the most useful.
After collecting, Google Analytics has a quite complex data processing process of transforming the raw info into knowledge that you can act on.
Then, once you have this information you can apply filters to the data, make groups, specify time frames, etc. and the data from the database will be processed and shown to you in the way you need it.
All this data on how many visitors does the page have, where do they come from, how much time on average do they spend on the page, what were they interested in the most, is what makes this tool one literally the standard in the industry.
The best thing about Google Analytics is that it is compatible with the other tools of Google like Ads, AdWords, Blogger, YouTube, etc.
The tool is released as a free tool, but because it is supported with great AdWords integration which is tightly related to increasing money for ads.
For example, if you see the results of your AdWords service on your Google Analytics reports you will know that it works and by how much and you will be motivated to spend even more on advertising in the first place.
Google also offers a paid enterprise version of GA called Google Analytics 360, which starts at $150,000/yr.
How does Google Pay make money?
Google Pay is another service that brings Google some revenue.
In the past, this service changed its name a few times; it was called Google Wallet, and before that Google Checkout.
The point of Google Pay is simple- to make purchases easier for the sellers and for the buyers.
The consumers can create a free and simple Google Pay account where they input their payment information. This data is kept in a secure database.
You can use Google Pay to make basically any time of online payments. You can buy clothes, food, apps, pay in stores, and even send money to somebody.
How does it work?
It works fairly easily. In stores that support Google Pay, you just need to unlock your device and hold it over the terminal until it’s through. (like with Apple Pay!)
Can it be simpler than that? You don’t even have to open the Google Pay app at all.
When it comes to online purchases, you just need to look for a Google Pay icon and press it. Easy as well.
Now, the Google Pay business model is made in that way that Google does not make significant revenue directly from it, however, it is a part of the Google ecosystem and it has huge opportunities for revenue in the future. (For instance, using your purchasing history to recommend you related products through ads)
That is how Google, on the scale that they are, operate. They did this previously with Google Maps and Google Suite.
They can afford to develop a service or a feature for many years for free, acquire hundreds of millions of users, and then collect on in after it is established.
Besides all these well-known ways in which Google makes money, they also have other projects and sources of revenue.
Some of the things that are into this other revenue are Play Store, Android, Google Apps, the Google Cloud platform, etc.
We all know and use these services, and they are not even detailed in their financial 10-Q reports.
Self-driving company Waymo was started out of Google’s X (its development facility for “moonshot” projects)
It is a fully self-driving service that is expected to become even bigger in the future. Other offline projects under the X Development facility include Google Glass which didn’t really blow up, project Loon, project Wing, etc.
In the third quarter of 2019, Alphabet properties/websites made more than 70% of the company’s revenue. These include Google.com, YouTube, Gmail, Google Play, Google Finance, and Google Maps.
Google Maps also earns money from partnering up with companies that benefit from navigation or tracking like ride-sharing companies, trucking companies, etc. Specifically, Uber/Lyft pays Google to use its maps when routing drivers around the city.
We can’t leave out Google My Business of this conversation. As I previously mentioned, Google is used to building their products a long time before monetizing off of them.
The same goes for Google my business which is a feature of pinpointing the location of your business, where you can present your products, new offers, etc. It looks like in the future, they will try to monetize off of this.
G-suite also has a portion in Google’s revenue. G-suite is the cloud platform that includes Google Docs, Google Drive, Sheets, Slides, Forms, etc.
You can pay to have an upgraded version. More team possibilities are available like shared Hangouts, shared calendar, etc, or more drive space and other advantages for a monthly fee.
Another well-known service is Google translate. It surely helps with the world’s communication. Even though the version that we use on the web is free, the feature can be used by other applications which load the translations via API calls.
Today, 2.5B devices use Android.
The super popular OS is a great indirect revenue maker for Alphabet.
With Android, Google learns your mobile usage patterns, can pre-install Google Chrome for your search habits and sell you apps through its Play Store.
Oracle estimated Google made $31B from Android since 2008.
Google makes a ton of products I love and use daily.
From search to Youtube to Adsense, Google definitely has a great grip into our daily lives.
This competitive advantage comes from its ability to invest heavily into creating great products without the need to monetize right away.
Google is one of the top four digital companies in the world for a reason.
They are not afraid to take risks when it comes to this, and at this point, they totally have the power to experiment and try to predict what the future will bring.
If you liked reading about how Google makes money, check out how other social platforms do it too:
Leave a comment suggesting another company that you would like me to cover in the next post!