How does Google make money?
Like many of those who are looking for ways to make extra money online, you may be keen to find answers to the above query and this page will try to do exactly that.
It all started in a garage in 1996, when Larry Page and Sergey Brin created their first search engine while experimenting with links and the World Wide Web to create a digital library for a Stanford research project. Instead, they created a multi-billion dollar industry that revolutionized the way we search for information.
Thereafter, the search engine underwent several changes and improvements and finally ended up being the 800-pound gorilla of search engines, earning billions of dollars each year. In 2011, for example, Google earned around $37 billion and its 2012 revenue is reported to be $50 billion. But where does all this money come from?
How does Google make money???
The majority, around 96%, of Google’s revenue comes from targeted advertising. The search engine has two faces of it’s advertising platform, namely Adwords and Adsense, in which it serves advertisements:
Adwords: makes up about 70% of Google’s advertisement revenue. It is an advertising service, which was introduced in 2001 that lets advertisers promote their products or services for people who use Google to search for information.
Google had an advertising program prior to Adwords. However, it was not a self-serve program, lacked a lot of advanced features and did not generate enough revenue for Google. Therefore, it wasn’t serving Google’s or its client’s needs.
Consequently, they borrowed a few ideas, added their twist to them and reformed their advertising service into a complete, full-fledged program, Adwords.
Soon after it was launched, it became one of the most popular and most predominant advertising programs on the internet. Not to mention, the biggest source of revenue for Google.
Basically, the program works by giving advertisers a venue to display ads to a targeted market. The vendor creates their accounts and selects keywords that best describe the product for which they are creating the advertising campaign. Then, when someone is doing a Google search using those keywords, Google displays the ad from that campaign.
The vendor is responsible for writing their ad text and adjusting their campaign settings. For example, they will set how much they want to pay per click and what information they want displayed on their ads besides text—such as a phone number or reviews. Then they get to set how much their maximum budget is and submit their billing information.
Adwords is an auction-based program and the highest qualified bidder gets the highest ad position. Ad position controls where your ads will be displayed on a page compared with other ads. Higher ad positions lead to a lower cost to you and more visibility for your ads.
However, whether or not you’ll get a higher ad position is determined by your quality score (how relevant your ad is to users), your max bid amount (the maximum amount of money you’re willing to pay per click) and your ad rank (the quality of your ad in relation to other ads).
So once the ad goes live, anytime people do a search using the campaign keywords, they’ll view the ads alongside the search results either at the right hand side or at the top on the page.
The advertiser is then charged a certain amount per click depending on the maximum bid amount, the CPC cost of the chosen keywords and other factors. The amount they could pay for a keyword can range anywhere from a few cents to tens of dollars per click and there have been instances where companies paid over $50 per click for some expensive keywords.
“To innovate is not to reform” ~ Edmund Burke
Now the idea of ranking ads by quality or charging per click, is not groundbreaking. However, it is unquestionably innovative and has revolutionized the way we get our message in front of our target market.
Traditionally, you had no control over who would see your ads and weren’t able to measure your results easily. The only way you could advertise was to force ads on a cold audience who probably had no interest in what you were promoting.
On the contrary, Adwords allows you to tailor your ads to your target audience, measure your results easily, target a very specific group of people with your ads…and, most importantly, your ads are shown to users while they search for information related to your products; making them more likely to be interested in your offers. For example, someone searching “cat abscess” is highly likely to click on an ad for say, a guide for treating a cat abscess at home.
Adsense: is responsible for more than 20% of Google’s advertising revenue. It is a network of online publishers who let Google place advertisings on their content, and in turn receive compensation.
In Google terms, publishers are website owners who publish content on their websites, be it a mobile website, a forum, a video site, etc.
Publishers need to submit an application to Google first and get approved before being able to put up advertisements on their content.
Once approved, they are given a snippet of code to place on their website so that Google will be able to determine the topic of their website and decide what type of ad is relevant based on the topic.
After that, advertisements will start showing on their site and they get paid a certain amount per click whenever someone clicks on an ad.
Revenue from other sources
Aside from search advertising, Google also has several programs, services and products from which it earns revenue. One sources of revenue is by placing advertisements on its subsidiary products and websites such as Gmail, Google+, Google Earth, Google Maps, etc.
Another source of revenue is by selling premium accounts such as apps, email accounts, analytics and other tools and services. Those tools are considerably popular and have a huge user base; as a result, the revenue from these sources adds up pretty quickly.
In addition to these, it also earns revenue by licensing search capabilities to search engines and websites that want to provide their users with the ability to search for specific information within the site.
How does Google’s revenue add up to billions of dollars?
It’s not a coincidence that Google rakes in billions of dollars each year. Its effective marketing strategies coupled with high quality service and a wide user base enables Google earn a staggeringly unbelievable amount of money.
First, it provides an unmatched quality of service in its advertising capabilities, but also in its search programs.
When it comes to search engines, Google has an effective algorithm that provides users with search results in which they find exactly what they’re looking for. Its advertising algorithm then matches search results with advertisements that are relevant to the information users are searching for. This makes it easy for advertisers to reach a targeted audience quickly. Consequently, Google is liked by users and advertisers alike.
Besides, Google uses various strategies to increase its user base such as by offering a number of online tools and services—for free—to create brand awareness and attract more users and customers.
Chances are, if you’re asking “how does Google make money?” You were probably assuming that it earns revenue by selling personal data, or by charging website owners to be included in search results.
Those are common misconceptions among people who have no idea how the search engine makes money. Google doesn’t have paid subscribers nor does it sell data or charge royalties. Their main goal is to connect sellers with buyers through advertising. They implement effective marketing strategies to attract millions of users and they provide them with a high quality service. Everything else just falls into place for Google.
So, How Does Google Make Money?
As you’ve observed above, the main source of Google’s income comes from targeted advertising which is in the form of pay per click where advertisers pay only for every click or successful click-through conversion from a Google property or partner website into the advertisers’ websites.
They also make money through subscriptions and sales of their other products and services but still the largest pie of their profits comes from advertising revenue which is huge by any measure.