How Does Google Make The Big Bucks?
Google is a company at the top of its game: while they have had a few missteps, generally they have a Midas touch which turns almost every project they create to gold. That is reflected in their bottom line, and year-on-year they continue to churn out record profits while still maintaining services that are (for the most part) free and user-friendly.
That has led many to wonder exactly how they do it—how do Google make so much money when most of their services are free at point-of-use? It is easy for laymen to see why Apple is worth so much because they are selling high-end electronics, but Google’s business model is a little more nuanced and requires a little more attention. They have their hand in multiple ventures which directly and indirectly fatten up their profit margins. Here are just some of the ways Google products turn a profit:
Google’s Search EngineGoogle’s primary product is its eponymous search engine, which is one of the most visited websites in the world and dominates the search engine market worldwide. While Google offers use of the search engine for free, they still make 70% of their overall profits from search alone. How do they do it? The answer is simple—advertising.
Google AdWords is Google’s most profitable subsidiary, as within just a few years it has allowed Google to completely reshape online advertising. Let’s take the imaginary ‘Lola’s Bakery’ of San Francisco as an example. Prior to the AdWords model, the owners of Lola’s Bakery would have based their online advertising efforts on placing ads on pages where they would guess potential customers would visit: popular cookery blogs for example.
There is however no guarantee that people who visit popular cookery blogs need a bakery or indeed are from San Francisco. Enter Google AdWords. Through buying the top link on a Google search for ‘bakery in San Francisco’, Lola’s Bakery can maximise profits because they can target their advertising extremely specifically: they can aim for locally (through the search term San Francisco) and they can aim for people who actually have need of a bakery. This is what makes AdWords so great for advertisers and that is what makes Google so much money through pay-per-click advertising and sponsored searches.
Advertising throughout the web
Google aren't just the masters of advertising through their own website, they also use their Google AdSense service to connect ordinary website owners with advertisers—and then take a slice of the profits for themselves. Instead of slowly researching and targeting websites where they would like their advertisements to be placed, companies can use Google AdSense and save themselves time and effort.
Best of all, Google uses their expert algorithms to make sure the ads are placed on websites which best align with the demographics desired by the specific advertisers. It is a win-win-win for website owners (who make money by selling advertising space), advertisers (who save time and get targeted ads) and Google (who take a percentage of the profits).
Google’s advertising monopoly also extends to YouTube, which also as one of the world’s most popular websites makes a killing from advertising. Pre-roll ads are big business for popular channels, allowing content innovators to make money and again allowing Google to take a slice of the advertising profits for themselves.
Google has also found ways to turn problems into profit: while previously YouTube took down videos that featured copyrighted songs, they now simply overlay a link on the video where the viewer can buy the song from iTunes. This makes the previously unhappy record labels money, makes money for Google, and gives YouTube users more freedom to create content.
Google’s mobile platform Android may be free to license, but they have designed the mobile operating system in such a way that they can make profits from it indirectly. For example, Google receives a cut of every App and media sale on an Android device via Google Play. In addition, Google services such as the search engine and YouTube are default items on Android devices, meaning that Google is feeding advertising traffic to itself to further make money from its ostensibly ‘free’ operating system. This is an important part of Google’s long term profit plan—as clear wireless internet service spreads across the country, more and more web surfing and search is taking place on mobile internet. By cornering this market, Google is making sure it will be profitable for years to come.
In short, Google makes money largely by providing services that it knows will be popular—and then monetising them in ways that do not affect customer-friendliness. This is why Google can make so much cash while offering good service, and this is the reason why Google will continue to be profitable well into the future.
This is a post by Ashley Williamson. Ashley is a freelance writer and an occasional guest-blogger and a huge tech enthusiast. When she is not working on any projects she likes to travel and discover hidden places around the World.