Undoubtedly, Google is the leader of all search engines in the world providing users the best search experience always. It ranks 1st on the Alexa Index, proving it does its best to keep up the position.
In fact, you should admit that most of the time you use the term “Google it” instead of “search it”, right? This simply proves how greatly Google has created its mark in people’s lives. Simply, Google became the synonym for web search. Isn’t it?
Google had an 88.37% of the U.S search engine market as per September, 2019. According to research, over 2 trillion searches are made on Google per day around the world.
However, Google is not just a go-to place for web users but also an income source for businesses. Google makes a great advertisement platform for businesses to promote their services and products, so that both companies and users get benefit out of it. The interesting part is that this is how Google gets its major profit.
While Google offers free services for web users for absolutely free, most people wonder how it makes money. So, as said it is through advertisements. Yes, the ads you see in the search results, some of your favorite blogs or sites make a large profit for Google. Curious to know more about it? Then you should keep reading. This article covers the business model of Google, how Google makes money and other interesting things about the search engine giant. So, let’s get started.
How does Google Make Money?
“In 2019 we again delivered strong revenue growth, with revenues of $162 billion, up 18% year over year and up 20% on a constant currency basis,” said Ruth Porat, Chief Financial Officer of Alphabet (Google’s parent company) and Google.
Google is the leading subsidiary of Alphabet, one of the Big Four companies. The main reason for being such a successful and popular company is the free services it offers. Right from checking today’s weather to taking serious medical appointments, you rush to Google, all for free.
In fact, this is why people are more curious about Google’s Business model. How does Google make money while it is offering free services such as access to web search, Google Maps, calendar, Google Drive etc? Okay, without further ado, let’s get into it…
Google’s business model is vastly diversified. As most people think, it is not just the advertisements, or by selling its stocks or shares, there are multiple ways Google makes money. Advertisements bring 88% of revenue though. However, let’s see them in detail.
Before that you should know all the products and services of Google, so that you can clearly understand from where do this invaluable search engine get the money.
Google’s Products and Services
- Search engine – Google search
- Advertising – AdSense, Google Ads, AdMob
- Consumer services – Gmail, Google Maps, Google Drive, YouTube, Google My Business
- Software – Android mobile OS, Google Chrome, smartwatch
- Hardware – Pixel, Chromebook, Chromecast, Google Home, Google Wifi
- Enterprise services – G Suite
- Payment services – Google Wallet
Google search is a complete free service for web users. In order to help businesses reach more potential customers and users know commercial information about the products and services they look at, Google introduced Ads. There are three types of ads:
- Google Ads: Previously known as Adwords. It is an online advertising platform designed for businesses to promote products or create brand awareness. The advertisers need to pay for placing their ads on either web page results or on others websites. Advertisers should bid to create their campaigns.
There are majorly two types of campaigns again.
a. Search Network Campaign: This allows you to display your ads in the Google search results. Your ad will be displayed when the users search for targeted keywords. You will have to choose either pay-per-click or pay-per-impression
b. Display Network Campaign: This lets you display your ads on Google’s partners and members such as YouTube, Gmail, and other websites where your target audiences visit mostly.
- AdSense: It is the publisher based platform where publishers or blog or website owners can make money by renting some space on their sites.
- AdMob: This is also the same as AdSense, but here the advertisements run on mobile applications.
As said, the ads run based on bidding, Google assigns position for advertisers based on how much they bid.
However, it takes quality of content as a major consideration while ranking ads. Google is all about endless algorithms, right?
Here is how Google calculates the positions of ads.
Image credit: WordStream blog
It takes a part of fees from advertisers and publishers. In fact, this is how 88% of revenue is made from ads. Millions of advertisers bid for each set of keywords and millions of publishers pay commission to Google for displaying ads on their websites.
The revenue share ratio of partner and Google for search ads is 51 and 49 whereas for YouTube it is 11:9.
Now, you have seen how Google earns a major portion of its revenue. Now let’s see the other ways it makes money.
How does Google Make Money from its Consumer Services?
YouTube made a digital revolution in the video streaming industry. Over 2 billion people use YouTube, and makes it the second largest search engine. YouTube was acquired by Google in November, 2006 and it is one of the successful Google’s subsidiaries.
YouTube makes money from video ads, advertisers need to pay for displaying their ads on other videos. At the same time, it lets YouTubers also earn some money. Later, after the YouTube Premium version was introduced, its revenue doubled as users will have to pay money to access ad-free videos. Both the ways YouTube makes a good deal of money. Either the user pays or the advertisers.
The other services offered for users and businesses (small, medium and large) are Gmail for email service, Google Drive for offices and Google My Business for businesses. All these services are available as Freemium services, meaning available as both free and paid versions. While the basic features of these services are for absolutely free, people need to pay for accessing the advanced features. Most companies use Google’s paid products to run their businesses.
Ride sharing companies such as Uber, Lyft etc pay Google Maps for its services. Also, it earns through local search ads and promoted results.
Google Translate is also another application that is free for individuals and costs for businesses. It charges businesses for translating content to other languages. Developers need to just send the HTML documents for translation.
How does Google Make Money from its Software and Hardware Products?
Google is into everything, every niche, literally. Though hardware is not its core skill, it even entered into it and started growing. It designed Pixel phones, Chromebook, Chromecast, Google Home for assistance, Wi-Fi, self-driving cars, etc. Google acquired several technology companies to help people solve their issues through technology. Though its products such as smartphones or other devices don’t sell as its competitors sell, it is at least not in a loss but still struggling.
It is estimated that Google makes no less than $2 billion from its hardware business.
Coming to software products, Google is basically one of the tech giants, it designed the Android mobile operating system, Google Chrome, smartwatch software called Wear OS. Though it doesn’t get a huge amount from the browser Google Chrome, it can still manage its expenses.
Google also earns from domain registration service, Google Domains. Google Domains works almost similar to other domain registration services like Godaddy.
How does Google Make Money from its Enterprise Services?
G Suite is available from USD 6 to USD 25 per month based on the requirements for small to large enterprises. G Suite includes Gmail, Google Sheets, Google Docs, Google Slides, Google Calendar, Google Hangouts, Google+, Google Calendar and Google Forms.
Nearly 12670 companies including Google, Netflix, Uber, Twitter, Spotify etc use G Suite for running their business smoothly.
Is Google’s Business Model Sustainable in the Long Run?
Nothing is easy in this world, especially in this digital era with tough competition everywhere. In the same way, Google also made a few flop decisions such as acquiring Motorola Mobility. It acquired it for $12.5 billion in 2012 to grow it but later in 2014, it sold it for Lenovo for $3 billion which is not even quarter of its acquisition price.
Also, there are services that have scope for earning, but it still offers them for free. One such service is Google Pay.
Google’s payment service Google Pay, formerly known as Google Wallet also doesn’t make any money like other free services. It just lets users and merchants send and receive money for free. However, there is a huge scope for Google to make money from it. It can either charge transaction fees from merchants, or banks and also through ads and product offers.
Despite all these, Google is still one of the best players in several domains around the world. As you can see in the above lines, the major revenue comes from ads. Moreover, it feels that it is providing users the best experience in finding the right fits (either product or service) through ads. Also, it always tests new features to improve user experience. So, until it remains successful in delivering quality for users, its business model is sustainable.
So, this is all how Google makes money. It’s business model is a little hidden but also transparent. Secret because you don’t know how much other advertisers bid for their campaign and how many hardware & software products it sells exactly. All it is clear is, it makes nearly 88% of revenue from Advertising and the rest from its other products and services. Hope you have got a clear understanding of Google’s business model.