Google is a global entity and one of the most profitable and powerful companies in the world. Its reach stretches even into isolated countries, and its browser and search engine are the world’s most popular.
However, if you really think about it, that’s all Google is: a browser and a search engine. They do have other formats and other businesses that they have expanded into, but the core of Google remains those two things.
The problem with these two is that it is kind of hard to understand how they can make any money. Sure, they have a reach that is equivalent to billions of people, but there is no definitive business model or a clear product that they sell with cash value.
So, how do Google make their money? Is it easy to replicate? In this article, we seek to answer these questions and give you the rundown of what exactly Google is doing to get their capital.
How Does Google Make Money?
There is a very simple answer to this question, and that is advertisement. Google makes most of its money through advertisement.
This may seem strange, we mean, how exactly could a search engine make money through advertisement? Well, the answer has to do with how SEO (search engine optimization) works.
SEO, or search engine optimization, is the ability of a website to make it onto the first page of results of a search engine when certain words or phrases are searched for in that search engine.
For example, if we were to type into the Google search engine: ‘Best hikes in Zion National Park’, then the first website to come up would be the Utah National Park service website.
This is because, according to the metrics, most people clicked on this website when they were searching for this park, as it has the most concrete information or people enjoyed using it the most. This creates a little problem for smaller websites.
See, if you were a blog based website that explored hikes in Utah, you would never be able to make it to the front page without increasing your SEO.
The problem is, you have to be able to understand what content or words are being noticed by the search engine algorithm in websites to make them first page worthy, which is very difficult to do.
Since SEO is hard to do, Google offers to advertise the website for a fee. Google will show an ad for the website when the relevant phrase has been written on the first page. The fee is based on a bid-based pay-per-click system.
The business who wants the advertisement will set a maximum amount they’re willing to bid and spend per day on an advertisement.
The algorithm will then place these ads in order of preference for the relevant searches based on who bid lower or higher. Once the daily budget has been reached, the adverts automatically stop.
Due to the nature of this system, it does make it difficult for small businesses to have their advertisement shown, but it also provides Google with a huge revenue stream.
Big businesses will throw a lot of money at their bids, just to secure top spot, which makes Google a tidy sum.
Why Does Google Use Advertising?
There are a couple of reasons why Google uses advertising across its platform. The first is that it is incredibly lucrative for Google themselves.
The advertisements that they put into their search engine make more money than any other revenue stream they have combined.
To put it into perspective, let’s show you how much Google search engine makes and how much the others do.
So, the Google revenue products – excluding the search engine – are: Google Network Members, YouTube advertisement, Google Other, and Google Cloud, and these products make a combined $108.50 billion.
Google search engine advertisements alone make $148.95 billion. That is $40 billion dollars more than everything else combined, and it really shows why Google keeps using advertising as a revenue stream.
Another reason is that everyone makes money from this system. Google gets paid for the advertisement, the owner of the website that is advertised makes money from people visiting, and the advertisers on said website make money because people buy their product.
Since everyone is making money all round, people don’t really have a problem with this system, only the amount they may be paid.
How Does Google Measure Its Advertisement Performance?
Google uses two key metrics to measure its advertisement performance. The first is the change in percentage of paid clicks, and the second is the cost-per-click.
The percentage of paid clicks is the type of advertisement we mentioned earlier. This will measure what ads people are clicking on, how much money Google is making per click, and how much they are charging advertisers on average per click.
The cost-per-click metric is based on ads that Google places on the websites themselves. Some websites would Google AdSense to make money, and this would be where Google places ads on a website for the owner.
Google and the owner would split how much money is made from this advert, especially if someone clicked on it.
By calculating the differences between these two metrics, Google can see on average what adverts made them the most money, the average people were spending on adverts, and which types of advertisement fell short of projections.
In this way, Google can adapt its advertisement and its way of making revenue to make it more efficient and to make the most from their revenue stream.
Google uses advertisement to make its money, and it is by far the biggest revenue stream for the company.
In total, it makes about $148 billion from adverts, and it is quite clear that without them Google would not be as powerful as it is today.
However, this revenue stream is also a way for websites and businesses to make money as well, if they get in on the act.