Industrial Business Model

Google Business Model | How does Google work

google business model
Written by kishan

Google”, a worldwide known search engine has enormous traffic on it every single day. Every day billions of search queries are made on it. Google’s search technology is purely based on various algorithms of search rankings. But how does Google work? What is it’s business model?

Google’s Business Model is not only making Google earn out of it but it also helps common people to earn out of it. Today, almost all the countries in the world rely on google to search anything they want to. Whether it be online shopping or nearby stores or something about their knowledge brush up.

According to the founders of Google, Larry Page and Sergey Brin, they wrote in a letter saying that they found google because of a belief to provide relevant information instantly to the end-users. With this perspective, they also made Google available in 90 different languages.
If they wouldn’t have thought this way, Google would surely not have been what it is today.

Though Google started with an internet search engine, today it has become a technology giant for about 50 different services. Services like Email, Online Document creation, software, online cloud computing, payment gateway, etc. But even above all these services, the search engine still remains the first in traffic grabbing about 70% of the internet users worldwide.

Google’s search engine has ranked number 1 in the Alexa index and hence is the leader in search engine usage. One more thing to be noted here is that “Google” has now become a synonym for web search. People say “Google it” instead of search it.

The size of the company and its vast product portfolio makes Google one of the top four most influential technology companies in the world, keeping company with Apple, IBM and Microsoft.

So this was all about Google. Now the question arises that Google has provided all it’s services for Free. How does Google make money? What is Google Business Model?
Let’s take a roller coaster ride to the Google Business Model.

Google Business Model

Advertising has always remained a main source of income for Google. Even today advertising remains the primary focus. Other than advertising, google also earns from its productivity tools like Gmail, Google Drive, etc.

As per the last report in 2017, Google earned about 90 billion dollars out of which 86% of the revenue was generated from Advertising.

So Google basically follows an Advertising Business Model.

Google Advertising Business Model

There are two categories under Google’s Performance Advertising:

  • Google Adwords
  • Google AdSense

Google Adwords

Google Adwords is an Auction based service where users bid on the keywords relevant to their business and their ads are shown on search results above Organic Results. Under this model, Google shows relevant ads to users in accordance with their search results.

When the user clicks on the Ad shown in the search result, the amount gets deducted from the Adwords account of the advertiser. Hence on the basis of Pay per click, Google earns cost per click. Below is an example of the same.

Similarly, the shopping Ads are shown on Google Search results when a user searches for any product on google. Below is an example of the same.

Google Ads Example

Google AdSense

Google AdSense is a platform where a website owner can also earn from the small space of it’s website given to Google to show ads. This is also known as Display Ads. Here Google generates when a site visitor clicks on the Ad shown to them.

One such example of Advertisement is shown below.

Display Ads Example

Under this model, even the website owners can take the benefit of monetization.

Other than advertising on websites, Google also allows video ads on YouTube. When a YouTuber enables monetization on their channel, an Ad is shown before their video plays. With this model of Google AdSense both Google and the YouTuber earns. Hence, AdSense is also known as the Network members property.

While laying out the advertising model, Google looks at two critical metrics:

  • PPC : Pay Per Click
  • CPC : Cost Per Click

Pay Per Click:
Here the advertiser pays the publisher(Google Adwords) to show the ad in the search results. The advertiser bids on target keywords relevant to their business. The best part is, an advertiser has to pay to the publisher only when a searcher clicks on their ad. Hence the name says Pay per click.

PPC is broken down into three different categories:

  • Paid clicks on Search Engine
  • Paid clicks on Google’s properties
  • Paid clicks member’s network

Cost Per Click:
Cost per click means the click driven revenues divided by the total number of paid clicks. This is the average amount that Google charges advertisers for respective keywords in Google Adwords.

Why do people invest in Google Advertising?

There are several reasons why advertisers are spending continuously on Google Ads:

  1. Competition for services in the market
  2. SEO takes time for Keyword Rankings
  3. Flexibility in choosing keywords to spend on
  4. Lead Generation
  5. Increased Click through rates
  6. One stop solution to target required locations
  7. Brand Awareness

With all these advantages, along with SEO for Organic Results, businesses are now spending on Google Ads to grab searchers attention and the publishers are also earning 85% of the shares to show ads on their websites or YouTube with the help of Google AdSense.

YouTube and Google Ads:

YouTube was acquired by Google for about $1.7 billion in 2006. It makes money through advertising and subscription revenues. YouTube advertising network is a part of Google Ads, and it generated more than 15 Billion Dollars in 2019. YouTube recently started its paid memberships and premium content which is also a source of revenue for them.

Other Side of Google Business Model:

Other than all the revenue sources mentioned above, Google also generates revenue from:

  • In App Purchases & Play Store Ads:
    • Google launched In-App purchases in the Play Store in 2012. The reason all the Android Apps are launched in the Digital Distribution system via Google on the Play Store.
  • Cloud Storage
    • Google’s G Suite services have especially collaborated with machine intelligence and hence making people work smarter instead of struggling hard.
  • Hardware
    • In March 2015, Google launched its official hardware store online called “Google Store”. This store comprises Google hardware and accessories like Google Pixel (Smartphone), Google Home, etc.

Further, in 2015, Google founders announced an umbrella company Alphabet Inc. With this announcement, Sundar Pichai took over as the CEO of Google.
Alphabet Inc was introduced as a result of corporate restructuring to make Google slimmer and limited to only internet services.

Conclusion:

Google’s journey clearly concludes that a reliable Business Model is a must for every business and if you do not have a Business Model, you simply don’t have a Business.

Google has a diversified business model where in it is primarily making money through its advertising networks(Google Ads & AdSense) that generated over 83% of its revenues in 2019, which also comprise YouTube Ads. Other revenue generators include Google Cloud, Hardware, Google Playstore, and YouTube Premium content. In 2019 Google made over $161 billion in total revenues.

Google has built an ecosystem that allows it to monetize in many other ways. Google Play is an app store where users can download anything from apps to music, books, and movies. The model is based on revenue shared with developers or publishers, based on an 85-15 split, where the developer keeps 85% of the revenues, while Google retains the 15%.

Read more about other Business Models here.

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kishan

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