How Google Makes Money
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You know your company is doing pretty well when its name has become a verb to describe something everyone does multiple times a day. There are few better examples of this than Google. Of course, we don’t search for information on the internet; we google it. Through the process of googling and Google’s other ventures, the company earned $31.9 billion in the fourth quarter of 2017.
Now, for a company that seemingly offers many of its products for free, that’s a crazy amount of money, right? Well, the thing is, it’s Google’s “free” products that actually make it the most money. If you go back to the 4th quarter in 2017, Google made $27.2 billion of that total $31.9 billion through advertising revenues. In other words, the products you use for free – the Google search engine – is making Google $27 billion a quarter.
Google has been diversifying over recent years, with products such as Google Play Store, Pixel phones, Google Home Speaker, and Chromecast, but all of these products pale into insignificance against Google’s advertising activities.
How Does Google’s Advertising Work?
Google’s advertising is split into three main operations, Google Ads (formerly Google AdWords), Google AdSense, and Google AdMob.
Google Ads is probably the primary way we think of Google making its money. These are the advertisements that feature at the top of Google’s search engine results pages (SERPs). When you type a query into Google, you will generally see at the top of the results page 2 or 3 listings with the word “ad” next to them.
While the results below these ads feature in the rankings organically, the adverts work a little differently. Companies can bid money to feature for certain keywords, and when users click on the adverts, the company pays Google whatever its bid was. With some of the most expensive keywords like “business services,” this can be the best part of $60 every single click!
If “business services” gets 1,000 searches a month, and 50% of the people click on the ads, that’s $30,000 a month, just from one keyword.
Another form of Google advertising you’re likely to see as much if not more than Google Ads is Google AdSense. AdSense allows website owners to partner with Google to show advertising on their own websites.
Just like with Google Ads, companies bid to feature in these adverts and when a user clicks on one of these ads, Google gets paid. In this case, Google will pay out a percentage of that fee to the website owner, but in return, Google gets to put its ads in front of millions more people.
Google AdMob works in a similar way to AdSense but for applications rather than web pages. AdMob allows developers to make extra income from their applications while expanding Google’s advertising market.
Why is Google’s Advertising so Successful?
Google’s advertising is so successful because the use of its products is so ubiquitous. There are millions of people using Google’s search platform every day, and importantly, they’re divulging important information about themselves every time they make a search. This allows Google to enable advertisers to target specific people with their advertising.
A Huge Audience
It’s estimated that 63,000 searches a second are made on Google on any given day. Simply through scale, Google gives advertisers the opportunity to reach a massive audience – and this number doesn’t include AdSense! Everyone with an internet connection is going to be exposed to a Google ad at some point; it’s simply unavoidable.
Unlike traditional methods of advertising, there isn’t limited ad space. With TV, there are only so many advertising slots, but with pay per click advertising on Google, there are unlimited keywords you can bid for. This gives more flexibility when it comes to working with a budget.
You Only Pay When Someone Clicks
Another big benefit of pay per click advertising is that (as the name suggests), you only pay when someone clicks. If you take out an advert in a magazine, you pay your money, but you can’t be sure anyone is going to read your advert. With Google, you only pay when someone clicks on your advert, so you know your advert has worked to some extent.
If you’re not happy with knowing that your advert worked to some extent, then don’t panic. Google gives you all the tools to track exactly how your advertising is performing. You can tell how many clicks from your adverts turn into sales, and easily work out KPIs making Google Adwords management very effective.
Google gives you the tools to know exactly how your advertising is performing.
Highly Targeted Advertising
One of the major reasons Google advertising is so appealing is the ability to reach your target customers in your target locations at the point where they are looking for your product.
Google gives you the opportunity to be the first result that a person sees, and this is incredibly valuable to advertisers. If you’re selling pocket watches and your ideal customers are men aged 55+ in South Africa, then using the tools provided by Google, you can be sure that when a 58-year-old South African types into Google “buy pocket watches”, you come up.
Google is obviously a huge company with a big portfolio of business operations; however, it’s still advertising that earns the vast majority of its income. Google might offer many of its products for free, but it’s certainly making plenty of money behind the scenes.
When you search something in Google, you get a free service, but any time you click on those top results with the word “ad” next to them, someone is paying Google. When you scale this up to the level Google is at, you can soon understand how this works out at $27 billion in a single quarter.
You might think that’s a crazy number, but, at the end of the day, Google are offering advertisers huge value and for that reason, Google is going to continue to make huge sums of money.
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