How Google Make So Much Money
We all know that Google is one of the most successful brands of the 21st Century and has fundamentally altered the way Westerners utilise the internet. This blog post will explore the firm’s core revenue sources.
Advertising is Google’s primary revenue source and accounted for 86% of total revenue in 2017 (Cuofano, 2017). Google currently has two main systems by which they create revenue through advertising.
The first way is through Google Ads (previously known as Adwords) in which advertisers bid on certain keywords in order for their clickable ads to appear in Google's search results (WordStream, n.d.). For example, Apple may bid on the keyword ‘Laptop.’ As this is likely a very popular keyword to use, Apple are required to pay a large amount of money to outbid their competitors and appear as an ad in search results for that term. Apple are then required to pay that bid price for each time their ad is clicked on. This is known as Cost-Per-Click (CPC) advertising. Google Ads’ revenue model allows them to increase revenue indefinitely based on the demand of particular keywords. Keywords such as ‘Casino’, ‘Lawyer’ and ‘Business Services’ can cost more than $50 per click (Kim, 2018).
The second channel by which Google generate advertising revenue is through Google AdSense. Similarly to Google Ads, AdSense is a CPC advertising style however there are several differences. AdSense acts as a middleman between website owners and advertisers by providing the means for web developers to place ads on their site without directly seeking advertising partners. The advertisers pay Google to show their ad, subsequently Google pay the website owner a portion of this initial CPC fee (Google, 2019).
One of Google’s many secondary revenue streams is their hardware channel. This is revenue produced by the sale of products such as Pixel phones, Google Home devices and Google Chromecast. In FY 2018-19 Google’s ‘other’ revenues which includes its hardware operations reported a revenue increase of 40% to a total revenue of $6.2 billion (Ingraham, 2019). This represents a fairly small portion of Google’s revenue at about 16% (Alphabet, 2019). Compared to their advertising revenue, the manner in which Google makes profit off hardware is fairly straight-forward. Selling hardware allows Google to incorporate individuals into their ecosystem (as if they aren’t already) in a more tangible way.
Google has maintained their position as one of the world’s largest digital businesses in part thanks to their continuously diversifying sources of revenue.
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Cuofano, G., 2017. How Does Google Make Money? It’s Not Just Advertising!. [Online] Available at: https://fourweekmba.com/how-does-google-make-money/ [Accessed 6 September 2019].
Google, 2019. Google AdSense. [Online] Available at: https://www.google.com/adsense/start/ [Accessed 6 September 2019].
Ingraham, N., 2019. Google's hardware division is recovering from slow Pixel 3 sales. [Online] Available at: https://www.engadget.com/2019/07/25/alphabet-google-q2-2019-earnings/ [Accessed 6 September 2019].
Kim, L., 2018. Here Are the Top 10 Most Expensive Keywords on Google. [Online] Available at: https://medium.com/marketing-and-entrepreneurship/here-are-the-top-10-most-expensive-keywords-on-google-aaf3773479eb [Accessed 6 September 2019].
WordStream, n.d.. What Is Google AdWords? How the Google Ads Auction Works. [Online] Available at: https://www.wordstream.com/articles/what-is-google-adwords [Accessed 6 September 2019].