Ranked at #73 on the 2012 Fortune 500 list, Google takes a backseat to only one other company in its industry. With Amazon.com (ranked at #56) as the only website raking in higher revenue numbers, it’s no secret that Google is thriving.
So how exactly does Google make its money?
The Money Maker:
Google’s advanced search algorithms and innovative approach to technology have had a huge impact on its rise to the top. But the search engine giant has proved itself to be just as business savvy as anything else and through a highly effective, dual revenue strategy Google has advanced itself far beyond just a search engine.
This two-pronged revenue strategy is designed to maximize profits from one single source of income: advertising. And with advertising income accounting for a whopping 95% of Google’s total revenue, it’s safe to say the strategy is working.
Google’s Flagship Product:
Between the text-based ads displayed on Google’s own website and the video ads it posts on subsidiary sites (i.e. YouTube), Google AdWords’ pay-per-click services brought in just over $30 billion last year.# As the first prong of its advertising strategy, AdWords continues to be the backbone of Google’s operation.
The cost-per-click business model that AdWords is built on consists of three steps: 1) an advertiser creates a text-based ad 2) Google posts this ad on one of its websites 3) advertisers pay Google based on how many times a user clicks that ad. This same formula is applied to AdWords for Video. For ads posted on YouTube, Google offers TrueView Video Ads, a format that lets viewers decide whether or not to watch a full ad. And like the pay per click model, advertisers only pay when their ad is viewed.
It’s a Win-Win:
On the flipside of Google’s revenue strategy is a service called AdSense, which added $12.5 billion to Google’s total advertising revenue for 2012.
Through the AdSense service, websites that are not directly owned by Google can host AdWords ads and share in the profit. For example, if you run a fashion blog and Google has an advertiser with an ad for a clothing sale, Google can maximize that ad’s exposure by posting it on your site. As part of Google’s network, your blog would then share the “Cost per Click” revenue with Google every time a user clicks on that particular ad. Google-branded ads gain an expanded presence and you pocket a little cash as well.
Here’s where it can get tricky. In terms of advertising income, Google does not officially distinguish between their traditional revenue streams and their mobile platforms. But according to CFO Patrick Pichette, Google’s mobile business brought in $8 billion last year with the “vast majority” of that coming from mobile ads.#
So if mobile ads are included in the 95%, that still leaves 5% unaccounted for. This 5% is simply categorized as “Other” within Google’s financial reports. But what exactly makes up this “other?”
According to Google, the rest of their revenue comes from various ad consultation services that they provide to advertisers and ad agencies.# Google’s Android platform, along with its acquisition of Motorola in May 2012, allows them to turn a profit on Mobile Devices as well.
How Google’s Revenue Strategy Benefits You
As a Google user, we get free access to multiple web resources like Gmail, along with a plethora of mobile apps such as Google Local and Google Maps. Google doesn’t charge us for any of these because our usage is enough to impact their bottom line. The more Google products we use, the more exposure we have to the ads that they post. And click-by-click, that converts to some serious cash.
So click away! Google isn’t going anywhere.