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How does Google make money?

Google is one of the most recognized brands in the world. In fact, searching for information on the internet is known as googling, such is the popularity of the brand. In 2017, Google made a revenue of $109.65 billion[i]. The remarkable fact is that Google does not charge any money from its users. Almost 96% of Google’s revenue comes from advertisements[ii].

Ad Business[iii]

Google’s ad business revolves around AdWords and AdSense. AdWords is Google’s proprietary software which decides which ads are displayed on the Google webpage. AdSense publishes ads on other websites. One more application AdMob displays ads on mobile phones.

The beauty of Google’s advertising efforts is it tracks everything you do online and shows you advertisements relevant to your web browsing. For example, you may have been searching for hotels in Thailand on Google. You then open some other website. You would see ads on Thailand hotels and Thailand travel packages on the other sites you visit. This happens because Google tracks your search terms and shows you relevant ads. This is why advertisers are willing to pay Google money for displaying ads.

How it works

AdWords operates on a concept known as ‘cost per click’. The advertiser puts an ad without any obligation. When someone clicks on the ad, the advertiser then has to pay. Every click on the ad is a potential lead for the business placing the ad. So it makes sense for them to pay for each click. You must remember that millions are browsing the internet and even if a small percentage of them click on ads, it translates to huge money as ad revenue for Google.

Ad auction

There would be hundreds of businesses paying Google to show their ads. Taking the same example as above, you would be shown ads of Thailand hotels? But, which hotels? Google has an algorithm that conducts an online ad auction. The highest bidder’s ads are displayed first and the others below.

Android revenue

Thanks to Android, Google dominates the mobile operating system market. Google earns millions as revenue from the Android mobile apps. Whenever someone buys an app, Google gets around 15% of that amount. The Google Play Store is a source of revenue. Whenever anyone downloads music, books or a paid app, Google gets 15% of that revenue.

It is estimated that Google earns $31 billion as revenue from Android. This figure is not from Google but has been revealed by Oracle which has filed a suit against Google[iv].

Other revenue sources

Apart from ads, Google has other sources of revenue[v]. These include:

  1. Hardware: Google sells smartphones and devices like Google Glass.
  2. Google Cloud: Cloud services are offered by Google. This is a source of revenue as there are many businesses that pay to use Google’s cloud services.
  3. G Suite: These are productivity tools offered by Google comprising Gmail, Google Docs, Hangouts, etc. These services are priced for business and many businesses pay to use these services due to the many advantages it has.
  4. Other sources of revenue include internet and TV services and licensing.

Google offers many services to customers. But the primary source of its earnings is from advertisements. It makes billions every year through advertisements.

[i] https://www.statista.com/statistics/266206/googles-annual-global-revenue/

[ii] https://www.investopedia.com/stock-analysis/2012/what-does-google-actually-make-money-from-goog1121.aspx

[iii] https://www.problogbooster.com/2014/06/how-google-makes-earns-money-generate-revenue-billions-by-free-gmail-search-engine-mobile-advertising-apps-per-second-globally.html

[iv] https://www.androidauthority.com/how-does-google-make-money-from-android-669008/

[v] https://www.investopedia.com/articles/investing/020515/business-google.asp