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How Does Google Make Its Money?

By Greg McFarlane | November 22, 2012 — 10:21 AM EST

How does Google (Nasdaq:GOOG) make money? No less an authority than the company's CEO
posed the question, hopefully rhetorically, in a recent letter to shareholders.
Or as the company's annual report succinctly puts it, "We generate revenue primarily by
delivering relevant, cost-effective online advertising."
There was a time, not that long ago, when Northern Light and Ask Jeeves were the default search
engines of choice for many people. But within a couple years of its 1998 incorporation, Google
went from a burgeoning upstart company to verb status - almost a genericized trademark. How
did this happen?
In a word, AdWords. In some respects Google is essentially the world's largest bus shelter,
deriving 96% of its revenues from ads. That's what separated a nascent early-2000s Google,
known primarily as a search engine, from its competitors. Google's founders realized that if
people were going to visit the site and enter a term in the search box, they wouldn't be landing on
the subsequent page by accident. Thus they'd be motivated to buy a product from any advertiser
sharp enough to place an ad there.
How Google Profits Off You
Say you run a small company - a bakery located in Topeka, Kansas, for instance. It's safe to say
that people who would Google the words "Topeka" + "bakery" would likely patronize your
business. Buy an ad on a page that'd be visited only by people who are looking for a Topeka
bakery, and you're targeting about as accurately as it's possible to target a potential clientele.
From a Google customer's perspective (defining a customer in the traditional sense, as someone
who gives the company money in exchange for its service), this is a proposition with little risk.
AdWords typically operates on a cost per click basis, meaning that an advertiser can place an ad
with zero obligation. If no one clicks on the ad, the customer doesn't pay a dime.
A Revolutionary Business Model
The traditional advertising media - radio, television, newspapers et al. - were and are incapable
of drawing a distinction between patrons looking to generate traffic, and those looking to make
the public aware of their brand. A static general-purpose ad can't tell who's actively in the market
for whatever product it's selling, and who's just passively sitting there. To accommodate the latter
- people who aren't ready to buy, but who might otherwise keep your competitors top-of-mind Google lets you pay per impression. That means that the moment a Google user accesses a page
on which an ad appears, Google charges the company that placed the ad. Which also literally

doesn't cost a dime, but that's a function of the small amounts involved. A typical such agreement
allows several views of your ad for less than a penny.
From the perspective of Google's shareholders, it gets even better. This is all based via auction.
Would-be buyers of AdWords bid for the right to use a particular ad, or phrase. Overpay, and
Google enjoys a high markup. Underbid, and you risk losing the auction to a more motivated
But Wait, There's More
But AdWords is only one prong of Google's dual revenue strategy. A related and similarly named
but different service is AdSense.
Rather than having ads appear on search pages accessed upon visiting, AdSense
allows owners of other websites to join Google's network and run Google-branded ads. Google's
algorithms do all the work, too. Sign up for the network and your website devoted to Bikram
yoga might end up running ads for mats, props, etc. Companies that pay Google to run those ads
indirectly benefit site owners who use AdSense.
According to Google's income statement, about 70% of its advertising revenues come from
AdWords, the rest from AdSense.
What makes Google's success so remarkable is that so much of this is accomplished without
contracts. The company derives almost all of its revenue on at at-will basis. As Google's own
annual report states, "Our advertisers can generally terminate their contracts with us at any time."
While 96% of Google's revenue comes from advertising, the company is so big that that still
leaves $1.5 billion unaccounted for. Again, quoting Google's annual report, "[Google] derive[s]
most of [its] additional revenues from [its] enterprise products, as well as [its] display advertising
management services to advertisers, ad agencies and publishers." Google might have started off
(and be primarily identified) as exclusively about search, but its size has allowed it to
aggressively buy up companies that stray from the advertising-heavy business model. Google's
largest purchase was its 2011 purchase of Motorola Mobility, maker of phones and holder of
various valuable patents. Products Motorola Mobility manufactures include the Droid RAZR,
Droid Z and various other phones and tablets.
The Bottom Line
Every other service Google offers - from Maps to Earth to Gmail to Docs to Drive - exists to
further the primary business. Those services were expensive to create and require great resources
to maintain, but for the result - having users spend more time on Google and thus perpetuate
reading and clicking on Google ads - it's money well spent.
At the time of writing, Greg McFarlane did not own any shares in any company mentioned in
this article.
How Google's Search Engine Makes Money
By Shiv Mehta, CFA | August 13, 2015 — 9:33 AM EDT

publishing. an increase in traffic on multidevice platforms and a continued expansion of the number of advertisers and users from . After a mere 17 years in existence. First and foremost. That increase can be attributed to the growing number of paid clicks. In 2014. new ad formats. Google delivers relevant ads alongside with the search results. Google generates revenue from its advertising business. AdWords and AdSense. images and interactive ads that run on distinct platforms such as TrueView (Google Business images) ads displayed on YouTube videos. Revenues from Google’s websites grew at a whopping CAGR of 20% from 2012 to 2014. as well as map-related products. That requires a little digging to understand Google’s revenue streams. advertising services. Google also does brand advertising that promotes advertisers’ products and services through videos.Google (GOOG) ranks number 4 in the world by market capitalization in the Financial Times Global 500. Google offers an array of products and services including search tools. and more importantly. text-based ads on the search-results pages of Google and its partner’s websites. hardware and cloud related services. Most of the services it offers come with no direct monetary price tag to the average Joe. statistical and mobile-based software. AdSense is the program that Google offers to partners and other online publishers. who place Google AdWords ads on their own websites. with a market share of around 71%. both of which charge advertisers based on the aggregate number of clicks their ads generate. Google maps. Using the search terms. Advertising Revenues AdWords is Google’s auction-based advertising program that inserts simple. is the largest search engine in the world. communication. what has made Google such a Goliath? The answer lies in its business model. which consists of two complementary advertising programs. the company generated approximately 90% of its revenues from advertising. text. with just over two thirds of that coming from from the ads on Google’s own websites. and other Google sites. development and security tools.

621. content acquisition costs. Google generated 43% of its revenue in the USA. The company's cost of revenues includes Traffic Acquisition Costs (TAC). Cost Structure Google's costs break down into four major components: Cost of revenues. It consists mostly of advertising revenues Google that shares with its network partners and distributors through the AdSense program. That overseas expansion has exposed the company to foreign currency exchange risk. that expense is expected to grow. expenses associated with the operations of its data centers. movies and music. Non-advertising revenues Google also generates non-advertising revenue through products such as Google Play. with a headcount of 17. and is expected to increase given the rising competition in the search engine business. and inventory costs for hardware. In its 2014 Annual Report 2014. which represented 40% of the total headcount. and the strengthening of the U.S. which is an online store for apps. Google's TAC represented 67% of its total cost of revenues in 2014. The average amount that Google can charge per click has decreased. lower prices for mobile and tablet clicks. however. company generated 11% of its revenues from this business line. R&D expenditure includes the compensation for the company's massive R&D team of 20. International revenues have continued to increase over the years thanks to increases in multidevice internet penetration around the globe. Google also has a huge sales and marketing team. That's one reason the profit margins from AdSense program are lower than those for the AdWords ads on Google's own websites. are volatile and may never equal those offered by its advertising business. research and development. . the strong dollar set up Google to take significant losses. however. Its sales and marketing expense accounted for 12% of the company's overall expenses. And last year. and administrative expenses. Google introduced a forex hedging policy that gives it wide latitude to address the issue.832 employees. up from 9% in 2013. Geographical Segmentation With respect to geographical segmentation.developing countries. dollar. In 2014. driven by factors such as the diversifying geographic sources of the clicks. The margins on these business. Google for Work. With an increasing focus on R&D to further diversify its product offerings. Those AdSense partners and online publishers receive 68% of the ad revenue hosted beside their content and 51% of the ad revenue for the searches on their sites. etc. sales and marketing. Chromecast. as well as Nexus and Chrome OS devices.

13 Facts You Didn't Know About Google By Investopedia | Updated June 4. Alphabet Inc aims to be a Conglomerate and will not only include operations of Google (advertising. Google is expected to grow as internet penetration in developing countries exposes more people to Google's data collection and the ads it serves based on that data. The core operations discussed above will remain a part of new subsidiary Google. Through email. Alphabet Inc will be run by Larry Page (CEO of old Google) and new Google will be headed by Sundar Pichai. which is to strengthen its core advertising business. and projects such as Project X. The Bottom Line The products and services offered by Google share one objective. investing arms such as Google Ventures and Google Capital. Ongoing projects such as “Project Loon" is one of many by which Google is driving internet penetration around the world. Nest (home automation). Fiber (broadband internet and cable television). 2015 — 8:11 AM EDT . emails and so on) but will also include other Google businesses such as Calico (anti-aging R&D). search. The newly reorganized Google will be a wholly owned subsidiary of Alphabet Inc. where it will now have a new parent company: Alphabet Inc. the company works to better target ads to consumers. All existing shareholders of Google will receive one share of Alphabet Inc for every share they hold.Recent Developments Google has recently announced a major change in its corporate structure. and to charge advertisers a premium for that relevance. search and other offerings.

a 1 followed by 100 zeros. Yoshka. 1997." which is a term for a very large number.79 billion. Google. Although Google is one of the most well-known companies throughout the registered as a domain on Sept. the founders of Google. Google Incorporated is the third largest company. Google's first company dog. came to work with Google's senior vice president of operations in 1999. . The name reflects the company's mission to organize and produce searches for all of the data on the Internet. Larry Page and Sergey Brin. in terms of market capitalization. Before Google became a powerhouse search engine. in the United States. 3. its market cap is $373.Google (GOOG) is one of the largest American multinational technology companies providing users with Internet-related services and products. only being edged out by Microsoft Corporation and Apple Incorporated. there are a plethora of facts that many do not know about Google. 1. Google has so much affection for dogs that it flat-out says it's a dog company. 15. it was known as BackRub. The next year. met at Stanford University in 1995. which operated on Stanford University's servers. 2. Page and Brin collaborated on a new project. a powerful search engine called BackRub. The name is a play on "googol.

Google intends to scan all existing books before 2020. Gmail's code name was Caribou. and the company was bought by Ask Jeeves in an acquisition 2004. To date. and it operates on 111 Eighth Avenue. experienced this outage. The tweet was "I'm feeling lucky. During that brief time window. 16. Google announced a new Google X project focusing on small electronics that could be placed in contact lenses to measure the glucose levels of diabetic users. With this technology and partnership. Google has scanned over 20 million books. just zeros and ones. today it has over 425 million monthly active users. The tables turned on Excite. now known as Google Books. Google Incorporated is worth $370 billion. Deepmind uses machine learning and systems neuroscience to build learning algorithms. However. In 2014. for over $500 million. If a Google employee dies. Google is developing a computer that is so artificially intelligent that it could program on its own. All of its services. . YouTube and Google Drive. an artificial intelligence startup company. 10. Google founded Calico. which scans books into its application and website." which is a button on Google's homepage. Android surpassed 1 billion device activations throughout the world. which was inspired by a cartoon. 13. In September 2013. Google Gmail was only open to a select few at its inception. in binary code. Excite CEO George Bell rejected Google's $1 million price tag and missed his chance at investing in a potential billion-dollar company. which is a company that focuses on health and well-being. including Google Search. Google acquired Deepmind Technologies. At first Google's Gmail application was thought of as a prank because it launched on April 1. 2013. 11.000 employees in the New York office in 2015. Google's New York division started in a Starbucks coffee shop on 86th Street with a sales team comprising one member in September 2000. the deceased's spouse or partner receives half of the deceased employee's salary for 10 years. Google Incorporated offers some of the best employee benefits and even death benefits. 9. Larry Page and Sergey Brin were willing to sell their company for $1 million to Excite. 7.4. Children of the deceased employee also receive $1. On Aug. 12. Google launched its Google Print division. 6. Google's first message on Twitter was written in binary digits. In that same month. 5. Google Incorporated suffered an outage for five minutes.000 per month until age 19. That small team has grown to over 4. 2004. 8. the world's Internet traffic dropped by a monstrous 40%. In 2015. In 2014. or 23 if the children are full-time students.

Analyz ing Google 's Bargai ning Suppli er Power 3. Analyz ing Google 's Bargai ning Buyers Power 2.Google: Porter's 5 Forces Analysis 1. Analyz ing Google 's Degre e of Rivalry Among Its Compe titors .

Google accounted for more than 31% of the global digital advertising market. Google is far from the only option in a market such as the Internet.4. Analyz ing Google 's Threat of New Entran ts Analyzing Google's Bargaining Buyers Power By Investopedia | January 11. now a subsidiary of Alphabet. Analyz ing Google 's Threat of Substit utes 5. something angst-ridden shareholders point out while bemoaning Google's focus on nonadvertising income. 32% of Google's $68 billion in revenue came from sources other than its own websites. Inc. However. Google provides other products and services aside from selling ad space. but they keep coming back to spend on ads. . This kind of flexibility gives ad space buyers a lot of power.42 billion in ad revenue. generating a reported $38. the company purchased Motorola in 2011 to bolster the Android phone network. such as self-driving cars and other automated services. The muchanticipated Google Glass project was a flop as well. As a company. In fact. 2016 — 2:42 PM EST Google. lots of companies are willing to pay lots of money to Google to put the right ads in front of the right consumer. By the end of 2014. (NASDAQ: GOOGL) as of November 2015. potential competitors are virtually limitless online since it takes very little upfront capital cost to build a website and leave room for ads. For example. In other words. Then there are the periphery purchases and research projects. Buyers may not be lining up for Google's pet projects. at least according to the 2015 rankings by Alexa Internet. which allows non-Google websites to incorporate Google's ads into their websites. Much of that comes from the AdSense program.6 billion write-down. infamously leading to a $9. Not all of these have been successful. is the most trafficked website in the world. During the fiscal year 2014.

some of them click on other company's ads and spend money. all else being equal.What Creates Buyer Power? Within the Porter's Five Forces method of investment analysis. Buyers are not bound to long contracts with Google." Buyers are said to have power whenever they can influence prices in an industry. Another way buyers show power.S. or where one buyer's purchase constitutes a relatively large portion of income. (NASDAQ: GOOGL). Buyers exert power in several ways. Google saw losses in U. and there is very little to prevent them from taking up ad space on a competing website. but proponents maintained it would let the company . Industries with high degrees of buyer power tend to show fewer profit opportunities. buyer power is somewhat analogous to the elasticity of demand for a given product or service. is with the threat of an easy switch to another company or industry. Inc. Buying Power in Action In early 2015. One version is where buyers make bulk purchases. such as with Google. Add this to the growing amount of search traffic on social media and e-commerce websites. Analyzing Google's Bargaining Supplier Power By Investopedia There was much hand-wringing in August 2015 regarding the announced reorganization of Google into Alphabet. It is very easy for a buyer to pick up and switch companies quickly. Both Google and Yahoo fell below 2014 levels. Who Are Google's Buyers? It is easy to assume search engine users are Google's buyers. while Microsoft's Bing realized gains in market share. It seemed to be a curious move for a highly successful corporation that generated $66 billion in gross revenue during 2014 and saw profit margins in excess of 20%. There are only two unique elements to the Google ad product: sheer traffic volume and advances in search engine algorithms. but that is only superficially true. and it can actually complete that entire switch without having to move any physical assets. Instead. market share for the first time in decades. a furniture company may determine it will sell more chairs and sofas by placing ads through Facebook than through Google. Most Web-browsing individuals do not send money directly to Google. the term "buyer" is used instead of "customer. For example. a holding company. To make an economic analogy. it is the other companies that directly generate revenue for Google since they are the ones buying space. and it is apparent Google faces stiff competition across the board.

or some up-andcoming Web phenomenon. Web design only requires moderate software knowledge. provided poor search engine results or was otherwise unreliable. the Internet possesses an excess of suppliers. which means buyers can easily switch from ineffective or expensive suppliers and choose from many products. If successful. Heavy hitters rise and fall all the time. Google is a little bit of an outlier today. Dispersed markets have low barriers to entry and many suppliers. supplier power is defined as supplying firms' ability to control business prices. Porter's suppliers are the individual businesses themselves. The company also makes money from websites it doesn't own through Adspace. would receive their own executives and business models. In a highly concentrated market. Web content is also remarkably cheap and easy to access. Alexa ranks Google as the most-visited website in the world. changing from Google to another website only costs the user a few seconds. quality or product diversity. In other words. not the vendors or resource suppliers to the business. where relatively few firms control entry and prices. and any prolonged slip-up by Google will be seized by rival search engines such as Yahoo and Microsoft's Bing. the Alphabet experiment could extend Google's hegemony in the search engine business. Google is considered a supplier. Google's Supplier Power By its very nature. Why Supplier Bargaining Power Matters In the Porter five forces model. and websites or companies paying for ad space could just as easily throw their ads on Amazon or eBay. The barriers to entry for creating a website are so low – and the possibilities of online content are so endless – that the purchasers of ad space have virtually endless potential alternatives. and the Internet is virtually unlimited in size.focus on what it does best: generate online ad revenue. if Google became an ineffective company and charged too much for its ad spaces. buyers could very easily switch to Yahoo or Bing or any other supplier. making its ad space particularly attractive. It's very difficult for an Internet company to maintain supplier power. Google's research projects. supplier power is strong and buyers (consumers) exert less control. The bad news for Google – and the good news for everyone on the Internet – is that hegemony in the Internet sector is a fickle thing. For example. Bandwidth is too easy to access. . massive ad revenue giants such as Facebook and Amazon. much maligned by investors. given its dominant position in the industry.

threat of substitutes and threat of new entrants. diverse and mobile competitors. Amazon and eBay. but the most threatening companies might actually be Apple.Increasingly. firms fear for their market shares and net margins because competition is fierce. an investor would like established holdings to be in a less rivalrous industry (where profits are insulated) and wants high-growth holdings to be in a more rivalrous industry (where profits are easier to poach). although it's likely that such an exclusion would harm Microsoft or Apple's sales and stock prices. What makes the Alphabet. Inc. Ideally. Amazon. a popular business analysis framework that was developed by experts at Harvard Business School in the late 1970s. Microsoft continues to pursue Google's profits. What Determines Competitive Intensity? Rivalry is a critical element of the Porter's five forces model. Analyzing Google's Degree of Rivalry Among Its Competitors By Investopedia The technology sector is notoriously competitive and dynamic. Google actually lost a small fraction of market share from 2014 to 2015. Web traffic is occurring through mobile devices or directly through nonsearch engine sites. In fact. (NASDAQ: GOOGL) Google search engine hegemony all the more impressive is that it's dominating in an industry with a large number of strong. There's also the threat of Google being excluded from new software releases by Microsoft or Apple. Google is expanding into new markets with Google Fiber. Facebook and Apple offer direct routes to information without having to run through a page or two of Google search results. The degree of rivalry affects the ability of firms to reach and maintain profitability. According to the Porter's five forces analysis. as did Yahoo. the degree of competitive rivalry is the last and most interconnected of the five forces. In fact. not because of regulations or shifting consumer preferences. at the expense of increased Bing searches. Bing. into its Explorer browser. there's a new wave of competitors over the horizon. In the rivalrous industry. though. It received a boost by embedding its search engine. Long-standing rival companies such as Yahoo and Microsoft continue to push Google. Google Glass and research into driverless cars. an intensely rivalrous industry is one in which firms place pressure on one another (both vertically and horizontally) to limit profit potential and drive innovation. . In the traditional analysis. More threatening is the emergence of a new entrant in the tech scene with a superior product for both Web browsers and ad space buyers. drawing from buyer bargaining power. supplier bargaining power.

Really strong e-commerce sites make Google seem superfluous and unnecessary. There are also regulatory risks. even if those searches are just for online shopping purposes. businesses and people on Facebook. This is a major reason why Google keeps building out its e-commerce services. . Companies such as eBay and Amazon draw more searches than Yahoo or Bing. few saw the sudden rise and collapse of BlackBerry. Antitrust problems are always present for huge companies in relatively young sectors. making it a daunting challenger to Google's ad revenue sources. Millions of people now use their Facebook walls as news sources. and millions worth of capital expenditure has been poured into futuristic technologies that may not pan out.Google's Major Competitors Google faces big-name competitors across its different operational branches. Google Glass is on hiatus. if not dead entirely. Major online television and DNS competitors include Apple and Comcast. Disappointingly. Threats from new entrants in unforeseen areas is a near-ubiquitous element in the market. more than three-quarters of all traditional search engine traffic runs through Google. The company may be relatively safe in the search engine arena – though competition clearly exists – but Google isn't yet a bully in these other spheres. Consider that Google announced an unmanned delivery service project just months after Amazon revealed a drone delivery option. which is run by Microsoft and actually powers Yahoo. Users can find products. and the search toolbar is increasingly important. are still operating (and always chasing Google). Even though Yahoo and Bing. After Google first launched. and Google is no different. a Russian court found Google guilty of preventing competition and forcing vendors to preload devices with Google apps. its major competitor and the dominant actor in the search engine space was Yahoo. It's also possible that Google has overextended itself into too many competitive markets. Nokia or Zynga. In September 2015. for example. Concerns The technology and communications sectors are unpredictable. Google actually faces some of its stiffest search engine competition from the e-commerce side. Facebook is another unexpected challenger to Google.

Yet Google still faces stiff competition and plenty of substitute services across all its business branches – even for search. Whenever a business or industry proves to be profitable. 64. The end result is a downward pressure on margins. . Substitutes. The five forces of competition in the Porter model are the threat of substitutes. such as Amazon and Facebook. Google generated a staggering $66 billion in revenue.4% of all search traffic in March 2015 was performed through Google. the provider of the substitute product or service may sell at lower prices to draw customers away. Porter Five Forces Many investors are familiar with the Porter five forces system. offer search engine capabilities in conjunction with other services. profits serve as a beacon to all entrepreneurs that consumers find a service to be valuable. by contrast. according to data from comScore. Substitutes will eventually develop – potentially from Google itself – to offer that same ad space with an improved or materially different product for browsing Web users.6% was net revenue.Analyzing Google's Threat of Substitutes By Investopedia Google. bargaining power of buyers. In 2014. The Guardian reported in April 2015 that Google owned a shocking 90% of the European search market. of which 20. Inc. All else being equal. bargaining power of suppliers and degree of competitive rivalry. the threat of new entrants. The Internet is an enormous marketplace. both in scope and number of participants. These substitutes help consumers by providing more choices at higher quality and lower prices. a company or industry with plenty of substitutes faces a lower potential for profit. Yahoo and Microsoft's Bing have definitively lost that battle for search engine hegemony. It's also highly dynamic and has low barriers to entry. however. In the United States. Other platforms. (NASDAQ: GOOGL). Google makes most of its money by selling ad space. and that's not a difficult thing to offer on the Internet. at least in this model. now owned by new parent company Alphabet. dominates traditional Web search. Why Substitutes Are Important In a free market system. Competitive firms can't simply offer a search engine. are products or services that exist in another industry or subsector that may be used to fulfill the same consumer need. other entrants pour into the market to grab their slices of the pie by offering substitute products. Those kinds of profits attract a lot of competition. which is designed to highlight competitive opportunities in an industry as well as the impact of competition on profitability and returns. After all.

According to Alexa's 2015 rankings. which is the third-most trafficked site. .) Amazon and Facebook offer more than just search engines. Google purchased Motorola to complement its Android phones. As of November 2015.Identifying Google's Customers and Its Substitutes Google clearly wants to diversify its revenue stream. particularly those with massive Web traffic. spent more than $3 billion on Nest. is a subsidiary of Google. Analyzing Google's Threat of New Entrants By Investopedia It isn't easy for any young company to compete with Google – now Alphabet. which makes them compelling substitutes. Given how dynamic the industry is. the industry still offers plenty of opportunities for new entrants. Alexa research shows that Google is the most trafficked website in the world. Research suggests that Google owns a 60 to 70% market share of all U. search traffic. Yahoo and Amazon. but it's constantly chased by companies such as Facebook. Baidu. products. companies. ad revenue remains the dominant source of Google's profits. (YouTube. Nevertheless. they're the companies with products to sell and who actually spend the money to buy ad space. and it has poured resources into automated cars. which comes in at 2 or 3 depending on the source. a smoke detector company. is a Google subsidiary. Google remains the most-visited website in the world and YouTube. there is good reason to believe that another website or mobile software will explode onto the scene to offer premium ad space. but it continues to invest capital in new markets. Google's most important customers aren't Web users. Nevertheless. all from one location. and Facebook allows users to connect directly with news.S. trends and other people. Inc (NASDAQ: GOOGL) – because the firm holds such a dominant position within the Internet search industry. Ads make money for Google because consumers can click on those ads to buy products from other companies. The company swung and missed with Google Glass. Amazon is an enormous online marketplace. Lots of other companies can provide ad space. and The Guardian reports a figure as high as 90% in Europe.

There are few upfront capital costs. That kind of scale would be very difficult for a new entrant. All It Takes Is Technical Skills The Internet sector is not very difficult to get started in. Bandwidth and Internet content aren't difficult to come by. and it generates enough revenue to support a nearly 60. and a small team of technical engineers and software experts can accomplish much of the work. One large hurdle does remain for hopeful search engine challengers to the Google/Yahoo/Bing triumvirate: popularity and name recognition. Google receives billions of page views every day. Unless the established firms continue to innovate or maintain a competitive advantage. but it eventually accepted some Google common stock in exchange for a perpetual license. Even non-Google websites that use AdSense and the companies that buy ad space – Google's real customer base – can switch to Facebook or Amazon with little hassle. . Even Android. New entrants essentially only need to invest in the creation of search engine algorithms (sometimes called "spiders") and digital storage space. is made available through open source licenses. In fact. Any individuals or firm could create their own versions of Android. and consumers switch between Internet sites with zero costs. as well as the physical computers and electricity needed to carry out operations. Industries with higher threats of new entrants tend to have lower profit margins.Threat of New Entrants The threat of new entrants is a component of the Porter's Five Forces analysis model that refers to the possibility of new firms threatening the market position of existing firms in an industry. Amazon already took advantage of this when it launched the Kindle Fire in 2011 using an Android system that replaced Google apps with Amazon apps. Any highly profitable firm grabs the attention of eager entrepreneurs who hope to share in those profits themselves. and there is an enormous pool of skilled technical laborers. resulting in intense competition between rival firms to attract customers. Yahoo sued Google over the use of keyword-driven search technology. Google once served in this capacity. who receive more and better products at lower prices. Yahoo reigned supreme in the infant search engine game by the time Google started to challenge in the early 2000s. new entrants are worrisome for the shareholders of established firms. all else being equal. While this is great for consumers. assuming they have the technical skills.000-person workforce. the operating system in Google mobile devices. at least superficially. share prices could slide in the face of new alternatives. Few government regulations exist to protect established firms online. other than the few seconds it takes to type a new web address.

The Business of Google By Eric Rosenberg | February 5.Google's Other Products Google. The barriers to entry in these areas are much higher. the most visible of which in 2015 have been the automated Google cars. The firm continues to spend resource in all sorts of technologies. is not just an ad-revenue-based company. but there remains a chance that Google could become a major player in many other technical fields. since it takes an enormous amount of capital expenditure to fund research and development. which are driverless. perhaps to the dismay of some of its shareholders. 2015 — 4:01 PM EST . Google tried and failed to diversify its revenue streams through Google Glass and the massive purchase of Motorola.

entire businesses depend on AdSense as their primary source of income. (For more. YouTube. and various online tools we use daily at work. What many don’t think about day-to-day. Advertisers pay Google each time a visitor clicks on an advertisement. is that all of these services are free. or nearly $14 billion. Facebook Ads. Google AdWords. web browser. Of that revenue. A click may be worth anywhere from a few cents to over $50 for highly competitive search terms. Due to the breadth of companies advertising through the network. email service. at home. AdWords advertisements integration touches almost all of Google’s web properties. there were “well over a million” websites in the Google Display Network as of 2010. and on the go. advertisers have to outbid each other. 68 percent – or just over $45 billion – came from Google’s own websites. see: Google Ads Vs. including insurance.Google (GOOG) is well known for its popular search engine. Google Maps. and other Google sites are generated through the AdWords platform. loans and other financial services. you may find related suggested pages from an AdWords advertiser. The algorithm attempts to provide the most relevant results for your query. Revenue from AdSense advertising made up 21 percent. however. you’re given a list of search results generated by Google’s algorithm. When a visitor clicks on a display advertisement on a member website. see: Baidu Versus Google: Who Will Win The Global Search War?) AdWords and Search Advertising The bulk of Google’s $66 billion revenue in 2014 came from its proprietary advertising service.) AdSense Network In addition to featuring search advertising on its own sites. AdSense ads work similarly to Google’s own onsite advertising but are displayed on Google approved sites anywhere on the Internet. a portion of the revenue is paid to the site owner while Google keeps part of the fee. along with these results. . According to Google Vice President of Product Management Neal Mohan. and. Higher bids move up the list while low bids may not even be displayed. When you use Google to search for anything from financial information to local weather. So how does Google make money? (For more. Google’s AdSense program enables non-Google websites to incorporate Google display advertising on their pages. To gain the top spot in Google advertisements. Any recommended websites you see when logged into Gmail. of Google’s total 2014 revenue.

Major Misstep: Motorola Mobility Just because Google’s advertising business is a revenue cash cow doesn’t mean the company is without faults.5 billion purchase of Motorola Mobility in 2011. Google believed it could grow Motorola’s handset business through a natural synergy with the Android software development team. Analysts have criticized Google’s investment in these projects. Google Apps. the company made a $13 billion bet on Motorola Mobility. Google’s annual revenue has grown from $31.000 patents gained through the acquisition. Google had become the owner of the world’s leading smartphone platform thanks to the success of its Android operating system. The majority of the company’s revenue comes from outside the United States. By January 2011. Google Glass. or 11 percent of Google’s 2014 revenue came from an assortment of non-advertising related projects. The Bottom Line Over the last three years. with 56 percent of Q4 2014 revenue coming from abroad.91 billion from Google two years after the deal’s completion.Other Revenue The remaining nearly $7 billion. This deal turned out to be the biggest flop in Google history.6 billion writedown when Lenovo bought Motorola Mobility for $2. Included in the list of “other revenues” is income from related online. as mounting expenses from non-core businesses cut into profit margins for the entire company. It led to a major $9.2 billion to over $45 billion. 9 percent from the United Kingdom. These initiatives. at times loathed by investors due to their disconnect from Google’s core advertising business. and the Google Cloud Platform. and cloud computing businesses such as the Play Store. For its efforts. media. and the remainder from the rest of the world. Google’s largest financial mistake in recent years was the $12. let alone profit. include a diverse set of projects from both online and offline businesses. Offline projects include Google’s famous self-driving cars. Although Google already participated in the mobile market as a software vendor. Android. and an investment in a solar power plant the Mojave Desert. revenue from Google websites has comprised a relatively consistent 67 . Chromecast. 44 percent of revenue came from the United States. A Global Business Google is a completely global business. In the aforementioned period. Chromebooks. Google retained ownership of the majority of the 17. During that time. many of which have yet to generate revenue.

and other Google products. Despite the company's investments in other ventures. That ad used Google search engine results to tell the story of a young couple falling in love. The New York Times takes a look at the new approach. which started around the time of last year's "Parisian Love" Super Bowl commercial. that doesn’t appear to be changing any time soon. non-technical audience: a new father documenting the life of his daughter. or a woman discovering her future boyfriend . Google earns about 90 percent of its entire income from advertising. Google has been stepping up its promotional game with a focus on the softer. With the inclusion of the advertising network. They all demonstrate the company's services in ways that resonate with a broad. and has since been joined by numerous spots for the Chrome browser. While other businesses contribute billions to Google’s income each year. more human side of its 68 percent of total company revenue. Google+ social network. Google makes most of its money through online advertising.

through Google+. more products. with Chrome experiencing 84 percent year-over-year growth in 2011. Google+. earlier this year the company released an inspiring Chrome spot that also promoted Dan Savage's It Gets Better support project for gay and lesbian teens. and Google. more messages to consumers. The strategy appears to be contributing to Google's larger success." Google's Vice President of Global Marketing Lorraine Twohill told The New York coming in as the top web destination in the US for 2011. "As we got bigger. which is bizarre for a tech company. so we needed to do a bit more to communicate what these products are and how you can use them. however. "It's about emotion. . may still need another ad or two. we had more competition." While tugging at the heartstrings may not be as odd as Twohill infers — Apple has used it to great success over the past decade — Google's ads do excel in telling emotionally-compelling stories.