Google was formed in 1998 as the brainchild of Larry Paige and Sergey Brin. They launched the google search engine 1999 and the rest as they say is history, very profitable history. In 2018 alone Alphabet raked in US$136 billion dollars. It’s been a long road for google to arrive at this point with lots of successes and failures along the way. Google is undoubtedly the world’s number one internet search engine. Their umbrella now has businesses in other areas such as health, software, cloud services and more. Let’s look at exactly how Google makes money.
Alphabet today is behemoth of business. It has many companies running under it. Chances are you are viewing this through the Chrome browser or perhaps even on an Android device. Google is of course not just ads and software, they’ve broken into many related businesses, sometimes through acquisition. They have made attempts to start in some areas which has not always worked out like Google video (competitor to YouTube prior to its purchase) and the soon to be shutdown Google plus social media service.
Google introduced pay per impression (view) advertising in 1999 as part of their Adsense program. The program would prove to be very popular and later morphed into pay per click advertising as we know it today. The key to the success of such an advertising program is that advertisers only pay for interaction with their adverts instead of paying for the advert simply being there. It also allows customization where advertisers can choose a daily spend limit.
Today Google is parented under the name Alphabet and has grown to be a whole lot more. In the fourth quarter of 2018 84% of Alphabet’s revenue came from advertising. This is mostly from search engine advertising we see at the top of page results and in the side bar. They take extra care in the system they use to decide upon relevance of ads and this directly influences the cost to the advertiser to have their ad shown in the results page of a particular search. They’ve gone on to create other popular advertising services like AdSense’s internet ads and remarketing ads, which market products to you based on prior activity. 14.5% of revenue contribution came from it’s cloud storage services and other hardware sales units while 1.2% came from all other divisions which include smart home products and other home services.
Still an advertising company
While advertising is still the mainstay of Alphabet’s revenue they do have a vision of being a cloud company by 2020. While that has stalled the division did bring home US$6.4 billion in the fourth quarter of 2018. Contrast 2011’s 96% of 37.9bn revenue coming from ads with 2018s 84% of 136bn coming from ads you can see the attempts to move away from ads are paying off despite it coming slowly. The reason for wanting to move away from advertising is because the cost of customer acquisition is steadily rising in advertising. The customer acquisition cost in Google’s case is the money they pay to hardware and device manufacturers such as Apple to use Google as their default search engine. Google’s cloud division is targeted at the lucrative enterprise solutions business .
Google offered a simple search engine platform that initially ranked search results based on the relevance of results to other internet users as opposed to the frequency of the search keyword. This was the “get them in phase” and they proceeded to make changes to the search algorithm to keep people using Google as their preferred search engine. Their efforts thereafter have been to significantly grow the ways in which they can improve search results and presence on the internet such as the YouTube acquisition. Thereafter Google has sold these regular views and users to advertisers on a pay per view and now pay per click basis. They continue to seek ways to branch out including cloud, health, software and internet services.