Google’s major source of revenue comes from Google Advertising. According to Statista, 81.3% of Google’s revenue was contributed by Google ads. However, Google also has other products and Google services that contribute to its revenue stream.
Google’s Business Model is mainly dependent on three key players. Let’s learn more about how does Google make money in detail:
People use Google because it provides them with relevant, and appropriate search results within just a few seconds. Also, it does not charge any fee from its users for finding information. They are the key stakeholder through which Google earns revenue, if there is no audience, there will be no income.
Businesses are major stakeholders that help Google to earn money. If you search for a clothing store near you, the Google SERP will provide you with the relevant list of websites, apps, and stores while it will also display ads that are similar to the search you made.
Whenever a user clicks on that ad, the business/advertiser pays Google a particular amount of money.
These are the people/businesses who create content to publish on the web like bloggers, influencers, creators and even businesses who have their own blogs. For example, if you visit a blog which is related to cooking, you will most likely find ads related to cooking utensils (buy a cook-top at 30% off from XYZ brand), restaurants, etc.
Google will charge a fee from the advertiser and share part of it with the content publisher and earn revenue.
Now, let’s look at the ways through which Google earns its revenue:
Google Advertisements contribute the most to generating Google’s revenue. Businesses, brands, advertisers and marketers can run their ads on Google’s search engine and YouTube and in return they pay a commission for the same.
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The commission is calculated using two major metrics:
Cost Per Click: It simply means when a user clicks an ad that is displayed on Google’s SERP, then the advertiser would pay to google a commission for the same.
Cost Per Impressions: It refers to the cost an advertiser will pay per 1000 advertisement impressions on a web page.
There are different types of ads that Google runs:
These are the types of ads Google will display in its search engine. For example, if a user searches for the best furniture stores, it will display ads of different furniture stores with another relevant search result. These displayed ads are called Google Adwords.
Google’s SERP also displays ads in the shopping section. It lets users search for products, compare them and also highlight products
Whenever a content publisher provides space on their website to publish advertisements, they are called Google Adsense. The ads will be displayed based on the user’s search query. Businesses/ Advertisers pay Google for the ad space.
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These are the ads that are displayed on the apps listed on Google Play Store. They are basically in-app advertisements.
YouTube Premium also generates income for Google. Users can watch unlimited videos on it, ads-free. It is charged at $11.99 per month. In the year 2021, revenue generated from YouTube Premium was $600 million.
YouTube TV is a streaming TV service that provides access to live TV Shows and on-demand videos and DVR solutions. It has access to over 85 television networks. It costs $64.9 per month. It is a new venture started by Google.
Whenever we are in some new city and want accurate directions – we reply on Google Maps. It has a large set of user base data. Not only Google Maps is used to display relevant advertisements but also it generates revenue from the APIs.
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There are several companies like Uber, Trivago, and Pokemon Go who have tied up (by paying charges) with Google Maps for its API which lets them track, monitor, navigate, etc.
When a user makes an account on G Suite, it offers free cloud storage space. However, the space is limited to 15GB. If a user wants to buy more space, they would be charged $0.20 per. Users also have to pay additional charges of $0.12 GB for network and operations costs and $0.05 per 10,000 Class A Operations.
The Class B operations cost $0.004 per 10,000 operations. These operations enable services like troubleshooting and improve application functionality and infrastructure.
In 2021, Google Cloud platform contributed $19 billion to Google’s revenue. While, in 2020, it earned $6.1 billion. Google Cloud has seen a sharp year-on-year increase in its revenue.
The Google PlayStore is a platform which provides mobile app distribution services. Google charges a play pass for $4.99 per month/ $29.99 per year. The Google play pass gives users access to the app without any ads or in-app purchases on certain products. It also charges $25 from developers before they upload their first app.
Google has produced a range of hardware including Google Pixel smartphones, tablets, laptops, earphones, Google Best Smart, Google Chrome-cast, etc. It has also started selling Fitbit and other game controllers. Google Hardware generated a revenue of $19.6 billion in 2021.
Google also makes money through its digital payments system, Google Pay. Users can send and receive money using this platform for free. It earns revenue by charging commissions for each transaction from its merchants and businesses. Currently, it has successfully managed more than 2.5 billion transactions with 67 million active users.
In India, Google Pay’s transaction value is worth $110 billion. It has more than 60% of the market share and is growing significantly each day. It made revenue of $18.4 million in 2021. Google Pay is also available in other countries including Australia, Canada, Japan, Russia, Singapore, Ukraine, the United Kingdom and the United States.
History of Google
Google was started by two Stanford University students Larry Page and Sergey Brin. They both met when Sergey was assigned to show university facilities to Larry. Soon after, they became close friends. In the beginning, they used to disagree with each other on most things. However, they both were curious about one particular thing – how did the internet search the whole mass of information.
Their curiosity about internet search engines led to them working on a type of technology where the searches would rely on backlinks. They named their new search engine “BackRub”, as it is based on backlinks. Later, the name was replaced with “Google”, similar to the term googol, meaning the number followed by 100 zeroes.
Over the next few years, Google caught the attention of investors from Silicon Valley. In 1998, they got an investment of $100,000 from Andy Bechtolsheim, co-founder of Sun. They shifted their operations from college dorms to an office in a garage near Menlo Park, California.
Gradually, in the subsequent years, they also hired other engineers and salespeople and eventually moved to its current headquarters, known as “Googleplex”, in California. It made its IPO on the NASDAQ stock exchange in 2004 and raised $1.66 billion. Today, in 2022, it has become a tech giant across the world.
How Does Google Make Money From Gmail?
You must have searched for a product you want to buy on the Google search bar and now, your Google and Gmail are filled with ads displaying similar or maybe the same products. So, Gmail makes money mainly through personalized advertisements displayed over the platform.
When a user makes an account on Gmail, they are usually given a long list of terms and conditions. A user has to agree to them, then only the account can function.
One of the clauses in that document is that Google will track and share your data. It also makes money by sharing this user data with businesses/ advertisers to show relevant ads to each user.
Gmail also generates money when a user purchases a G Suite subscription. It is mainly used by companies, businesses and professionals. They get a large storage space and customized email domains. The GSuite Subscription/ Google Workspace can be bought by anyone and the basic price for it is $6 per month. It includes Google docs, slides, Gmail, sheets, calendar, Google drive, forms and hangouts.
Revenue, Funding and Valuation
It is pertinent to note that Google is the main subsidiary of its parent company Alphabet Inc. The parent company earns revenue via mainly two streams: Google and ‘Other Bets’.
Alphabet Inc has grown in the First Quarter of 2022 by 23% compared to the previous year. It has generated $68 billion in the first quarter of 2022. It has generated $20.2 billion in operating income. Also, in its quarterly report, Google mentioned $52 billion in Class A and Class C shares repurchased in the last year.
A large chunk of Google’s revenue came from Google Advertising, especially from ‘Google Search and others’. Google ad revenue continues to contribute significantly to Google.
There has also been tremendous growth in the revenue contributed by Google Cloud. In the year 2021, it contributed $198 billion and jumped to over $440 billion in the first quarter of 2022.
In 2020, Alphabet became the third-largest American tech company to reach a valuation of $1 trillion – joining hands with Apple, Microsoft, Amazon and Tesla. As of now, the current price of GOOG, Alphabet’s Class C shares is $2,316.67 (on 28th June 2022). Google has brought out Class A shares, they more or less trade at similar prices.
Google’s Major Merger and Acquisitions
Let’s look at some notable mergers and acquisitions by Google:
In 2005, Google acquired a little startup Android Inc for $50 million. This acquisition proved to be one of the most successful deals for Google. Today, Android is one of the most popular mobile OS systems across the world. According to Statista, almost 69% of smartphones used Android as of February 2022. It has more than 3 billion active users who use Android devices.
Google purchased YouTube for $1.65 billion in 2006. It has proved to be one of its best investments as YouTube contributes more than 11% to its annual revenue today. It has seen tremendous growth over the last decade.
YouTube ads, YouTube Play and YouTube Premium are major contributors to Google’s revenue. Google has also recently started YouTube shorts to mark its foot into the short-form content.
Google acquired the start-up AbMob in 2009 for $750 million. Apple was also racing fiercely to acquire the same but Google managed to sign the deal. AdMob was a mobile display advertising company. It significantly changed the game of Google advertising and brought a lot of revenue for the company.
In 2013, Google brought a GPS navigation software company, Waze. It has benefited in improving Google Maps. Waze connects people and helps them to know one another’s location. It acts like a social navigation tool for private cars and vehicles.
Google acquired Nest Labs for $3.2 billion in 2014. While it operated as a separate company from Google for a few years. However, in 2018, it was merged with Google’s hardware section and it has contributed a lot to producing Google Home and Chromecast.
As of today, Google has acquired almost 237 companies(as of now). It has acquired other notable companies like FitBit, DoubleClick, Motorola, DeepMind, Looker, etc. Google has seen tremendous growth over the last two decades.
Its valuation is today $1 trillion, which makes it one of the biggest tech giants in the world. As for the future, we predict Google will diversify into Web3. As of June 2022, the Google Cloud team is also building a team to develop services for developers running blockchain applications.