In this post I want to walk you through how Google makes their money. In other words, I'm going to explain Google's business model.
Did you know that Google's parent company, Alphabet, in spite of owning several companies in many different industries, besides Google itself, got as much as 85% of its revenue from advertising in 2018? That would account for roughly $116 billion according to Statista.com. That's a lot of money, but how does Google make all its money in advertising? Well, let's dive a little bit deeper.
If you had to break it down, Google relies on three key players. Users, businesses and publishers.
For users, Google has a simple, but powerful value proposition. I can find the answer to anything. If Google didn't have an amazing search engine that millions of people would use each and every single day, you wouldn't be compelled to use it then. The secret here is how they organize the information that is available on the web, and they made it through simple search.
They can scan millions of web pages in less than a second and deliver that search to literally anyone in theory, and it will be relevant to whatever search phrase that you entered in the browser. That makes your life easy because you don't have to keep searching different and different browsers and websites to find the information you're looking for. So in essence, users don't have to pay anything in order for Google to make money, which is where I'm getting to next.
For businesses, it doesn't get much more complicated. The value proposition is I get more sales through targeted ads. As Google makes a bulk of its revenue through advertising and that revenue is generated from two types of advertising, search ads and display ads.
Search ads are the ones that you see when you do a search on Google. These ads are extremely powerful because it allows a business to pay a certain amount of money to get in front of precisely the right audience that they want to sell to.
Whether user is a searching financial information, product comparisons, want to buy something specific in their local area, businesses are willing to pay a lot of money to get in front of the right customers, and advertisers pay Google each time a visitor clicks on that ad. In other words, it's a cost per click model. A click could be worth anywhere from a few cents to over $50 for a highly competitive search term like auto insurance or loans or other financial services.
Display ads are a bit different. Google has many places where it can show ads to users. Gmail, YouTube, Google Maps, even Google Adsense Partners, even mobile apps, and the list goes on and on as Google acquires more companies and innovates just like how they acquired Waze.
The big thing about this form of advertisement is Google analyzes the context of every single web page or app as well as matches what you're looking to get from a customer standpoint to your ad. So they're marrying the two together. They're not just putting your auto insurance ad on a random site, they want to make sure it's relevant to that site, and the users also looking for the product or service that you're selling, and for publishers, the value is the money that you can make by monetizing your content, your organic traffic through Google as well.
Website owners have the chance to insert Adsense Ads on their websites and make money every time someone clicks those ads. Mobile app developers have the chance to monetize their app in the same kind of way. Not only that, but each time they're putting out more and more content on Google, you can also make more money by getting more organic traffic, and some of those people will potentially click on your ads.
Google's revenue is still largely growing at a fast pace just like it did over 10 years ago. The tech giant still reports revenue growth around 20%, and that's kind of crazy considering how big the company is, and they're already doing over $100 billion in revenue. But Google is not willing to rely on ads alone. They've gotten revenue from other bets as well, other subsidiaries that they've acquired and developed over the years.
From .8 billion in 2009 to over 20.5 billion in 2018. It went from 3.2% of the revenue in 2009 to over 15% in 2018, and that number is continually growing from 2019 to 20 and 21, etcetera. Expect that number to continue to rise.
Google's app store alone has had revenue growth of over 27.3% over the previous year according to Sensor Tower.
Alphabet is a massive corporation that encompasses everything from internet beaming hot air balloons to self-driving cars to Google Cloud. As long as people keep using Google, more and more to find information online, it will continually grow their revenue, which in turn, will help other areas of all the other business plus you as business owners because the more people Google attracts to their ecosystem, the more potential you have to drive more people to your business from both paid listings and organic as well.
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