With 98,771 full-time employees in 2018, Google made over $136 billion in revenues. $116 came from advertising alone. Google also spent $110 billion in operating costs. Over $21 billion went toward R&D (15.7% of its revenues) and $16 billion in Sales and Marketing (%12 of its revenues).
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What’s the Google (search engine) key monetization strategy?
A hidden revenue generation business model keeps users out of the equation, while it lets other parties finance – in part or entirely – the product or service offered. This kind of model works if the value proposition is appealing to several stakeholders.
For instance, Google has created a sustainable business model based on hidden revenue generation, by creating a compelling value proposition for businesses and publishers. The former can bid on keywords and generate sales through targeted ads. The latter can effectively monetize their content.
When Google went public in 2004, Larry Page and Sergey Brin put together a letter which clarified:
Sergey and I founded Google because we believed we could provide an important service to the world-instantly delivering relevant information on virtually any topic. Serving our end users is at the heart of what we do and remains our number one priority.
Our goal is to develop services that significantly improve the lives of as many people as possible. In pursuing this goal, we may do things that we believe have a positive impact on the world, even if the near term financial returns are not obvious. For example, we make our services as widely available as we can by supporting over 90 languages and by providing most services for free. Advertising is our principal source of revenue, and the ads we provide are relevant and useful rather than intrusive and annoying. We strive to provide users with great commercial information. (Source: abc.xyz)
You might think that since Google is the best search engine out there, that is why it makes 88% of its revenue from advertising. However, for how a marvelous Google search algorithm is, what makes Google the tech giant that is today; is its business model.
AdWords and AdSense together create a win-win-win. Companies can sponsor their products for much cheaper, and track their results with no effort.
Online publishers can easily monetize – something is better than nothing – their content. Users get relevant answers to any question they might have. A great product is a little part of the equation. The rest is about business modeling!
To make money Google has to spend money. That is why an important metric to look at to understand the efficiency of the Google business model is its TAC.
TAC stands for traffic acquisition costs, and that is the rate to which Google has to spend resources on the percentage of its revenues to acquire traffic.
Indeed, the TAC Rate shows Google’s percentage of revenues spent toward earning traffic toward its pages, and it points out the traffic Google acquires from its network members.
In 2017 Google recorded a TAC rate on Network Members of 71.9% while the Google Properties TAX Rate was 11.6%.
Read next:
- Google’s hidden revenue generation strategy
- Google business model
- Google TAC rate
- Alphabet other bets
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