Google (now Alphabet) primarily makes money through Advertising. The Google search engine, while free, is monetized with paid advertising. Alphabet generated over $282B from Google search and others, $32.78 billion from the Network members (Adsense and AdMob), $29.2 billion from YouTube Ads, $26.28B from the Cloud, and $29 billion from other sources (Google Play, Hardware devices, and other services).
| Alphabet’s Google Revenues (2022) | |
| Google Search & other | $162.45B |
| Google Network Members | $32.78B |
| YouTube ads | $29.24B |
| Google Other | $29B |
| Google Cloud | $26.28B |
| Other Bets | $1B |
| Business Model Element | Analysis | Implications | Examples |
|---|---|---|---|
| Value Proposition | Google’s value proposition is built on several key elements: – Search Engine: Provides fast and relevant search results. – Advertising: Offers targeted advertising solutions. – Cloud Services: Delivers cloud-based storage and productivity tools. – Android OS: Powers mobile devices and apps. – Maps and Navigation: Provides location-based services. – AI and Machine Learning: Enhances various products with intelligent features. Google enhances user experience with fast and accurate search, advertising opportunities, cloud solutions, mobile technology, location services, and AI-driven innovations. | Offers a powerful and efficient search engine for finding information. Provides targeted advertising options for businesses. Offers cloud-based storage and productivity tools. Powers mobile devices and apps through Android OS. Enhances navigation and location-based services. Incorporates AI and machine learning for intelligent features. Attracts users seeking various online services and solutions. | – Fast and accurate search results through Google Search. – Targeted advertising options for businesses through Google Ads. – Cloud-based storage and productivity tools via Google Cloud. – Mobile devices and apps powered by the Android operating system. – Location-based services with Google Maps and Navigation. – AI-driven features integrated into various products like Google Assistant. – Attracting users seeking a wide range of online services and solutions. |
| Customer Segments | Google serves diverse customer segments, including: 1. Individuals: People using Google Search, Gmail, and Android devices. 2. Businesses: Companies advertising through Google Ads and using cloud services. 3. Developers: App developers using Google Play Store and APIs. 4. Advertisers: Entities utilizing Google’s advertising platform. 5. Educational Institutions: Users of Google Workspace for Education. Google caters to various user types, industries, and educational institutions. | Provides a wide range of services for individuals and businesses. Offers tools and platforms for app developers. Attracts advertisers and educational institutions with specialized solutions. Diversifies its offerings to accommodate various users and industries. | – Individuals using Google Search, Gmail, and Android devices. – Businesses advertising through Google Ads and using cloud services. – Developers using Google Play Store and APIs. – Advertisers utilizing Google’s advertising platform. – Educational institutions using Google Workspace for Education. – Diversifying offerings for various users and industries. |
| Distribution Strategy | Google’s distribution strategy includes several key components: – Online Platforms: Provides various online services through websites and apps. – Android Ecosystem: Distributes Android OS to mobile device manufacturers. – Partnerships: Collaborates with hardware manufacturers and content providers. – Google Cloud: Offers cloud services through data centers worldwide. – Google Maps: Provides mapping and navigation services. – Google Assistant: Integrates AI features into various devices. Google ensures accessible access through online platforms, mobile devices, partnerships, cloud services, maps, and AI-powered devices. | Offers accessible access to various online services through websites and apps. Distributes Android OS to a wide range of mobile devices. Collaborates with partners for hardware and content distribution. Provides cloud services through data centers worldwide. Enhances navigation and location-based services with Google Maps. Integrates AI features into various devices through Google Assistant. Prioritizes accessibility, global reach, and user engagement through distribution channels. | – Providing accessible access to online services through websites and apps. – Distributing Android OS to mobile device manufacturers. – Collaborating with partners for hardware and content distribution. – Offering cloud services through data centers worldwide. – Enhancing navigation and location-based services with Google Maps. – Integrating AI features into various devices through Google Assistant. – Prioritizing accessibility, global reach, and user engagement in distribution. |
| Revenue Streams | Google generates revenue from various sources: 1. Advertising: Earns income from businesses running ads on its platforms. 2. Google Cloud: Generates revenue from cloud-based services. 3. Android: Receives licensing fees from mobile device manufacturers. 4. Hardware Sales: Sells hardware products like Google Pixel phones. 5. App Store Revenue: Earns a percentage of sales on Google Play Store. 6. Subscription Services: Offers paid services like YouTube Premium and Google One. Google relies heavily on advertising revenue but also earns income from cloud services, licensing fees, hardware sales, app store revenue, and subscription services. | Relies on advertising as the primary source of revenue. Monetizes cloud-based services through Google Cloud. Receives licensing fees from mobile device manufacturers using Android. Sells hardware products like Google Pixel phones. Earns a percentage of sales on the Google Play Store. Generates income from subscription services like YouTube Premium and Google One. Diversifies income sources for financial stability. | – Earnings from advertising by businesses on its platforms. – Monetizing cloud-based services through Google Cloud. – Receiving licensing fees from mobile device manufacturers using Android. – Selling hardware products like Google Pixel phones. – Earning a percentage of sales on the Google Play Store. – Generating income from subscription services like YouTube Premium and Google One. – Diversifying income sources for financial stability. |
| Marketing Strategy | Google’s marketing strategy focuses on the following elements: – User Experience: Prioritizes a seamless and efficient user experience. – Advertising Solutions: Promotes Google Ads for businesses. – Cloud Services: Highlights cloud offerings through Google Cloud. – Mobile Devices: Markets Android-powered smartphones. – Content and App Promotion: Showcases apps and content on the Play Store. – AI Advancements: Emphasizes AI features through Google Assistant. Google promotes user experience, advertising opportunities, cloud solutions, mobile devices, content promotion, and AI-driven innovations to attract and retain users and businesses. | Attracts users by offering a seamless and efficient experience. Provides advertising solutions for businesses through Google Ads. Highlights cloud offerings through Google Cloud. Markets Android-powered smartphones to a global audience. Showcases apps and content on the Play Store for user engagement. Emphasizes AI-driven features for convenience and personalization. Prioritizes elements that enhance user acquisition and retention. | – Offering a seamless and efficient user experience. – Promoting advertising solutions for businesses through Google Ads. – Highlighting cloud offerings through Google Cloud. – Marketing Android-powered smartphones to a global audience. – Showcasing apps and content on the Play Store for user engagement. – Emphasizing AI-driven features for convenience and personalization. – Prioritizing elements that enhance user acquisition and retention. |
| Organization Structure | Google’s organizational structure includes: – CEO and Leadership Team: Led by the CEO responsible for strategic direction. – Product Divisions: Organized into various product divisions like Search, Cloud, and Android. – Business Units: Manages advertising, hardware, and cloud operations. – Alphabet Inc.: Operates as Google’s parent company overseeing various subsidiaries. Google’s structure emphasizes product development, business operations, and parent company management. | Led by a CEO responsible for strategic direction and decision-making. Divides operations into specialized product divisions and business units. Operates under the umbrella of Alphabet Inc. for broader oversight. Manages product development, business operations, and overarching strategic goals. | – Led by a CEO for strategic direction and decision-making. – Dividing operations into specialized product divisions and business units. – Operating under Alphabet Inc. for broader oversight. – Managing product development, business operations, and overarching strategic goals. |
| Competitive Advantage | Google’s competitive advantage arises from: – Advanced Algorithms: Utilizes complex algorithms for search and AI. – Data Insights: Leverages vast user data for personalized experiences. – Search Dominance: Maintains a dominant position in the search engine market. – Cloud Infrastructure: Boasts extensive data centers and cloud services. – Android Ecosystem: Powers a large share of global mobile devices. – Brand Recognition: Enjoys high brand visibility and trust. Google distinguishes itself with advanced technology, data-driven insights, search dominance, cloud infrastructure, Android ecosystem, and strong brand recognition. | Utilizes advanced algorithms for efficient search and AI capabilities. Enhances user experiences with data-driven insights and personalization. Maintains a dominant position in the search engine market. Offers extensive cloud infrastructure and services. Powers a significant portion of global mobile devices through Android. Enjoys high brand visibility and trust in the technology industry. Maintains a strong competitive position across various sectors. | – Utilizing advanced algorithms for efficient search and AI capabilities. – Enhancing user experiences with data-driven insights and personalization. – Maintaining a dominant position in the search engine market. – Offering extensive cloud infrastructure and services. – Powering a significant portion of global mobile devices through Android. – Enjoying high brand visibility and trust in the technology industry. – Maintaining a strong competitive position across various sectors. |
In fact, let me show you two important statistics to understand how advertising is built into Google’s business model, financial model, and cost structure.
When you look at Google’s business model, it’s easy to think it’s a software company, and therefore, it has minimum acquisition costs.
In reality, software companies like Google, to have a long-term advantage, have to master distribution. Indeed, when we look at Google’s business model, there is a key number to check out to understand its health: traffic acquisition costs (TAC rate).
The TAC is the amount of money Google spends to send qualified traffic back to its properties. Keeping this number stable, or decreasing over time, is critical.
In addition, another thing we want to check is what I like to call “traffic monetization multiple,” which represents how many times over its traffic acquisition costs Google can monetize its properties.
For instance, in 2022, this number was 4.6.
In short, Google managed to monetize its traffic acquisition costs 4.6 times over. The higher, the better, of course. But the main point is to understand through these metrics the health of the overall advertising machine.
Google advertising monetization model
Google follows an advertising business model to deliver relevant ads.
For relevant ads, Google means those are showing up just at the right time and giving people useful commercial information, regardless of the device they’re using.
As of 2022, advertising still represented 80% of total Google’s revenues.
Also, Google offers advertisers a set of tools that help them better attribute and measure their advertising campaigns across screens.
It does so by running two main kinds of ads:
- performance advertising
- brand advertising
Performance advertising
Google creates and delivers relevant ads that users will click on, leading to direct engagement with advertisers. The performance advertisers pay when a user engages in their ads.
AdWords is the primary auction-based advertising program that helps create simple text-based ads that appear on Google properties and the properties of Google Network Members.
Also, Google Network Members use the AdSense program to display relevant ads on their web properties, generating revenues when site visitors view or click on the ads.
Brand advertising
Google helps enhance users’ awareness and affinity with advertisers’ products and services through videos, text, images, and other interactive ads that run across various devices.
Google focuses on creating what they define “the best advertising experiences” for its users and advertisers in many ways. Google clarifies its efforts as “ranging from filtering out invalid traffic, removing hundreds of millions of bad ads from the systems every year to closely monitoring the sites, apps, and videos where ads appear and blacklisting them when necessary to ensure that ads do not fund bad content.”
This is critical to Google’s success. One of the most compelling reasons for Google to take off the search industry was based on its ability to rank organically content that was qualitatively 10x higher compared to its rivals. Also, even though Google AdWords allows advertisers to bid on keywords, it also selects those text-based ads based on the quality, as those text-based ads with more clicks got the highest spot on the search results pages.
How does Google measure its advertising network performance?
When assessing the advertising revenues performance, there are two critical metrics Google looks at:
- the percentage change in the number of paid clicks
- and cost-per-click for Google properties (AdWords) and Google Network Members’ properties (AdSense)
Paid clicks explained
Paid clicks represent the main business of Google that is bringing the company over $162 billion in 2022!
One of the innovations Google brought, beyond its ability to serve more relevant results, it was an action-based bidding model (Google actually copied it from Overture) mixed with a relevance algorithm that ranked advertising based on what generated more clicks. Thus it was more relevant.
Paid clicks can be broken down into three main categories:
- paid clicks on Google.com
- paid clicks on other Google properties
- paid clicks on Google member’s network
Paid clicks on Google.com
Paid clicks on Google properties represent engagement by users and include clicks on advertisements by end-users related to searches on Google.com
Paid clicks on other Google properties
Paid clicks also relate to advertisements on other owned and operated properties; some examples:
- Gmail
- Google Maps
- Google Play
- YouTube engagement ads
Paid clicks on Google member’s network
The former category of paid clicks is the so-called “Google Network Members’ properties.” In short, that includes clicks by end-users related to advertisements served on Google Network Members’ properties. Those are the sites participating in programs like:
- AdMob
- AdSense for Content
- and AdSense for Search
In some cases, such as programmatic and reservation-based advertising buying, Google primarily charges advertisers by impression; this represents a small part of Google’s consolidated revenues base.
Cost per click explained
Cost-per-click is defined as click-driven revenues divided by the total number of paid clicks. Thus, that is the average amount Google charges advertisers for each engagement by users.
What does influence Google’s advertising revenue growth?
Several revenues might be influencing Google’s advertising revenue growth.
As pointed out in Alphabet annual report some of those factors are:
- advertiser competition for keywords;
- changes in advertising quality or formats;
- changes in device mix;
- changes in foreign currency exchange rates;
- fees advertisers are willing to pay based on how they manage their advertising costs;
- general economic conditions;
- growth rates of revenues from Google properties, including YouTube, compared to growth rates of revenues from Google Network Members’ properties;
- seasonality;
- a shift in the proportion of non-click based revenues generated on Google properties and Google Network Members’ properties, including an increase in programmatic and reservation based advertising buying; and
- traffic growth in emerging markets compared to more mature markets and across various advertising verticals and channels.
Google advertising network in a nutshell
Google assesses as its main metrics the change in its pay per clicks change and the change in its cost-per-click (defined as the average amount Google charges advertisers for each engagement by users ).
An increase in paid clicks is a good sign of Google’s ability to attract advertisers to its platform. However, it needs to be assessed against Google’s cost-per-click change.
More advertisers might spend less per click, thus making the average revenues for Google decrease.
As you can see, in 2022, the pay-per-click decreased by 1% compared to 2021.
YouTube Ads
Breaking down the other side of the Google business model
Google’s other revenues consist primarily of revenues from:
- Apps, in-app purchases, and digital content in the Google Play store;
- Google Cloud offerings
- Hardware
Google Play business model
Source: web.archive.org
Google introduced in-app subscriptions to Google Play in May 2012. Previously known as Android Market, Google Play is a digital distribution service operated and developed by Google.
That is the Google official app store for the Android operating system. The set of applications was developed on top of the Android software development kit and published via Google.
On Google Play, developers will make – based on app purchases – a revenue split of 85/15. In short, the app developer makes 85%, while Google retains 15%. The products on the Google Play store have a strong mix comprising:
- Music
- Books
- Movies and TV shows
- News publications and magazines
Source: web.archive.org
Google Cloud business model
Google was a company built in the cloud and has been investing in infrastructure, security, data management, analytics, and AI from the very beginning.
We have continued to enhance these strengths with features like data migration, modern development environments, and machine learning tools to provide enterprise-ready cloud services, including Google Cloud Platform and G Suite, to our customers.
Google Cloud Platform enables developers to build, test, and deploy applications on Google’s highly scalable and reliable infrastructure.
Our G Suite productivity tools — which include apps like Gmail, Docs, Drive, Calendar, Hangouts, and more — are designed with real-time collaboration and machine intelligence to help people work smarter.
Because more and more of today’s great digital experiences are being built in the cloud, our Google Cloud products help businesses of all sizes take advantage of the latest technological advances to operate more efficiently
The Google hardware business model
Google offered hardware devices for purchase until the introduction of a separate online hardware retailer called Google Store on March 11, 2015.
That comprises Google-branded hardware and accessories:
Google “Other Bets”: A look into Google’s future
Alphabet’s Other Bets are early-stage businesses, which goal for them is to become “thriving, successful businesses in the medium to long-term.”
That is how Google defines them. One of the first steps Google has done is to have a “strong CEO to run each company while rigorously handling capital allocation and working to make sure each business is executing well.”
Those early-stage businesses carry a high risk, yet some of them are already generating revenue. For instance, Nest is already generating revenues. Waymo, a self-driving car company, continues the development and testing of its technology and now has a fleet of vehicles in Phoenix, Arizona, driving without a person behind the wheel.
Verily, a life sciences company, received an $800 million investment in 2017 from Temasek to accelerate its strategic programs.
Google’s other bets primarily generate revenues from:
- Internet and TV services
- licensing and R&D services
- and Nest-branded hardware
