When almost all the services provided by Google e.g. Google search, Gmail, Chrome, YouTube, G Drive, G Map etc. are free, then how does Google make money?
Facts & Figures
With over 40,000 searches per second or more than 1.2 trillion searches per year worldwide, Google is undoubtedly the world’s singe most popular search engine. Its services are near impeccable. But have you ever wondered how does Google make money?
Alphabet Inc, is Google’s parent company. It was established in 2015 as part of corporate restructuring of Google. Alphabet Inc, ranks 22 on the Fortune 500 list of the world’s most valuable company.
The parent company holds other subsidiaries as well, alongside Google. However, Google remains its main source of revenue and profits.
Of the US $110.855 billion revenue netted by Alphabet Inc., by the end of 2018, Google was the largest contributor.
Google’s revenues stood at $97.102 billion by the end of Third Quarter (Q3) of 2018, according to various independent sources. It posted a profit of $9.2 billion in Q3 of 2018, according to Alphabet Inc. corporate website.
And Google’s revenues and profits continue to grow. Hence, financial experts encourage investors to buy Google stocks for their portfolio. By mid-February 2019, single share of Google cost almost $1,100 each on American stock exchanges.
With these mind boggling figures, anyone would wonder how Google makes money despite offering the services like and lots of other software like Google docs, Google Earth, free of cost to users.
Here are the answers.
How Google Makes Money
Just in case you believe that Google search engine is the only source of income for this company, think again. Alphabet Inc., or Google makes money in many different ways that you could imagine.
1. Google Advertising
This is the simplest answer to our question: How Google makes money? About 90 percent of Google’s revenues come from its vast advertising network. This may sound simple enough. Yet it is a bit complicated. Hence, I will explain further.
How? Google Ads displays advertisements over two million websites and more than 650,000 mobile apps worldwide and round the clock.
Google has a service called Ads.
Google Ads is the main source of revenue for this giant company.
Understanding Google Ads
Surely, you have experienced this: Whenever you search for something on Google, a few advertisements related to your query pop up on the side of results. Also, some of the search results will carry a small legend ‘Ad’ just below their title (called meta-title in technical jargon).
These advertisements crop up because a business or organization is offering some information that matches your search.
Any business or organization can create a free account on Google Ads. These advertisers can create simple, small text ads or creative display and banner ads.
Advertiser can choose to show these ads above or below search results on Google Search, Google Play, Google Shopping, and Google Maps.
They can also choose to show their ads on 2 millions websites in Google Display Network, Gmail, YouTube and millions of apps.
If you click on any of these advertisements, Google gets money from the organization. Fees Google charges to display advertisements depends upon the type of service taken by the organization or business from Google Ads.
How Google Ads makes Money
Consider you are searching for a good credit card or insurance plan. Obviously, you would search Google for the best ones in your area. Once you search with such keywords, Google will display a lot of websites.
Some of these websites will have the letters ‘Ad’ that appear just below the left side of the title or meta-title. These two letters ‘Ad’ implies, the organization or company is paying Google to display its website on top of other searches.
a) Google Ads PPC
Next time when you visit Google and click on any of the results, that carry a small legend ‘Ad’ just below their title, Google makes money.
Google charges the advertiser regardless whether you buy or not from the website. With over 3.5 billion daily searches, you can imagine how much money Google makes per day through PPC and Ads.
The average Click-Through-Rate (CTR) of Google stands around 3.17 percent out of 3.5 billion searches daily. Hence, you can well imagine how much money Google makes with Google Ads.
b) Google Display Network
This is again part of Google Ads.
Google Display Network reaches over 90 percent Internet users worldwide, whether they are connected through a computer or smartphone. Google Display Network allows advertisers to create and promote campaigns either locally, domestically or worldwide.
This means, an advertisement will be displayed on Google, Gmail, YouTube and almost every other website by Google Display Network.
Once again, Google Display Network allows advertisers to fix a budget and offers the option of PPC. This means, an advertiser will pay Google only when someone clicks on the advertisement.
Google Display Network has a Click-Through-Rate (CTR) of about 0.46 percent across all industries. This may sound low. But when calculated against overall 3.5 billion daily searches, the amount of money Google makes is simply staggering.
2. Google Earnings from YouTube
YouTube is the world’s single largest online audio and video sharing platform. It is owned by Google. Hence, Google also makes money with services from YouTube.
Worldwide, YouTube has over 1.8 billion Monthly Average Users (MAUs). Over 13 billion videos catering to almost every audience are available on YouTube.
Additionally, more than 5 billion videos are watched daily on YouTube. Over 300 hours of new videos are uploaded every minute on YouTube.
Given these facts, it is obvious that Google will monetize YouTube to make more money. Here are some ways how Google makes money from YouTube.
a) YouTube Ads
Google Ads also works on YouTube. I have already explained how Google Ads displays advertisements on a website or blog. The same principle is true of YouTube too. In fact, Google owns YouTube, as you may know.
Surely you will have watched some videos on YouTube. If so, you may have seen an advertisement appear before a video starts playing. Also, there are ads that play between or at the end of a video.
Further, ads will also appear on the side of a YouTube video or as bars and banners.
YouTube Ads offers different levels of subscriptions. You can fix a budget and decide on audience that you want to reach. Regardless whether a business has a video or not, YouTube helps make an advertisement that suits their needs.
YouTube advertising starts from as low as $10 per day, for local audiences. If any organization wants a nationwide or global reach, they pay more. Google has various pricing plans for YouTube advertisers.
The company plans to step up advertising on YouTube at your cost: a top executive at YouTube revealed, viewers can now expect more ads while watching their favorite videos.
b) YouTube Premium
YouTube Premium is a paid version of this popular audio and video sharing platform. But YouTube Premium comes at a price. YouTube Premium subscribers in the US pay $11.99 per month to watch their favorite videos.
Of course, there are some distinct advantages of YouTube Premium. There are no ads and background plays. You can also download music and videos from YouTube Premium. There are variants of YouTube Premium that are available for $9.99 per month subscription.
3. Android by Google
This is most likely one of the biggest source of money for Google.
Google owns and operates another money spinner: Android an Operating System for smartphones. Interestingly, Google and US-based computer technology giant, Oracle, have locked horns in American courts over Android.
Interestingly, Google is very tight-lipped about how much money it makes every year from Android. However, lawyers for Oracle claimed that Google forked in about $31 billion from the Android operating platform in 2016.
How does Google make money on Android?
Firstly, it gets money for any ads that appear on its Android powered smartphones worldwide. Secondly, Google makes some money by selling paid apps on its Play store.
4. Google Pay
Launched in January 2018, Google Pay is an online wallet and digital payments system from Google. It works on Android based mobiles and wearable devices. Currently, Google Pay is operational in 30 countries, with South Korea being added in January 2019.
However, Google has yet to disclose revenues from Google Pay. By end 2018, Google Pay had about 25 million active users.
This online payments system charges a small fee from merchants that allow customers to pay for purchases with Google Pay.
Additionally, Google Pay makes a lot of money from in-app advertisements. Further, banks have also to pay some fees to Google to provide connectivity to customers that use Google Pay app.
5. Hardware from Google
Yet another way how Google makes money: from its branded hardware. Google sells lots of hardware including Google Home, a hands-free assistant that enables you to play music, listen to jokes and perform other simple tasks.
Google Chromecast enables viewing videos from your Android or iPhone smartphone to your TV.
You can buy Google hardware online or from a retailer. Google hardware is said to have generated six percent or $8.8 billion of Alphabet Inc.’s gross revenues in 2018. The figure will grow exponentially by 2021 according to industry experts.
6. Google Software
From encryption to dating, monetization to motoring, Google has over 90 free and paid software that are available for laypersons, developers and businesses. Google’s software division is a major revenue earner for Alphabet Inc.
Exact details about how much money Google makes from its software sales is not known. Worldwide, the most popular Google software remains Earth Premium, Google Certified Shops, Google Merchant Center and Google Manufacturer Center, among others.
7. G Suite from Google
G Suite ranks among the most popular enterprise solutions from Google. It is a brand of cloud computing, productivity and collaboration tools that helps remote workers connect to their head offices.
G Suite also has several other enterprise applications including video conferencing and storage of large files.
Google Cloud solutions like G Cloud come at a monthly subscription fee. These fees vary according to your location.
8. Google Pixel
There are several expensive smartphones available in the global market. Yet, Google has its own smartphone- Google Pixel. In fact, Google Pixel phones rank among the most expensive ones anywhere in the world. With prices upwards of $299 each, owning a Google Pixel phone is prestigious.
Google Pixel is popular for its unique features including very high resolution cameras, sturdy build and high internal memory. It is one of the toughest competitors to the iPhone from Apple and costs almost similar.
9. Apps & Google Play
Google makes a lot of money from apps for Android phones. If you are an app developer, the best way to get people to use an app is obviously, Google Play store. Over 2.6 million apps came up on Google Play by end 2018.
How does Google make money on apps? It earns money in two ways. App developers selling through Play store pay Google a small fee to use the service. The money depends upon how Google will promote the app, number of downloads and other parameters.
Additionally, Google makes money by displaying in-app advertisements using Google Ads. Advertisers pay for every ad and also for their apps downloaded from Google Play store.
10. Google Merchandise
Crazy about Google? Go ahead and show off your love for the world’s single largest search engine and brand by wearing their merchandise. Or gift Google merchandise to someone close to your heart. This merchandise can be bought online only at the official store of the company.
Most of us would be amazed but yes. Google also sells its branded merchandise. This includes T-shirts, bags, hoodies, scarves and lots more. These are official Google products, albeit made by other suppliers.
Google merchandise is very popular among techies across the world. There are no details about how much money Google makes by selling its official branded merchandise.
11. Virtual Reality Products
Google has a small range of Virtual Reality (VR) products. Indeed, it is one of the pioneers in VR entertainment. Google sells Cardboard, a VR application and Google Daydream View, a VR viewer.
Both these products are yet to gather momentum in the global VR market. Yet, they do earn some revenue for Google.
12. Google Maps
Google Maps is something everyone uses. Whether we want to find the nearest post office or directions to drive to a distant city, it is all there on Google Maps. For individual users like us, Google Maps is free to use.
But Google charges businesses and government organizations to use Google Maps. They can send you advertisements on Google Maps for example- a restaurant in your vicinity or a traffic warning.
Google Maps also allows advertisers to flash an ad while you are driving or commuting. Such advertising is also one of the ways Google makes money.
13. Google Cloud
Google Cloud offers a wide range of solutions to businesses– at a fee of course. These range from Artificial Intelligence to Data Analytics. Customers can avail a free trial and get credits worth $300 when they sign up for Google Cloud services.
The list of Google Cloud clients reads like who’s who of the Fortune 500 list. It includes Twitter, HSBC Bank, PayPal, Target chain of superstores, Bloomberg, Nielsen market research, eBay. 20th Century Fox, Chevron, Colgate Palmolive, Scotiabank and New York Times, among others.
With such an impressive client line-up, it is fairly easy to gauge how does Google makes money from its cloud services.
Google and YouTube rank as No-1 and No-2 websites in the world respectively. Hence, one can only imagine the number of visitors to these two websites daily.
Therefore, it is natural that Google and YouTube will monetize this traffic in some manner. And they are doing it very well too, considering prices of Google stocks and profitability.
In coming years, we might see some shift in patterns how Google makes money. Google might do so by adopting newer techniques, keeping pace with latest developments.