Quick — How Does Google Make Money?

When it comes to Microsoft we all know how they make money. Most of their revenue comes from the flagship products – Microsoft Windows & Microsoft Office. As you can see from the chart, Windows & Office sales accounts for 60% of Microsoft’s revenue. But have you ever wondered how Google makes money?

I have asked many of my friends about Google’s business model. But no one exactly knows how Google makes money.

Thirty seven billion dollars ($37 bn). Guess what? That’s the 2011 revenue of the search engine giant Google. But how is that really possible when they don’t have any tangible products or when they don’t charge a penny for most of their products/services? Then, where does this revenue come from? Well, it’s advertising, and again advertising – Google AdWords & Google AdSense to be precise. In fact 97% of Google’s revenue is from advertising.

Who is actually spending these billions on search ads? The following info graphics is the answer – Google Revenue Sources & Breaking Down Google’s 2011 Revenues.

But Wait, I Don’t See Any Ads On Google

Google’s homepage is almost empty with no contents or ads. (Reason?). And, everything you use from them is absolutely free whether it’s Search, Gmail, Orkut, YouTube, Apps, Docs, Picasa, Maps, Earth, News, Analytics, Blogger or the so called 101 Google Products And Services You Probably Don’t Know. Then how the hell do they make big bucks?

It’s all about advertising. Google has a very popular auction based advertising program called – Google AdWords. With Google AdWords you can advertise your business on Google’s SERP (Search Engine Results Page). That is where all the revenue comes from.

If you have noticed carefully during any of your searches on Google, there is a section called “Ads”. These are obviously contributions by advertisers who pay Google every time you click on any of those. So if you search for “loans” or say “insurance” on Google then you’ll  find ads relevant to loans or insurance itself.

The following screenshot shows the ads appeared when I searched for “car insurance”.

That’s not all. Google has an advertising program called – Google AdSense – that allows publishers like me (and probably you) to make money by displaying relevant ads on our website/blog. When it comes to monetizing every webmaster/publishers prefers Google AdSense.

It’s Really A Win-Win-Win Situation

The thought of making money without any tangible products can be difficult to absorb but its essence lies in Google’s innovation. Google gets the money from their advertisers. And, the advertiser pays only when someone clicks on their ad. This is contrary to traditional banner advertising where advertisers are required to pay whenever their ad is displayed on a banner network. The consumer who is searching for a particular product sees only relevant ads. So it is this advertising that creates a win win win situation for Google, Advertisers & Consumers.

If You Still Don’t Know How Does Google Make Money

In Google’s Own Words…

Today, the majority of our revenue comes from advertising.

Advertisers are increasingly turning to the Internet to market their products and services. Google AdWords, our auction-based advertising program, enables advertisers to deliver relevant ads targeted to search queries or web content to potential customers across Google sites and through the Google Network, which consists of content owners and websites. Our proprietary technology automatically matches ads to the content of the page on which they appear, and advertisers pay us either when a user clicks on one of its ads or based on the number of times their ads appear on the Google Network.

We distribute our advertisers’ AdWords ads for display on the Google Network through our AdSense program. We share most of the revenue generated from ads shown on a site of a Google Network member with that member.

Source: Google Investor Relations

Okay. So How Much Does Google AdWords Charge Per Click?

The price an advertiser pays for a click (known as Cost Per Click or simply CPC) usually depends on a lot of factors. Google is using a kind of bidding system. You select the keywords for which you want to show ads so that when someone searches for those keywords on Google, your ads will be shown.

Let’s say you own an insurance company and want to find customers. What you do is bid on keywords related to “Insurance” like “buy insurance, life insurance etc. So whenever someone searches for “buy insurance” or “life insurance” your ads will be shown.

The price you need to pay Google depends on the competition for that particular keyword(s). Now if there are many other companies bidding for the same keyword then most probably you’ll have to outbid them. The Cost Per Click (CPC) varies from 0.01$ to 100$ or maybe even more.

Holy Google! Advertisers are paying as high as $50 per click for insurance, mortgages and loans related keywords.

Did You Know?

About 69% of Google’s revenue comes from ads running on Google’s own websites including Google, YouTube, and Orkut, about 28% of the total revenue comes from ads running on Google’s partner sites via Google AdSense. And the rest comes from Google Apps subscriptions, Gmail paid storage, Google search appliance sales, etc.

The most bizarre thing about Google’s business is that they hardly have any tangible products. Then what is it that they sell? Traffic, yes you got it right, they sell real traffic.

So now you know that the biggest search engine is also the biggest advertising company in the world. Do you want to advertise your business on Google? You can kick start your trial campaign with a $75 FREE Credit from AdWords. Read (Free Pay Per Click (PPC) Advertising Credits).