How does Google make money?
It might sound like a stupid question. Obviously, Google does make money, and lots of it. Back in October, 2014, Google was valued at $365 billion, and that total has only increased, allowing them to dominate the search engine market.
But it’s not exactly intuitive. Searching on Google is free. Having your website listed on Google is also free. So much of what Google does is free, including Gmail, Google Maps, and Gchat. At what point does Google start charging for its services?
Lots of people are aware that Google makes money by selling advertising space in its search results page. However, with a reported revenue of $66 billion for 2014, it’s hard to believe that selling advertising space is the only Google brings in money.
96% of Google’s Money Comes From Advertising
That’s right. 96%. This 96% of Google’s revenue comes from only two sources: Google AdWords, and Google AdSense. The majority of this 96% comes from AdWords. Here’s why AdWords is such a huge revenue stream for one of the most successful companies in the world (we’ll go over AdSense in a later blog).
Google AdWords is the program that allows businesses to buy real estate in Google’s results page. By purchasing a PPC ad (pay-per-click) for a specified search query, businesses can hop over their competition and grab a spot at the top of the search results whenever someone makes that search. AdWords is the source of no less than 70% of Google’s advertising income.
There are two main reasons why Google AdWords has been such a big hit.
First, AdWords is based on the unmatched ability of search engines to find an interested and captivated audience.
Whenever someone types a query into a search engine and hits enter, they’re putting a valuable label on themselves: They’re saying that they’re interested in finding out more about whatever it was that they’re searching for. For example, someone who searches for “Mazda CX-5” is saying that they’re interested in that particular brand, and that particular model.
The label is golden for marketers, because it’s specific enough that they know exactly what their customer is looking for. You can’t get a label that specific with other marketing mediums. Television ads can only target wide demographic swaths – like “middle-aged” and “men” – that a show is popular with, or meant to cater to. This is why football games have ads for Ford pick-ups, Bud Light, and Viagra.
Google AdWords allows businesses to put their marketing efforts in front of people interested in what they’re selling – and not waste it by advertising to anyone else.
Second, Google AdWords is a completely at-will marketing campaign. There are no contracts or commitment that might make businesses balk. Because businesses can start and stop their advertising efforts whenever they want to, without penalty, they’re not roped into commitments that they might find themselves regretting later on.
The Value of Google AdWords
So, let’s do the math. If all the reported stats are right, and Google’s 2014 revenue was actually $66 billion, and 96% of their money came from advertising, and 70% of their advertising revenue came from AdWords, how valuable was Google AdWords in 2014?
$44.35 billion. Not bad.