Wrapping your head around modern technology is no joke. And once you kind of understand how it works, the next battle is to figure out how people use it to make money. It’s a little perplexing, to be honest, when you use a bunch of free stuff, only to find out that the company whose free stuff you’re using is absolutely crushing it (to the tune of billions of dollars in annual revenue). The obvious such example is Google. Which leads us to an instructive question: how exactly does Google make money? Here is the short answer.
The Free Things
Google is by far the largest revenue generator for Alphabet, its parent company. (To limit complexity, we’ll discuss them interchangeably.) Surprisingly, as above, you may interact with Google’s technology several times a day without ever spending a single penny. Some of its most popular free products include its widely used search engine, email service (Gmail), maps application, and web browser (Chrome). YouTube is more than likely in your rotation as well, often functioning as a search engine for video-based information and entertainment. All these services are great for you, but…
How Does Google Make Money?
Alphabet is one of a handful of publicly traded companies in the world with a market capitalization (share price multiplied by number of shares outstanding) of over one trillion dollars. Clearly, the money is flowing. And while we’re using about 600 words to explain this phenomenon, it can be largely explained in one word – ads. Over 80 percent of Google’s annual revenue, which is headed in the direction of $200 billion, comes via this route.
Ads
Google administers ads in two main ways. The first, called search ads, allows advertisers to bid for a certain search term, thus appearing on a search engine results page when a potential customer searches for that specific term. If the customer then clicks the ad, the advertiser pays Google a given cost per click, ranging from a few cents to over $50, depending on how in-demand the term is. The other ad strategy involves display ads, in which case given ads are displayed on Google properties (like maps, etc.), taking into account user characteristics. Again, the advertiser pays Google if someone clicks on the ad. Non-Google websites and apps can participate in programs that allow them to display such ads on their own property and then share revenue with Google if an ad is clicked.
YouTube is monetized via its own system of ads, with the ads resembling those seen on standard television.
Hardware
Google does earn a small sliver of its revenue in a more old-fashioned way, i.e. making things (or buying companies that make things) and then selling those things. What are some examples? Pixel smartphones, Chromebooks (alternatives to traditional laptops), the Fitbit, Chromecast (a device that adds smart functions to a television), and Nest Audio (a smart speaker) all fall under this category, along with a host of other physical products.
Other Sources
Google also has a variety of other revenue streams. Its Play Store is a popular source of apps, movies, TV shows, games, and books, with the company taking a cut of the sale or rental price. Google also offers a fiber-based internet service in some markets, cloud storage services, a premium version of YouTube that eliminates ads in exchange for payment, YouTube TV, YouTube Music, and on and on.
We’re pretty sure this amount of information is sufficient to provide a rudimentary response to the How does Google make money question. But for a more comprehensive answer, feel free to Google it.
