How does Google make money? Its customers and real product are not immediately obvious. Google makes money through advertising. Google has monetized its web search feature by using paid ads. Ad listings are concise text placements labeled as “Sponsored Links” on search result pages. Advertisers bid for keywords and to determine the top-to-bottom ordering of the ads that appear.
Paid listings are typically sold on a “per-click” basis. An advertiser pays only when a user actually clicks on the advertiser’s listing. Analysts estimated that 70% of e-commerce transactions originated through a web search and 40% of web searchers have commercial motivation.
Google’s customers are its advertisers and ad-hosting partners. Google’s AdWorks system is used by small businesses, targeting local customers, to large global companies reaching Google users around the world. In addition to hosting ads on its own web sites, non-Google web sites can share ad revenue with Google by hosting Google generated ads.
Google has expanded efforts to attract more advertisers, especially local advertisers. With more than a dozen U.S. sales offices and 30 international offices, Google intends to reach the 10 million small and medium-sized businesses in the U.S. and beyond. As most of these businesses are focused on local sales, Google’s geographic targeting system allows ads to be targeted to specific geographic regions. The opportunity for Google is large; U.S. small businesses spent $22 billion on local advertising. By mid-2001 Google.com was the ninth largest US website, with 24.5 million unique monthly visitors.
Google’s mission is to organize the world’s information, make it universally accessible and useful. Google’s web search function is the product it uses to fulfill its mission. However, since its IPO in 2004, Google has launched several products that expanded its domain beyond web search. These products include: Gmail, Google Maps, Google Books, Google Finance, Google Docs, Google Calendar, Google Checkout and more. Additionally, the acquisitions of YouTube and DoubleClick expanded Google’s presence into online video and banner display advertising respectively.
The products listed above are not Google’s “real” products. Google’s real product, to its paid advertising customers, are the millions of people who use Gmail, Google Maps, Google Docs, etc. You and I are Google’s real product. Google attracts us to its useful, free web based products. In exchange for showing us targeted ads and collecting our de-personalized web activities, Google’s products offer the information we desire and an excellent user experience. Our web activities are used by Google to refine its ad placement model and strengthen the accuracy of its search engine.
Why are people attracted to Google’s offerings? I rely heavily on Gmail, Google Calendar and Google Maps. I use these products because they are: easy to use, well designed, feature rich and available anywhere via a web connection. Other companies provide similar offerings, but Google’s reputation as a stable, innovative, successful, “cool”, company played a part in me using them.
Google’s success is proof that the model of a company making a profit by offering free ad supported web based content, product and services works. One of the keys to success with this model is to attract and keep companies and people using your offerings. Google does this by continually updating its ad tools for its advertising costumers, its search algorithm and the other products its “real products” and customers desire to use.