How Does Google Make Money if its Services are Free?

As of 2017, Google was the most valued brand in the world. Its parent company Alphabet was the second largest company in terms of market cap at $581 billion on S&P 500 (March 2017).

Wikipedia will tell you that Google is technology company that specializes in internet-related services and products that include advertising technologies, cloud computing etc. In simpler words, Google is an advertising company and its biggest asset is it users.

You too will have a Google account and rely on "googling" for your answers. But these services are provided by the company for free. Now, by asset we mean that the company is a valued name because of the number of users that rely on it.

How does Google make money?

The answer is Advertising. Deriving a major chunk of its profits from ads, it is nothing short of an advertising company. However, it has a conventional business model, also known as digital marketing, that makes it different from a traditional advertising company.

Adwords and Adsense are two of the services provided by Google. It has targeted way to generate traffic for websites, which means that when you type the name of a book for example, you will see ads of online shopping websites selling that book on top or on the right side.

What Google does is, it allows the seller to advertise its product based on key words, so when a user types a keyword related to the product, the advertiser's products shows up.

You will see the word "sponsored" or "Ad" next to the result. It means that the seller has opted for Adwords, which allows its product to be showcased on top, in a way that it catches the user's eye and clicks on it.

What makes it an efficient advertising model is that the user comes to you. A person looking for that certain book finds it way to your website, which means you have targeted customers and do not need to go advertising all over, as the traditional ads did.

Pay Per Click (PPC)

Google works on a different revenue model too, it is called the Pay Per Click or PPC where it charges you on the per click basis. This means that only if a user clicks on your ad, you pay; which is especially helpful for a small scale business which gets less traffic.

A bakery for example, will only want to target the customers in its area. So when the user types "bakery in Bangalore", the results will bring up your name.

Now, you might wonder how will it benefit that shop if lists names of all the bakeries in town?

The pay per click works on auction. Every business usually has many players who are competing against each other. In order to make their search result appear on top, Google auctions popular keywords which advertisers bid for based on how much they are willing to pay for their ad to appear on top.

Google however, does not rely only on the highest amount to come to a decision but also on quality, relevance and usefulness of the website to the user.

 

Adsense Revenues

Adsense is a service that allows websites to list Google branded ads. This works on its algorithms. So if you are on a website about fitness, you might see ads related to fitness like a gym equipment or sportswear. Other times, the ads are based on your recent searches, which is why that certain sports shoes you clicked on a while earlier will follow you on other websites too.

You might have seen that a product that you had earlier searched for appears on every website you go to. If you happen to use you logged into the same gmail account on the phone, you will find it there too.

Just like Adwords, advertisers are charged per click, but Google pays the websites where these ads are displayed.

Business Policies

What makes Google a good ad partner is it "free to leave at will" policy. This means that there is no contract, and the advertiser can terminate using its services as and when it wishes to.

Also, it focuses on providing most relevant content to its users, making it a reliable brand.

As mentioned before, Google's users makes it a valuable brand, so it has to focus on users' experience.

 

Google Play Store Apps

As we all know, Android is a mobile operating system developed by Google. A majority of the smart-phones used around the world run on Android, and it has millions of apps in its Play Store.

The second biggest source of income for Google is android apps. It receives a percentage of commission from these apps when they are downloaded, especially paid apps.

Google also has its own apps listed on other platforms Apple's App Store, designed for iOS.