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Google Search Engine: Discover how this Goliath Company profits

Google is the largest search engine worldwide today, holding about 71% market share. Might be the reason why it reached rank 22 in the global revenues, according to Fortune 500. After about two decades of existence, Google’s success lies in the company’s business model. Google offers various products and services such as advertising tools, search tools, communication, publishing, development, security tool, etc..

Google also provides free services, yet this goliath tech company reported $33.74 billion in revenues during the third quarter (Q3) last year. Now, what do Google really make money?

Google’s main focus on their business model is advertising. In particular, Google gains revenue from their complementary advertising programs – AdWords and AdSense. Both are to charge advertisers based on the aggregate amount of clicks the ads generates. On the Q3 last year, about $28.65 from the total revenue from came from the said products (AdWords & Adsense.

How Google ads gain profit

Google’s Adword is auction-based advertising, inserting simple, text-ads on Google’s search engine result page (SERP) and the partner’s websites. Users then use search terms/phrases, afterward, Google then provides users with results relevant to their search.

AdSense offers partners and online publishers to place Google AdWords Ads within their website. Google makes brand advertising promoting the advertiser’s product or services via video, text, and image ads. That includes the TrueView ads that which are usually on YouTube, Google maps, and other Google sites.

During Q3 of 2018, Google generated about 85% of their revenue from advertising and just 2/3 came from ads on Google’s own Websites. Percentage of Google’s profit comes from advertising is a flat year after year because of the fee Google can charge per Click deceases. Price decrease in advertising is due to the growing competition within the search engine industry.

Google Product Sales

As pointed out before, Google also have non-advertising profits including Google Play, Google for Werk, Chromecast, and Nexus & chrome I

OS devise. During the third quarter last year (2018), Google generated 13.75% of the total revenues only form the product lines. Clear progress compared to its last year’s performance of about 12.93%. Even if the margins on the businesses are growing, it was unlikely to reach the same revenues their advertising generates.

Google Geographical Segmentation

Google roughly have 46% of their revenue from the United States during the Q3 in 2018. Overseas profit continues to grow year after year. That includes competition on smartphone makers. As of now, Google competes with users in multinational technology giants such as Samsung, Apple, and Huawei.

Google’s Cost

The cost can be broken down to four major components (cost of revenues, research & development, sales & marketing, and administrative expenses).  Google’s cost of revenues includes Traffic Aquisition Cost (TAC), content acquisition costs, expenses in connection with the operations of the data centers and inventory cost for hardware. Google’s TAC shown 70%  of their total cost od profit during Q3 of 2018, consists of advertising revenues shared with network partners and distributors through AdSense program.

AdSense partners and publishers gain 685 if the ad revenue posted on their content and 51% of ad profit for the searches on their sites. That was one of the reasons profit margins from the AdSense program are way lower than the AdWords ads on the Google search engine.

On the research and development cost, compensation for the company’s R&D team will be given to more than 20,000 employees. It pays staff with a size of $5.23 billion during the Q3 of 2018. As Google continues to widen their product line, it will expect expenses to grow.

Google has a notable sales and marketing team, estimated over 17,000 staff. This team is accounted with about $3.85 billion (15.14%) of the company’s overall expense and expected to grow, considering the competition in the search engine business.

Google’s importance for U.S. Congress

During last December 11, Sundar Pichai, Google’s CEO, testified before the U.S. Congress regarding a wide-range hearing regarding data breaches, misinformation campaign, and concerns about working with China. The said hearing almost resulted in Pichai’s absence in Congress last year when CEO declined to testify with Twitter’s Jack Dorsey and Sheryl Sanberg of Facebook in the Senate Intelligence committee meeting.

With additional concerns, lawmakers ask about controversial algorithms powering Google’s search engine. Until now, Google didn’t disclose how its system search engine specifically works on the web in prioritizing contents.

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