How Google Makes Money

Article abstracted from http://www.enquiro.com/marketing-monitor/how-Google-makes-money.asp

I was checking our referrer stats and noticed quite a few queries lately relating to how Google makes money. In fact many of the queries are ?how does google make money?. So I thought I?d write this article explaining what it is that Google does that makes them so much money.

In 2005 Google?s revenues were over $6 billion on which they earned about $1.5 billion in net income. This is a far cry from larger companies like ExxonMobile which made over $25 billion profit.

But in just a short time Google has increased its value to over $110 billion, putting it on par (in value) with the likes of Cisco Systems, Nestle and Coca-Cola.

So the obvious question is – how can Google make so much money?

Well, Google makes most of its money through the sale of ads. In fact, of the company?s $6.2 billion in revenue in 2005, over $6 billion is from the ads.

Imagine that – Google can make so much money from ads which cost from a few pennies, to a few dollars per click.

But it?s not just the ads which help influence its value. Sure it makes most of its money from the ads, but Google?s share price is also strong and has been since it went public. Google?s shares are now worth over $350 each. Considering they opened at between $80 and $100 per share you can see how much the company has earned just from selling shares in itself.

And the value of those shares is largely determined by the revenue earned from advertising. If we make some assumptions we can guess the traffic generated by Google.

For example, if we assume the average cost per click is a quarter (25 cents) then Google received about 24 billion ad clicks. That works out to about 60 million paid clicks per day, which means Google earns about $15 million per day on paid advertising!

Granted, the company also has some large costs, but essentially Google earns millions per day from the ad network they have.

And remember that the ads you see on Google are not only on Google.

Google also has a program called ?AdSense? which allows individual webmasters and site owners to place Google ads on their sites and earn a percentage on every click. From these types of ads there are reports that site owners have earned more than $1 million per year on Google ad clicks.

In addition to this Google also has partnerships with other large sites such as AOL which also display Google ads and take a percentage of every click.

But in every case where Google ads appear on other sites, you can pretty much be guaranteed that Google earns the lions share of those clicks.

So, there you have it – a very high level overview of how Google makes money.

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