6 Different Ways Google Makes Money
Summary
- Google (GOOG) is a technology company that specializes in internet-related products and services. It makes money in several ways, including advertising, software, and hardware sales.
What Is Google?
Google (GOOG) (GOOGL) was founded in Menlo Park, California in 1998 by Larry Page and Sergey Brin. Google LLC is owned by the parent company, Alphabet Inc. The stock is found on the NASDAQ. Its IPO rolled out in 2004 with an initial share price of $85 per share. As of May 25, 2022, Google stock is trading at $2,116 per share.
Subsidiaries of Google include YouTube, Fitbit, Looker, Nest, and Motorola Mobility. Google has become the largest search engine provider in the world with its name even becoming a verb meaning to search for something online: “Google it.”
Google Business Model
As an online search engine, the bulk of Google’s revenue come from advertising. Its platform is free for users and because of the millions of searches done daily, it uses algorithms to match ads with search results. However, Google is diversified and generates other revenue from cloud-based services, hardware, the Playstore, and premium content on YouTube.
Google’s biggest competitors in the search business are Microsoft’s Bing and Yahoo, but these two companies only account for about 8% of the market share. This means that Google represents the vast majority of Internet searches and dominates the space.
Takeaway: Google is considered the juggernaut of the Internet with its dominant search engine. The stock has split twice: on March 27, 2014 and April 27, 2015. The current stock price makes it hard for smaller investors to get a full round lot (100 shares) of the stock.
6 Ways Google Makes Money
Important: This is for informational and research purposes only for investors. This is not a suggestion to purchase Google or Alphabet stock.
1. Google Ads
Google makes 80% of its current revenue from Google Ads. In 2021, this accounted for more than $209 billion dollars in revenue (statista.com). Ads are found directly on Google searches or on YouTube videos. A click on an ad may generate anywhere from a few cents to over $50. By tying in ads with the searches, meaning the ads are relevant to the search parameters, Google targets relevant content directly to users and gets billions of clicks as a result.
2. Google Cloud
While Google offers free cloud storage, the service is limited. It does charge for added storage at $0.20 per GB of storage. It also charges for network and operations costs, which are $0.12 per GB and $0.05 per 10,000 Class A operations. Class B operations cost $0.004 per 10,000 operations. Operations are designed to monitor, troubleshoot, and improve infrastructure and application performance.
Google Cloud earned $19 billion in revenue in 2021. This was up from the 2020 number at $16.2 billion.
3. Hardware
In recent years, Google has rolled out more hardware solutions that include the Google Pixel smartphones, tablets, laptops, and earbuds; Google Nest smart home products; and Chromecast digital media players. It also sells Fitbits and several types of game controllers.
Google hardware generated $19.6 billion in revenue in 2021 with more than $6.1 billion in profit.
4. Google Playstore
The Google Playstore is an app distribution service that has service-based apps as well as games. Google does have a Play Pass for $4.99 per month or $29.99 per year. Otherwise, apps cost anywhere from free to $14.99 per month on the store. By getting the pass, you get access to games and apps without ads or in-app purchases on select products. It doesn’t unlock the entire Playstore. For developers, there is a $25 fee required before uploading their first app.
5. YouTube Premium Content
YouTube Premium is a subscription to get access to millions of YouTube videos without being interrupted by advertising within the content. It is available for $11.99 per month. YouTube Premium represents approximately $600 million in revenue, accounting for about 8% of YouTube's total revenue.
Learn how YouTube makes money for Google.
6. YouTube TV
YouTube TV is a streaming television service that has live television shows, on-demand videos, and DVR solutions. It provides viewers access to over 85 television networks including the Big Four. YouTube TV costs $64.99 per month for unlimited access. YouTube TV is still relatively new and its overall mark on the revenue of Google remains to be seen.
Note: While Google still receives most of its revenue from search-related advertising, and has expanded into related businesses such as YouTube, cloud services, and online gaming. In addition, though, it is also has a substantial development arm, which is cultivating non-related business opportunities such as autonomous cars.
Bottom Line
Google is an internet powerhouse with a stronghold on search management that has expanded into entertainment, business, hardware and other solutions. Those considering an investment in Google should review their latest income statement, balance sheet, and cash flow statements, as well as assess their future potential against investment objectives and horizon.
This article was written by
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