How Google Makes Money

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Contributor, Benzinga
March 1, 2022

“Let’s Google it.”

When your company’s name becomes a verb in American conversations, you’ve got a winner on your hands. But unlike Uber, Google is both a verb and a profitable company. Despite its late entry into the industry, Google has taken down all its former peers and has become synonymous with search. Now known as Alphabet Inc. (NASDAQ: GOOGL), the company has more than 150,000 employees and was one of the first publicly traded companies to reach $1 trillion in market cap.

How does Google make money? Ads, ads and more ads. The majority of Google’s revenue comes from selling ads on its massively popular search engine and web tools, but it also earns revenue from cloud computing services and its Other Bets segment.

How Google Makes Money

Google is an advertising machine, producing ad sales from a number of different sources, including YouTube, which remains one of the company’s best acquisitions. But the company also provides valuable business services through its Google Workplace platform and invests heavily into future technology like AI.

  • Google Services

Google Services is the company’s bread and butter. Under the Services umbrella, Google operates its dominant Search unit as well as Google Maps and Google Play store. Google also brings in advertising revenue through YouTube, which has turned into one of the company’s most successful ventures. The Services segment also includes the Chrome web browser and the Hardware space, which makes Pixel smartphones, Google Nest home devices and FitBit wearables. Overall, this segment produced $69.4 billion in revenue in Q4 last year with $43.3 billion coming from Search alone. Services had an operating income of $26 billion.

  • Google Cloud

Google Cloud features many of the indispensable web services and apps that people use every day. The Google Workspace suite contains Gmail, Docs, Sheets, Drive and Calendar, a platform that many businesses would be lost without. Cloud also offers infrastructure and web services to corporate clients. The segment produced $5.5 billion in revenue in Q4 last year but still took an operating loss of over $800 million.

  • Other Bets

The Other Bets segment is a capital-intensive area where Google researches and develops new technologies. Health technology, AI research and development services are some of the areas this unit focuses on, but these projects require lots of upfront capital and don’t always produce winners. Other Bets is appropriately named — it’s basically Google’s own private equity wing. But since Other Bets involves research in new and unique projects, its cash burn rate is high. Other Bets posted an annual operating loss of $5.3 billion on $753 million in revenue. 

Google Stock Price

$141.00
0.48[0.34%]
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Vol / Avg.24.936M / 29.018MMkt Cap1.753T
Day Range139.490 - 142.08052 Wk Range88.575 - 153.780

Google is one of the handful of stocks in the S&P 500 with two classes of tradable shares, which is why you’ll see both GOOG and GOOGL as ticker symbols. GOOGL is the symbol for the Class A shares, and GOOG is the symbol for the Class C shares. Only Class A shares have voting rights within the company, but that’s inconsequential for most retail investors. Note that Google will soon be performing a 20 for 1 split on its stock that will affect both Class A and Class C shares. The date of record for the stock split is July 1, 2022.

Where to Invest in Google

Google is one of the only trillion dollar companies on the planet, and its stock can be bought and sold at any brokerage firm you choose. However, Google’s stock has a fairly high price. A retail investor with only $10,000 in capital will have difficulty building a diverse portfolio when a single share can take up 20% of the account. If you want to invest in Google but have limited capital, consider a broker that allows purchase of partial or fractional shares. A partial share lets you place a specific dollar amount into a company and allows less capitalized investors an opportunity to diversify their holdings.

Google Past

The story of Google’s founding is a well-known one. In the mid-1990s, Stanford University PhD students Sergey Brin and Larry Page met and began sharing ideas about improving the burgeoning internet search industry. Most search engines at the time used an easily-hijacked algorithm to rank websites where hosts simply used the search term as many times as possible in the copy.

Brin and Page developed PageRank, an algorithm that ranked search results based on relevance rather than just counting search terms. PageRank orders sites based on how many backlinks they receive and the quality of the sites providing those backlinks. Brin and Page wanted the cream to rise to the top in their search protocols. 

Google was born as a company in 1997 and received its first venture capital infusion in 1998. By 1999, Brin and Page had moved their operation to Silicon Valley, and the company IPOed on public markets in 2004. 

Google Present

Today, Google is one of the largest and most successful publicly traded companies in the world. Forbes Magazine ranks Google as the second most valuable brand on the planet, and the company made nearly $150 billion in profit in 2021. 

Google’s search engine dominates the industry and has captured more than 86% of the market share. The next closest competitor is Bing at 7%, followed by Yahoo at 2.7%. The Google Workspace suite of Gmail, Docs and Drive is used by millions of people each day, and the company’s footprint is firmly cemented in the daily lives of internet users. 

Google Future

Google’s future plans involve an expansion in artificial technologies (AI) technologies to improve current Google platforms like Maps, YouTube and Search. CEO Sundar Pichai also wants further enhancements in privacy across Google’s platforms and announced a new project called Topics API, which will begin testing this year. Google also will be splitting its stock in a 20-to-1 split in July 2022. The date of record for the stock split is July 1, and shareholders will receive their additional shares as a special dividend on July 15. 

Google: The C-Suite

Sundar PichaiCEO and Director

Pichai joined the company back in 2004 and oversaw the development of Chrome and Google Drive. Pichai later helped produce Gmail, Android and Google Maps and was responsible for giving one of the first public demonstrations of the Chromebook. He was chosen by founders Sergey Brin and Larry Page to become Google CEO in 2015 and also became CEO of parent company Alphabet Inc. in 2019. Pichai has an MBA from Wharton School at UPenn and worked for Applied Materials and McKinsey before joining Google.

Sergey BrinCo-Founder and Director

Originally born in Russia, Brin emigrated to the United States from Paris with his family in 1979. After meeting fellow founder Larry Page at Stanford University, the two developed the PageRank algorithm, which would allow the pair’s prototype search engine to dominate existing products. The first version of what would become Google was launched on the Stanford campus network in 1996. Today, Brin works as a director for Alphabet and focuses his effort on Google.org, the company’s philanthropic wing.

Larry PageCo-Founder and Director

Google was born in Page’s Stanford dorm room in the late 1990s. A fellow PhD student with Sergey Brin, Page helped develop the PageRank algorithm and built all the necessary equipment in his Stanford living quarters. Page was named the company’s first CEO in 1997 and had a second stint as CEO from 2011 to 2015 after Eric Schmidt stepped down.

Frequently Asked Questions

Q

How does Google make money?

A

Google makes most of its income through advertising sales on its search engine and other media properties. The company also sells hardware like Pixel phones and Google Nest home devices.

Q

Does Google own YouTube?

A

Yes, Google acquired YouTube in a $1.65 billion transaction in 2006. The acquisition was made with all Google stock, and the company now owns the two most popular sites on the internet, YouTube and their own Google search engine.