Tuesday, February 9, 2010

How Google earns Money??

 I was very much curious how Google earns money from its products. For me, Google search operations seemed to be a free service. And even gmail, g-talk, picassa, youtube and so on. Everything seemed free and does not generate any revenue for Google. And i was particularly interested in Android and Chrome. They are quite open source in nature. The device manufacturers or users are not paying anything to Google. So i thought of doing some 'Google search' on this subject and found these facts.

 Just try searching the word "mobile phone" from Google. Apart from normal search results, you will see an entry with rose color background, which is at the top. And also there is list of entries on the right pane, titled 'sponsored links'.  These links will be very much relevant to your search key word, ie "mobile phone".

 Login to your gmail account and open a message. You will see sponsored links on the top and right side of the message. This ads will be based the message content. Don't you wonder how Google  displays these ads according to the content of the webpage. 

 Suppose some company, say Nokia, want to display their ads when somebody search some keyword, say "mobile phone". Then what they have to do is, register this keyword with Google's AdWords.  And they have to specify the maximum amount they are going to pay per click. When somebody searches this keyword, their ad is displayed along with other bidders who registered for the same or similar key word. The ordering of the listing is based on the 'bid price' of the advertiser and the 'relevance' of the keyword to the registered 'keyword'. 

 Suppose we have a website, and it became somewhat popular. We want to generate some revenue out of it. What we can do is, register for Google's Adsense. We know that a set of advertisers have registered with Google. AdSense is a Google program which displays advertisements on our website. These ads will be administered by Google. And these ads will based on website content and geographical location of the user. A part of the revenue from these ads will be given to us by Google.

We can say that AdWords and AdSense are inter-linked.  The ads registered for AdWords are displayed in Adsense.

 Android and Chrome 
 Google product like Android OS, Chrome OS and Chrome browser present an interesting case.  Take the case of Android and Chrome OS. Any device manufacture can download a version of them, make their own changes and then include in their products like mobile phones. Google is not getting any money from it. But they are spending a lot of money for the research an development these products.  The case of Chrome browser is also similar.

 So the answer is, Google does not want to earn money directly from these products. They want to do it indirectly. 

 What is chrome OS? It is an OS used for Netbooks. What is Netbook? It is a mini laptop used mainly for web browsing. What is Android? It is a OS used for smart phones. One main use of them is internet usage. Similarly there is Chrome Web browser.

 The common factor in these is 'internet'. So Google want to be main player in internet usage. And it wants people to spend more time in internet. More time in internet means, more money earned from advertisements. Google know that netbooks and smartphones will increase the internet usage. So they want their products to be used there. So they can control the web world and will have more options in displaying ads.

 Also keep in mind that,  in future desktop applications will be replaced almost completely by web applications. And Cloud data storage is coming up. So Google want to be in the thick of things and to be the control point of the web. 

   Google got 5.51 billion from Q1 2009.  Some stats are available in the link http://investor.google.com/releases/2009Q1_google_earnings.html. 

Google- An Advertising Company?
 So Google sells the traffic on internet and earns money. The more time you spend on net, the more google gets money. We can say that google is an advertising company rather than a technology company. Because it earns revenue from ads rather than selling technology.