blog:Google and Money

By jenstanjenstan (1228149695|%a, %b %e at %I:%M%p)

Have you ever thought about how Google makes money? Or why they let everyone in the world use their extensive resources for free? If you are like me, then you haven't. It never even crossed my mind once. I always just took it for granted, like the rest of the web resources out there. Little did I know that behind the scenes at Google are thousands of technicians and engineers working like Santa's little elves to keep everything up and running. Who then pays for all this??

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Ben Lewis, product manager at Google, came to our class on Monday, November 25 and gave a presentation to us. I wasn't really sure what to expect. However, I definitely did not expect the presentation to be all about how Google makes its money to keep the websites running. Although everything in the presentation tied back to the costs and revenues from each of Google's products, the lecture was really relevant and interactive to the class. The main projects Ben talked about included Ads & Search, Google Toolbar, iGoogle, Gmail, Google Enterprise, and Google Earth. So any idea which one of these is the most profitable?? Da Da Dum….GOOGLE TOOLBAR!!!

Google Toolbar

Google Toolbar is one of the most profitable projects for Google. Google has deals with many other companies such as Dell and HP to include the toolbar by default on new computers or download it when the user downloads another program. Also, other Google projects download the toolbar in conjunction with the project such as Google Earth.

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So Why Does Google Pay Companies to use Google Toolbar?

  • More Searches using Google versus other search engines (ties to Search & Ads)
  • Marketing for other Google Products
  • Branding
  • Page Rank

Costs

  • Distribution Cost
  • Bandwidth Cost
  • Paying the Engineering Team

This was shocking to me. I now see those boxes on top of my internet explorers but I don't think I've ever used them once. First of all, I didn't knowingly download them so I wasn't totally aware of their existence up there. Also, my homepage has always been Google as well so all I have to do is hit the Home button and it brings up the search box.

Gmail

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My first guess for Google's main source of revenue would have been Gmail. While I personally do not use it on a regular basis and only made an account for the first time through this class for email and page alerts, I know many people who do. If fact, they even have their school (umich) email forwarded to gmail. However, as I found out through this presentation, Gmail is the least profitable site for Google. Here are some key aspects of Gmail:

  • Google makes some money from the ads at the top of the page.
    • However, not many people click on these ads because the content in their email is much more important than the content in the ads.
  • The main costs to maintain Gmail, which are very high, are servers and bandwidth costs.
    • What offsets this high cost is that Gmail brings people to Google and they are more likely to use Google to search, increasing revenue from Search & Ads.

Everything Ties Back to Search & Ads

While the other Google projects and sites do bring in some of their own revenue, most of them are profitable for the company to maintain because they indirectly increase the profitability of Search & Ads. How this works is that companies bid for ads that appear when users search for specific keywords. When a user clicks on the ad, the company has to pay Google whatever they bid per click. Again, as do all of the other Google Projects, Search & Ads have some variable costs such as servers and bandwidth cost, operations costs, and sales cost, but the revenue generated by it far exceeds these costs.

My Concluding Thoughts

After hearing all of this plus much more, I really can't look at Google the same anymore. I now give it way more credit for its power and complexity than before. One of the first things I learned in this class is that we shouldn't always go to Google Search Engine whenever we need to find something. There is an never-ending supply of custom search tools that may be better to find what we are looking for. However, after hearing Ben's presentation, I feel kind of feel bad for Google. The employees put so much thought and effort into their projects and really believe in them. As much as I will try, I know I will never stop going to Google as my first stop when searching for information on the internet.

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