Google’s $2 Trillion Business Model | How Google Earns Money?

Do you know that more than 8.5 billion Google searches are done every day on Google? It has become such that every person living in the world searches Google once a day. This is not a small thing in itself. But what's even more amazing is that doing all this is completely free. And not just Google search. Almost every product of Google is completely free to use. Watching videos on YouTube is free. Using Gmail is free. Using Google Maps is free. Despite giving all this for free, Google's market cap is more than $2 trillion. How is this possible? How can Google give us so many services for free? No one takes money from us but still it has become such a rich company. Let's understand the business model of the internet's most famous company in today's video. You must have heard many times that today we call a photocopy machine a Xerox machine. White glue is called Fevicol. And Adhesive Bandage is called a Band-Aid. Whenever a company dominates in its field in this way, its name is associated with its work. In the same way, today it is said to Google to search the internet. This Google search started in 1998 as a college project. Larry Page and Sergey Brin had made it with a mission. To organize all the information of the world and make it accessible and useful. In the early days, Google was just a simple search engine which looked like this. A very simple website to search the internet. The word Google itself has no meaning but it is inspired by the word Google. Google is the name of a number. After 1, put 100 zeros. Like if 3 zeros come after 1, we will call it 1000. If 4 zeros come after 1, we will call it 10,000. In the same way, if 100 zeros come after 1, then that number is called Google. The name of this company Google was chosen to show this. That our search engine will find so much information on the internet that it will be in Google. If you are a very old user of the internet, then you remember that when Google used to search in those days, a lot of result pages used to come. And Google used to show these result pages 1, 2, 3, 4, 5 endlessly. And used to write his name with so many Os. In the year 2000, Google took its first big step. They introduced the system of AdWords. It is called Google Ads today. Because of this, the businesses could give money to display their ads on Google's search results pages. Later in this video, we will talk about how it became Google's biggest business model. But over the years, Google started offering a lot of products and services. In the year 2004, Gmail was introduced for the first time. In 2005, Google Maps was introduced. Which changed the world. In 2006, Google acquired YouTube. On which you are watching this video. A lot of people don't know that in the beginning, YouTube was a separate company. It was only in 2006 that Google bought YouTube. After that, in 2008, Google introduced Android. The same mobile operating system that most people have in their phones. This year, Google also launched its web browser. Google Chrome. Which is the most popular web browser in the world today. Later on, Google also started making its hardware products. Their Pixel smartphones, Chromebook laptops, and smart home devices. Today, Google is expanding in the field of Artificial Intelligence. And after hearing all this, you will feel that Google has launched one more powerful product. And everything continued to be successful. But this is not true. All the examples I have given you are examples of successful products and services. There are a lot of things that Google tried but Google failed in all of them. Like Google Plus. Google tried to make its own social media platform. In the Facebook competition. But it failed. Google Hangouts. An app for chatting. Which was popular at one time. But it was shut down in 2022. Google Nexus tablets. These were also famous at one time in the iPad competition. But after a while, Google shut them down too. Google Podcasts. Google Glass. Google Wave. Google Reader. Examples of failures. In reality, there are a lot more in comparison to successes. If you go to Wikipedia and see the entire list, there are more than 200 products and services that Google has failed in. And here, there is a big lesson for all of us. Failure is the mother of all successes. To achieve success in the right way, you will have to fail many times. Keeping all these successes and failures in mind, let's see what Google earns the most money from today. Its oldest business model. Google Search Ads. Let's understand in detail. On the screen, you can see Google's revenue breakdown for 2022. That is, where did Google earn the money in 2022? The total revenue is $280 billion. Out of which, 58% of the money, that is $162 billion, is shown on Google Search Ads. The second biggest source of income is Google Network Ads. Ads that you see on different websites, that partner with Google. Google earns $32.78 billion from here. On the third number is YouTube Ads. $29 billion comes from here. That is, the ads that you will see in the middle of this video. Here, an interesting thing is that these ads are an income source for us YouTubers too. The money that advertisers pay to show these ads, is split between the creators and Google. 45% of the money goes to Google and 55% stays with creators like me. The 45% share of YouTube with all the creators, generates $29 billion in revenue for Google in a year. Similarly, there are apps on Google Play Store. When an app creator sells his app through Google Play Store, 70% of the revenue goes to the creator and 30% goes to Google. So the revenue from the sales of these apps and the money that Google earns from selling phones and laptops comes on the fourth number with $29 billion. Around 10.4%. And then the last major revenue source is Google Cloud with $26 billion. Now, an interesting thing to see is where does Google spend this money? About $40 billion is spent on research and development. So that more new products and services can be researched. More new failures can be attempted. Around $44 billion is spent on non-production costs. Like renting offices, advertising, marketing, accounting, employees' salary. The total expenses are around $207 billion. As you can see on the screen. This is the balance sheet of their entire company. Here you can also see that income before taxes is $71 billion in 2022. They pay a tax of around $11 billion and they make a profit of approximately $60 billion. The most interesting thing in this entire business model is this free funda. How is it possible to make a profit by giving these free things? There are two reasons behind this. First, all these free things are not completely free. The base level products are free but if you want a premium service, then you have to pay money. This is a very common business strategy which is called the freemium model. It is called free plus premium and many companies use it. Spotify, LinkedIn, Zoom, and now Twitter also uses it. In simple words, the basic thing will be given to you for free but if you want a premium service, then you have to pay for it. For example, using Gmail is free but its storage limit is 15 GB. If you want more storage than that, then you have to pay. Using Google Drive is free but its storage limit is also 15 GB. If you want more than that, then you have to pay. Watching videos on YouTube is free but there will be ads in between. If you want to remove the ads, then you have to pay. You have to buy YouTube Premium. This freemium model is a very successful model because it gives you a chance to try before buying. You can try the product and if you like it, then you can pay after that. But in the case of Google, the interesting thing is that most people still don't use their paid services. 95% of the people who watch YouTube have not bought the premium. 95% of the people who use Gmail or Google Drive don't pay for it. But still, Google earns its majority revenue from free services. Here comes our second reason. Data collection. The more free services we use, the more data Google has available on us. Everything we search on Google, every video we watch on YouTube, every email we send, all this data is anonymously collected and used for targeted advertising. You must have seen this yourself. If you search for a healthy recipe on YouTube, you will see ads on Google websites about healthy tiffin services or nutritionists. If you search for hotels in Dubai on Google, you will see ads about Dubai tourism, different tourist attractions in Dubai. Google uses an advanced machine learning algorithm to show targeted ads. To better understand how exactly Google targets ads, what is your age group? Are you a man or a woman? Which country do you live in? Which city do you live in? What do you search about? What do you like? Based on all these things, you create a profile. And from a different perspective, an advertiser can choose all these things. You have a small business of selling clothes or spectacles. And you want your ads to be seen by 18-25-year-old girls who specifically live in the NCR region. You can choose these things. And then you can choose some keywords like sunglasses or saris. And Google's job here is to match an advertiser with a user. If your age group, region and gender are matching and you search for a word related to sunglasses on Google, or you see a related video on YouTube like a review of a sunglass, then Google gets to know that you are the target customer for this ad and Google will show you this ad. This is a very simplified explanation but this is how Google Ads work. If we go into a little more complexity, there is a lot of competition between advertisers as well. Ads are bidded. Advertisers can decide how much money they are ready to pay to show their ad. If another company is ready to pay more money, then their ad will be shown first. Google calculates the ad rank for this. Which ad should be placed on which rank. For this, the quality of the ad is also considered apart from the money. On the other hand, how well the user is matching with this specific ad. If he has searched for something, then how relevant is this advertiser for that user. And there are different types of ads here. Like search ads, when you write something on Google, the top ads in the search results are called search ads. Then there are banner ads. When you go to different websites, like a news website, the ads that you see in the banner are part of the Google Display Network. And then there are video ads Which are played in the middle or before the video. There is also a category of skippable and non-skippable. If we look at the total revenue from these different types of ads, then Google's total revenue from ads is $237 billion. And in the same way, in 2022, their total revenue was $280 billion. So out of $280 billion, $237 billion is earned only from these ads. Look at this chart. You can see the advertising revenue of Google You can see an almost exponential growth here. This revenue has been increasing for the past 20 years. And in 2020-2021, you will see a huge jump. This was due to COVID. Most people were sitting at home and spending time on the internet. More ads were seen. More advertisers were spending money on ads. So Google's revenue increased so much at that time. And Google is not the only company here that relies on targeted advertising for its business. The same is the case with Meta's Facebook and Instagram. In 2023, Meta's annual advertising revenue was $131 billion. Amazon also earns money by showing ads in the same way. You will think, why did Amazon need to show ads when Amazon is already selling products and earning money on its website. Actually, the purchase history data coming from selling products is more important than Google's data. Because Google only knows what is your interest in. You watch a video on YouTube or you search something in Google search with your interest. But Amazon knows which products you bought. You can be targeted more accurately for the same reason. You know that you like to buy such things. So you can see more ads of such things. Because of this, Amazon generated $46.9 billion in its revenue only through advertising. In the last 20 years, these companies have dominated the internet But now, it seems that cracks have started to appear in this model. There are two major reasons behind this. The first is privacy concerns. People are worried about what Google knows about you. What do you eat? Where do you live? Where do you work? What diseases do you suffer from? Because people often search about these things. What are your relationships? What problems are you facing in your life? Look at this news from 2023. Google had paid a fine of $93 million to the state of California. Because Google was tracking the location of the users even though the users had turned off the location history. As people are becoming more aware about privacy, people are sharing less information on the internet. And the less information goes to these websites, the worse their ad targeting will be. And if the ad targeting is bad, advertisers won't want to spend so much money which will affect their revenue. But the second problem is bigger than this. There's a famous saying, don't put all your eggs in one basket. Don't put all your eggs in one basket. If that basket falls, all the eggs will break. This advertising model will fall apart if people stop using Google Search for some reason. With time, Google Search has become less reliable. Earlier, you could only see one ad. But if you search for something, the top search results will be ads. If you only see ads everywhere, the search results become less useful. Imagine a competitor who shows you exactly what you want to search without any ads. A platform like ChatGPT. If you ask a question to ChatGPT, you'll get a direct answer without any ads. But if you put the same question on Google Search, you'll get a lot of results with a lot of ads. And you don't know the reliability of different search results. Which is reliable, which is a trustable source, which website to click on, which not to click on. In my opinion, AI-powered chatbots like ChatGPT will become the biggest threat to Google's advertising business model in the coming years. Maybe Google knows this. That's why Google is also developing its artificial intelligence software. Like Gemini, which is a competitor of ChatGPT. Only time will tell whether Google will remain the face of the internet for the next 20 years or not. Or some other company will leave it behind. But one thing is for sure, this competition between different companies is a good thing for a consumer, because we'll get better services and products. If you want to understand AI in detail, I've explained it in this video. You can click here to watch it. Thank you very much.