How Does Google Make Money From Advertising

Google is an advertising behemoth, but it is growing the diversity of its revenue streams. Here are some of the other ways Google makes money.

Image: Wikimedia Commons/Jericho/Moritz Wickendorf

When most people think of Google, the first thing that comes to mind is the famous search bar set against a stark white background.

Yes, Google is still very much a search company and it makes sense that a majority of its revenue would come from online searches. Specifically, that revenue comes from advertising.

In 2013, revenues from advertising accounted for 91% of it's total revenues for that year. Based on the trajectory of Google's financials from 2014, it looks like advertising will account for a similarly large chunk of the money Google is making.

However, the search giant is diversifying its revenue models at a startling rate. What is labeled merely as "other revenues" in its financial tables has been steadily growing in the past few years. Google is far from replacing its main source of cash flow, but it is finding unique ways to make money on different products and services.

It should be noted that Google does not itemize the revenue streams that make up other revenues, but based on research and analysis, here are some of the top contenders that could be playing into the growth of Google's other revenues.

1. Google Play store

On July 17, 2014, while discussing quarterly earnings, Google CFO Patrick Pichette attributed much of Google's other revenue growth to increasing sales in the Google Play store.

"Digital sales of apps and content in our Play store drove the year-over-year growth," Pichette said.

Google Play struggled to keep up with Apple's App Store in the beginning, but it quickly grew into a formidable opponent as more and more developers began creating apps for Android. Also, Android's massive market share, which typically hovers around 80% or more, has led to increased downloads from the store which now has other download outlets through video streaming hardware and android-powered computers and appliances, among others.

According to a report by app analytics company App Annie, global downloads and revenue increased for Play from 2013 to 2014, fueled primarily by games and apps built on the freemium model. All this growth is good news for developers. Sundar Pichai announced at the 2014 I/O developer conference that Google had paid out $5 billion to app developers.

2. Google Apps

It all started with Gmail, but now Google offers a whole suite of web-based tools to help users to get work done known as Google Apps. The program has recently expanded to included a version for the enterprise called Google Apps for Work, and one for schools called Google Apps for Education.

As companies began to trust Google with their data and the concept of cloud-based collaboration grew in the enterprise, Google Apps became one of the go-to options for companies looking to change the way they did work. Google charges on a per user basis, and the company claims that more than five million business use Google Apps, including 60% of the Fortune 500.

Google Apps' success is being further driven by the success of Google in the classroom. Google Apps for Education claims millions of users, including some of the top universities in the US, but one of the driving forces has been the success of Chromebooks and the Chrome OS in K-12.

Chromebooks are being deployed in the tens of thousands, introducing a swath of students and teachers to Google Apps. Not only is it making money for Google now, it is setting them up to make money in the future as these students become accustomed to working in the Google Apps ecosystem.

3. Google Cloud Platform

Beginning with the Google App Engine, Google slowly added more products and services to create what would become the Google Cloud Platform. The service offers infrastructure, database, and query tools, along with storage options for users to build out their own online service using some of the tools used by Google itself.

The company charges users by the specific tools and services they employ, and analysts have predicted that the revenue from the Google Cloud Platform could have earned around $1.6 billion. The platform is part of the greater Google for Work initiative.

The Google Cloud Platform was not received well in the early days, but it has grown considerably, especially considering that it is facing competition from Amazon AWS and Microsoft Azure. New innovations like Cloud Debugger, Cloud Trace, and Cloud Save, as well as Google's work with containers, show the company's willingness to offer a wide set of options to users.

Much in the same way Google has targeted students early with Chromebooks and Google Apps, it has increased its focus on young companies, offering $100,000 in Cloud Platform credit and 24/7 support to startups through its Cloud Platform for Startups initiative.

4. Google Fiber

One of Google's newest and most interesting ventures is its fiber optic broadband internet service called Google Fiber. The service was initially rolled out to Kansas City, Kansas in 2011 and has since rolled out to Austin, Texas and Provo, Utah.

The main question about Google Fiber is whether the company is truly making a play as an ISP, or if it is using the service to drive innovation from incumbents. Building out the infrastructure is expensive, but Google could stand to make a lot more money.

Gigabit internet starts at $70 a month, and users can get the service with television channels for around $120 a month. If they do make a real go at it, though, some are predicting that it could make the company upwards of $6 billion.

Also see

Google Play v Apple App Store: The battle for the mobile app market
CES 2015: Three trends to watch from the Google and Android ecosystems
The three factors keeping Google from a full-scale enterprise assault
Apple v. Google: The goliath deathmatch by the numbers in 2014
How big of a threat is Facebook's ad play to Google?