Google revenue model case study
Google case study : A summary of Google business strategy and background on Google technology for readers of my Digital Marketing and E-commerce books. End of case contains technical references on Google's approach to crawling, indexing and ranking results at the end of this case study page.
This Google strategy case study is updated for each new edition of my Digital marketing or E-business book.
Google’s mission is encapsulated in the SEC filing statement:
“to organize the world’s information …. and make it universally accessible and useful”.
Google explains that it believes that the most effective, and ultimately the most profitable, way to accomplish our mission is to put the needs of our users first. Offering a high-quality user experience has led to strong word-of-mouth promotion and strong traffic growth.
Read further details on the culture and ethics of Google in their Ten Things Manifesto. Notable tenets of the Google philosophy are:
- Focus on the user and all else will follow.
- It's best to do one thing really, really well.
- You can make money without doing evil (the founders are well known and chastised for making this statement).
Putting users first is reflected in three key commitments illustrated in the Google SEC filings:
“1. We will do our best to provide the most relevant and useful search results possible, independent of financial incentives. Our search results will be objective and we will not accept payment for inclusion or ranking in them.
- We will do our best to provide the most relevant and useful advertising. Advertisements should not be an annoying interruption. If any element on a search result page is influenced by payment to us, we will make it clear to our users.
- We will never stop working to improve our user experience, our search technology and other important areas of information organization”.
In the Google Annual SEC filings (the best source of information on Google's strategy and value proposition), the company explains “How We Provide Value to Our Users”: “We serve our users by developing products that quickly and easily find, create, organize, and share information. We place a premium on products that matter to many people and have the potential to improve their lives”.
Some of the key benefits which are stressed are: Comprehensiveness and Relevance; Objectivity; Global Access; Ease of Use; Pertinent, Useful Commercial Information; Multiple Access Platforms and Improving the Web.
Google Revenue - summary of the 2011 split
Word Stream has taken the published figure and contributed this breakdown.
Google Services - 2010 update
Google’s commitment to innovation is indicated by these more recent additions to their services which show that their ambitions extend far beyond search and information management through developing operating systems and hardware across multiple platforms to fulfill their mission “to organize the world’s information …. and make it universally accessible and useful”.
- Google TV (Google TV (announced 2010) as part of a partnership agreement with Sony and other hardware vendors
- Nexus One Phone using the Google Android mobile operating system launched in January 2010
- Google Mobile advertising (although Google has offered text ads for some time, the 2009 acquisition of AdMob enables improvements in sophistication of this approach)
- Google Chrome OS (a lightweight operating sysytem announced in 2009 and targeted initially at Netbooks)
- Google Chrome (a browser announced as a beta in 2008 and a full product for Windows in 2009)
- Google Apps Announced in 1997 when Google Apps Premier Edition became available for $50 per user account per year, and includes phone support, additional storage, and a new set of administration and business integration capabilities.
Google strategy presentations
The latest announcements of Google strategy are available from Google podium
You can get the latest company announcement through the Google SEC filings
This is a useful 2008 summary of Google's strategy from a French consulting company:
Previous Case study updates
- Google Founders letter - Published May 2009 - this note from the founders of Google outlines future strategy and priorities in key Google services.
- Number of Google advertisers - currently 1.3 to 1.5 million indicating plenty of potential for growth. See analysis on Number of Google advertisers
Update - trends in usage of Google services
TechCruch has a useful summary of US trends in usage of Google services. This catalogues the continued growth of Google in the US in its core services, but shows Google Video, Scholar and Google Product Search falling substantially.
Click on the top left link on the Widget below to see Tech Crunches take on Google's product strategy:
- Proposition - See Guidelines from Google on the principles used to determine their customer experience of Google and applications like Gmail and Google Docs
Google case study - reports
The best available case study is from the most recent Google Annual Report SEC filing which gives all the Google financial and its success and risk factors. Choose the annual report.
SEC is the Securities and Exchange Commission (SEC) which is a government agency for which companies like Google have to submit an open evaluation of their business models and marketplace conditions.
One of the best inside indications on the issues that Google faces as a business is this Search Engine Strategies interview with Google CEO Eric Schmidt.
This covers many of the challenges that Google faces:
- User data Privacy
- Ad revenue models
- New ad formats (Video and Click Per Call)
- Personalisation of search
Google revenue model
In 2009 Google generated approximately 97% of its revenues (99% in 2008 and 2009).
from its advertisers with the remainder from its enterprise search products where companies can install search technology through products such as the Google Appliance and Google Mini.
Latest business performance results - Google Q4 2009 performance
The extract below is taken from the press release update I receive via the Google Investors relation blog - you will be able to get the latest there.
- the continued importance of revenues from ads on third party ads (31%) using the AdSense programme (like ads on my site)
- the surprising volume of revenue from US (c50%) given that Google is a global company
- low cost base - mainly from operating datacentres, payroll and employee stock options
Google Q4 Financial Highlights
- Revenues - Google reported revenues of $6.67 billion in the fourth quarter of 2009, representing a 17% increase over fourth quarter 2008 revenues of $5.70 billion. Google reports its revenues, consistent with GAAP, on a gross basis without deducting TAC.
- Google Sites Revenues - Google-owned sites generated revenues of $4.42 billion, or 66% of total revenues, in the fourth quarter of 2009. This represents a 16% increase over fourth quarter 2008 revenues of $3.81 billion.
- Google Network Revenues - Google's partner sites generated revenues, through AdSense programs, of $2.04 billion, or 31% of total revenues, in the fourth quarter of 2009. This represents a 21% increase from fourth quarter 2008 network revenues of $1.69 billion.
- International Revenues - Revenues from outside of the United States totaled $3.52 billion, representing 53% of total revenues in the fourth quarter of 2009, compared to 53% in the third quarter of 2009 and 50% in the fourth quarter of 2008. Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the third quarter of 2009 through the fourth quarter of 2009, our revenues in the fourth quarter of 2009 would have been $112 million lower. Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the fourth quarter of 2008 through the fourth quarter of 2009, our revenues in the fourth quarter of 2009 would have been $196 million lower.
- Revenues from the United Kingdom totaled $772 million, representing 12% of revenues in the fourth quarter of 2009, compared to 12% in the fourth quarter of 2008.
In the fourth quarter of 2009, we recognized a benefit of $8 million to revenues through our foreign exchange risk management program, compared to $129 million in the fourth quarter of 2008.
- Paid Clicks - Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our AdSense partners, increased approximately 13% over the fourth quarter of 2008 and increased approximately 9% over the third quarter of 2009.
- Cost-Per-Click - Average cost-per-click, which includes clicks related to ads served on Google sites and the sites of our AdSense partners, increased approximately 5% over the fourth quarter of 2008 and increased approximately 2% over the third quarter of 2009.
- TAC - Traffic Acquisition Costs, the portion of revenues shared with Google's partners, increased to $1.72 billion in the fourth quarter of 2009, compared to TAC of $1.48 billion in the fourth quarter of 2008. TAC as a percentage of advertising revenues was 27% in the fourth quarter of 2009, compared to 27% in the fourth quarter of 2008.
The majority of TAC is related to amounts ultimately paid to our AdSense partners, which totaled $1.47 billion in the fourth quarter of 2009. TAC also includes amounts ultimately paid to certain distribution partners and others who direct traffic to our website, which totaled $250 million in the fourth quarter of 2009.
- Other Cost of Revenues - Other cost of revenues, which is comprised primarily of data center operational expenses, amortization of intangible assets, content acquisition costs as well as credit card processing charges, decreased to $688 million, or 10% of revenues, in the fourth quarter of 2009, compared to $707 million, or 12% of revenues, in the fourth quarter of 2008.
- Operating Expenses - Operating expenses, other than cost of revenues, were $1.78 billion in the fourth quarter of 2009, or 27% of revenues, compared to $1.65 billion in the fourth quarter of 2008, or 29% of revenues.
Google technical architecture
Google has been relatively open about how it works and its architecture. These are some of the key documents explaining the Google architecture.
- Original paper by Sergey and Brin. Covers approach to crawling, indexing and ranking. See analysis of latest Google patents.
- Introduction to query and ranking process. This is an introduction for webmasters.
- Google technical architecture overview. This has further details on the process of performing a search and looks at the hardware architecture also.
- Google Server details - pictures of the servers Google uses to power its system.
Here is a little more detail on the process shown in the figure at the top of the page. In 2010 Google introduced these How Google Works Videos which are recommended reading/watching.
The purpose of the crawl is to identify relevant pages for indexing and assess whether they have changed. Crawling is performed by robots aka spiders or bots which visit web pages and retrieve a reference URL of the page for later analysis and indexing.
Although the terms “bot” and “spider” give the impression of something physical is visiting a site, the reality is that the bots are simply software processes running on a search engine’s server which request pages, follow the links contained on that page and so create a series of page references with associated URLs. This is a recursive process, so each link followed will find additional links which then need to be crawled. Google uses many computers running many distributed processes for crawling.
Each robot leaves a signature in the web server log file of the site it visits with a unique user agent string such as “Googlebot/2.1”. SEOs can use this signature to assess whether or how frequently a page is being crawled by different robots. The SEO Ranking Success Box ‘Evaluate robot crawling’ gives examples of the main user agent strings and discusses this in more detail. It also shows how you can use Google Webmaster Tools to see the number of pages Googlebot is crawling each day.
An index is created to enable the search engine to rapidly find the most relevant pages containing the query typed by the searcher. Rather than searching each page for a query phrase, a search engine “inverts” the index to produce a lookup table (in information retrieval terminology a “posting list”) of the documents containing particular words. For example for the search ‘online marketing’ the search engine might find the word online in documents 12, 23, 48, 57 and 94 and the word marketing in documents 12, 23, 48 and 57 as follows:
Table Volume of searches for single keywords in a single month
Online 12 23 57 94
marketing 23 48 57
Both words 23 57
The query of the index for a phrase uses the intersection between different postings lists for different words. The index is distributed across many servers to make lookup more efficient. Google estimates that for each search that someone types in, over 500 servers may work together to find the best documents.
In early search engines, the index information would be limited to a simple lookup table of words against dcuments, but today, many other aspects characterising a page will be stored in the index files for example a document’s its title, meta description, PageRank, trust or authority, spam rating, etc will be referenced. For the words in the document additional attributes will be stored such as semantic markup (H1, H2, etc), occurrence in anchor text, position in document, etc.
3. Ranking or scoring.
The indexing process has produced a lookup of all the pages that contain particular words in a query, but they are not sorted in terms of relevance. Ranking of the document to assess the most relevant set of documents to return in the SERPs occurs in real time for the search query entered. First, relevant documents will be retrieved from a runtime version of the index at a particular data centre, then a rank for each document will be computed based on many ranking factors. A relatively recent description of the technology approach
Evaluation of relevance is based on the many positive indications of relevance contained in this report of which the most important are:
- PageRank – the number of links from other pages.
- Authority and trust of the pages which refer to a page
- The number of times the words, phrases and synonyms occur on the pgage
- The occurrence of the phrase within the document meta data including its title and meta tags.
There are also negative indications of quality which may indicate attempts at SPAM such as including hidden text on a page, repeating a keyphrase within the document or title, lack of real content.
4. Query request and results serving.
The familiar search engine interface accepts the searchers query. The users location is assessed through their IP address and the query is then passed to a relevant data centre for processing. The process described in the section on ranking occurs in real-time to return a sorted list of relevant documents and these are then displayed on the Search Results Page. Increasingly, results from other index servers return other types of information from vertical search engines. Google refers to this approach as Google Universal Search.