How does Google make money?

One of the question I often have to answer is: “How does Google make money?”. They don’t sell any product, everything you use from them is free and on top of that they seem to be very active in the “open source” community. So how the hell can they cash-in?

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Advertisement, that’s how Google is making its money. Every time you do a search on Google, you’ve probably noticed that there was a section called “Sponsored Links”. Every time you click on one of those links, Google charge a certain amount of money to the website for the click. When you go on a website you’ll notice advertising from Google too. Daily Common Sense has ads from Google. Same thing happens here, when you click, Google charge a certain amount of money to the website you clicked on and part of that money is given to the webmaster publishing the ads. This is called AdSense and is an enormous source of income for Google.

How much does Google charge for a click?

The price advertisers pay for a click depends on a lot of factors and this is where Google is playing smart. They use some sort of bidding system. When you want to advertise with Google, you select keywords you are targeting. Let’s say I own an online guitar store and I want to bring potential customers to my website. I’m going to bid on the keywords “guitar” and “buy guitar” for example. The price I’m going to pay will depend if there is other companies bidding for that keyword. The more companies are fighting for a keyword, the more I’m going to pay for a single click to my website. The price can vary from 0.01$ to 100$ and more. Not to bad for a click hey? You can imagine that for highly competitive keywords like finance and health it can cost quite a lot of money for a company to advertise with Google.

No production cost

Google doesn’t sell any tangible product and that’s the beauty of their business. They sell something that doesn’t really exist. They really sell traffic. It mostly comes down to this: They get paid for sending traffic to other websites. That’s why Google seems to be everywhere now: They have to show substantial growth to their stakeholders and to do that they have to drive more and more traffic to provide more and more advertisement. That’s also the reason they’ll be jumping in the cell phone industry, so they can make a bit of money from all the web traffic that next generation cell phones are going to drive in the next couple of years.