Decoding the Business Model of Google. How does Google Make Money?

In this blog, we decode the Business Model of Google to help you understand how Google makes money.

Google, a name that has become synonymous with search and internet services, has grown into a multi-billion-dollar company since its inception in 1998. Today, it is an essential part of our daily lives as we rely on Google’s products and services for many of our tasks, from communication to navigation. But how did Google become the internet giant it is today, and what is the secret behind its incredible success? In this blog post, we will delve deep into Google’s business model using Alexander Osterwalder’s Business Model Canvas as our framework. We will also introduce the company, its founders, and the story of how and why it was started.

1. Company Background and Founders

Google was founded by Larry Page and Sergey Brin, two Ph.D. students at Stanford University. Page was born in 1973 in East Lansing, Michigan, and Brin was born in 1973 in Moscow, Russia. They met at Stanford in 1995 and started collaborating on a research project that would later become Google. Their goal was to develop a better search engine that could provide more accurate results by analyzing the relationships between websites. They named their search engine “Backrub” and eventually changed the name to “Google,” a play on the mathematical term “googol,” representing the number 1 followed by 100 zeros. The name was chosen to reflect their mission to organize the vast amount of information available on the internet.

2. The Story of Google: How and Why It Was Started

Larry Page and Sergey Brin started Google with the intention of revolutionizing the way people accessed and utilized information on the internet. At the time, search engines were primarily focused on the number of times a keyword appeared on a webpage. This method resulted in search results that were often not relevant to the user’s query. Page and Brin wanted to create a search engine that analyzed the relationships between websites, thereby providing more accurate and useful results.

The duo developed an algorithm called PageRank, which assessed the importance of websites based on the number of links from other sites. This revolutionary approach to search enabled Google to provide higher quality search results, quickly gaining the attention of internet users and investors alike. Google’s initial funding came from a $100,000 investment by Sun Microsystems co-founder, Andy Bechtolsheim, in 1998. The company was officially incorporated on September 4, 1998, and its initial public offering (IPO) took place on August 19, 2004.

3. Alexander Osterwalder’s Business Model Canvas

Alexander Osterwalder’s Business Model Canvas is a strategic management and entrepreneurial tool that helps businesses visualize and describe their value proposition, infrastructure, customers, and finances. The canvas is divided into nine building blocks, each representing a core aspect of a business model. We will use this framework to analyze Google’s business model and understand the factors that have contributed to its tremendous success.

3.1. Value Proposition

Google’s primary value proposition is to provide users with accurate, relevant, and useful search results. Over the years, Google has continuously refined its search algorithms and introduced new features to enhance its value proposition, such as personalized search results, location-based results, and voice search.

Aside from its search engine, Google has expanded its value proposition by offering a wide array of products and services, including Gmail, Google Maps, Google Drive, YouTube, and Android, among others. These products and services cater to different user needs, from communication and navigation to entertainment and productivity.

3.2. Customer Segments

Google serves a diverse range of customer segments, including:

1. Individual users: Google’s search engine and other products are designed to cater to individual users’ needs for information, communication, productivity, and entertainment.
2. Advertisers: Google’s advertising platforms, such as Google Ads and Google AdSense, allow businesses to target customers based on keywords, interests, and demographics.
3. Content creators: Platforms like YouTube and Google Blogger enable content creators to publish and monetize their work.
4. Developers: Google offers tools and platforms such as Android, Google Cloud, and Google APIs for developers to build applications, services, and solutions.
5. Enterprises: Google Workspace (formerly G Suite) provides businesses with productivity and collaboration tools, while Google Cloud offers cloud computing solutions.

3.3. Channels

Google employs various channels to deliver its value proposition to customers:

1. Search engine: Google’s search engine is the primary channel through which users access information.
2. Websites and apps: Google’s products and services are accessible via websites and mobile apps on multiple platforms, such as Android and iOS.
3. Partnerships: Google collaborates with other companies to expand its reach, such as hardware manufacturers for its Android operating system and mobile devices.
4. App stores: Google Play, Chrome Web Store, and other app stores enable users to download Google’s applications.
5. Offline channels: Google’s hardware products like Google Home, Google Pixel, and Nest devices are available through retail stores and online marketplaces.

3.4. Customer Relationships

Google has built strong customer relationships by providing a seamless user experience and continuously enhancing its products and services. The company invests in research and development to improve its search algorithms and introduce innovative features. Google also maintains a robust customer support system, offering help centers, forums, and direct assistance through various channels.

Furthermore, Google actively engages with its users and developers through events, conferences, and online communities, fostering a sense of belonging and loyalty. The company also encourages user feedback to improve its products and address customer concerns.

3.5. Revenue Streams

Google’s primary revenue stream is advertising. The company’s advertising platforms, Google Ads and Google AdSense, enable businesses to display targeted ads on Google Search, YouTube, and other partner websites. Advertisers pay Google either on a cost-per-click (CPC) or cost-per-thousand-impressions (CPM) basis.

Other revenue streams include:

1. Google Workspace (formerly G Suite) subscriptions, providing businesses with productivity and collaboration tools.
2. Google Cloud services, offering cloud computing, storage, and machine learning solutions.
3. Hardware sales, including devices such as Google Pixel smartphones, Google Home speakers, and Nest products.
4. App store revenue, generated from app sales, in-app purchases, and subscription fees on Google Play and other app stores.
5. Licensing fees, from Android device manufacturers and other partners using Google’s intellectual property.

3.6. Key Resources

Google’s key resources include its technology infrastructure, intellectual property, and human capital.

1. Technology infrastructure: Google’s massive data centers, search algorithms, and cloud computing capabilities are vital to its operations and services.
2. Intellectual property: Google’s proprietary algorithms, patents, trademarks, and copyrights are crucial for maintaining its competitive advantage.
3. Human capital: Google’s talented workforce, including engineers, developers, researchers, and designers, drive innovation and the company’s growth.

3.7. Key Activities

Google’s key activities include research and development, product development, marketing, and customer support.

1. Research and development: Google invests heavily in R&D to improve its search algorithms, develop new technologies, and enhance its products and services.
2. Product development: Google continuously expands its product portfolio by developing new applications, services, and hardware devices.
3. Marketing: Google promotes its products and services through various marketing channels, including online advertising, social media, events, and partnerships.

4. Customer support: Google provides support to users, advertisers, content creators, and developers through help centers, forums, and direct assistance.
5. Infrastructure maintenance: Google continually upgrades and maintains its data centers and technology infrastructure to ensure reliable and efficient performance.

3.8. Key Partnerships

Google has established numerous partnerships to support its business model:

1. Hardware manufacturers: Google partners with device manufacturers like Samsung, LG, and Huawei to pre-install Google services and the Android operating system on their devices.
2. Mobile carriers: Google collaborates with mobile carriers worldwide to distribute and promote Android devices and services.
3. Content providers: Google partners with content creators, publishers, and developers to provide a diverse range of content on platforms like YouTube, Google Play, and Google News.
4. Technology partners: Google collaborates with other technology companies to integrate its products and services into their offerings, such as incorporating Google Maps into Uber’s app.
5. Advertising partners: Google works with advertising agencies, networks, and resellers to promote its advertising solutions and expand its advertiser base.

3.9. Cost Structure

Google’s cost structure includes research and development, data center operations, sales and marketing, and administrative expenses.

1. Research and development: As a technology-driven company, Google invests heavily in R&D to maintain its competitive advantage and develop new products and services.
2. Data center operations: Google’s vast technology infrastructure requires significant resources to maintain and operate, including energy, equipment, and personnel.
3. Sales and marketing: Google’s marketing efforts, including advertising, events, and partnerships, contribute to its overall cost structure.
4. Administrative expenses: Google’s administrative costs include salaries, benefits, office space, and other overhead expenses associated with running a large organization.

Google’s remarkable success is rooted in its ability to provide accurate, relevant, and useful search results while continuously innovating and expanding its product offerings. The company’s business model, as analyzed through Alexander Osterwalder’s Business Model Canvas, reveals a strong value proposition, diverse customer segments, and multiple revenue streams.

Google’s key resources, activities, partnerships, and customer relationships have contributed to its growth and dominance in the technology industry. By understanding Google’s business model, aspiring entrepreneurs can learn valuable lessons about creating value for customers, fostering innovation, and building a sustainable and successful business.

Did you know? Startups like to use our coworking space in Bangalore.

Learn about our office space on YouTube where we talk about a variety of topics including entrepreneurship, business and life.