business-model-canvas

Google Business Model Canvas

google-business-model-canvas

Before we dive into the Google business model canvas, it is important to notice that a business model is an ever-evolving creature.

Thus, the pieces of the puzzle that will give rise to a unique business model today might be completely different in the future. This is even more evident for tech giants, like Google, which disrupted the marketplace with innovative business models.

At the same time, if Google itself doesn’t want to be disrupted, it will need to evolve its business model. This might imply a complete change in a few years on things like key partners, distribution channels, customer relationships and the critical resources required to succeed; while the value proposition might stay the same all the rest might change.

For instance, take the case of Goolge able to automate most of the organic content offered to users. Would still need publishers as key partner? If not, its value proposition will slightly change.

Google key partners

Traffic is the main ingredient for Google’s success. Each day over three billion and a half queries go through Google because is one of the best search engines out there. 

At the same time, one of the critical ingredients of Google success was its ability since the beginning to structure a distribution strategy able to bring traffic which got monetized on Google search pages. 

In this respect I believe, that at the time of this writing three key elements and partnerships allowed Google to reach its scale:

  • Partnership agreements (like the multi-billion dollar deal with Apple to have Google featured as a default search engine on Safari). This is a critical piece of the pie in terms of critical partnerships as it allows Google to have a continuous and massive stream of qualified traffic across several devices
  • Mobile users have grown massively in the last decade. This implies that whoever takes hold of the mobile content consumption can build a sustainable business model for years to come. With other 84 technology and mobile companies, Google forged the Open Handset Alliance. In fact, in 2005, Google acquired Android (what would become the prevailing operating system for mobile). Just after a few months from the launch of the iPhone by Steve Jobs, Google announced its Open Handset Alliance. The aim was to build “the first truly open and comprehensive platform for mobile devices.” The business model behind the Open Handset Alliance is a simple one. Google provides its free of charge, the operating system for mobile devices, Android, and in exchange for many apps, like Google Play and Google Chrome come pre-installed.
  • One key ingredient for Google success was its ability to offer relevant and high-quality content compared to any other portal, or search engine existing back in the late 90s. One of the key ingredients of that success was the AdSense network. Comprising millions of websites around the world; those websites allow Google to tap into their sites to place banners from businesses that want to advertise their services. Google shares the advertising revenues produced on those websites with those partners.
  • Another primary ingredient for Google success was its ability to attract organic content. In short, beyond the paid text-based advertising places as first results on Google, the search engine also offered search results pages of content which weren’t sponsored, neither necessarily monetized by Google via AdSense. Those publishers fetched their content for free within Google in exchange for qualified traffic.

Google key activities

Google mission is to “organize the world’s information and make it universally accessible and useful.”

This bold vision requires that Google keeps innovating in the search industry, while it also looks forward to new ways the web is developing. This implies a few key activities:

  • At a basic level, Google has to keep innovating its search algorithms
  • As voice search is growing it is critical that Google keeps innovating by also offering new products. For instance, Google launched its new voice devices, such as Google Home, which compete against other tech giants, like Amazon‘s Alexa and Cortana.
  • Google still generated most of its revenues from advertising. A business model based on a single source of revenue might not be sustainable in the long run. That is also why Google is investing resources in betting in other areas that might lead to the next innovation.

Google value proposition

For a tech giant like Google, which has a sophisticated business model, based on a hidden revenue generation, there isn’t a single value proposition.

Instead, several value propositions will serve the purpose of keeping key partnerships that allowed Google to scale up and let it today to maintain its market dominance. Thus, if I had to summarize the fundamental value propositions those would be:

  • Free search engine for billions of users around the world. This is how Google managed to grow quickly. A great, reliable and free service that allowed users anywhere in the world to find the information they needed, fast.
  • Besides its free search engine, Google also offers a set of free tools and apps (just to mention a few: Gmail, Google Analytics, Blogger, Google Books, Google Chrome and many others). Those free tools are among the most used in the business world.
  • The core of the Google business model is advertising, focused on targeted text-based ads for businesses offered via the AdSense network. Before Google existed,d there was no way for marketers to know in details all the conversion metrics of their ads. While Overture was the first in offering CPC advertising, Google managed to scale it up at massive levels.
  • Before Google disrupted the advertising world and took over the digital advertising market, a few established publishers could make money via advertising. With its AdSense network, Google also allowed small publishers to monetize their content. In a way, it was a democratization of the digital advertising market, where anyone with the content that got the most eyeballs and attention could monetize on it, independently from its brand. Google AdSense is still an important element of Google value proposition.

Google customer relationship

The cash cow for Google is its AdWords network, made of a growing number of businesses looking to sponsor their products and services. That implies two things.

First, Google needs to keep offering targeted ads that allow those businesses to generate leads. Second, Google is as worth as much as the qualified traffic it can generate.

This implies that Google needs to keep focusing on making sure that users go back to its search results pages. Indeed, even if users do not pay for Google search results, they are the products. As any attention merchantGoogle is selling back their attention. That means Google will need:

  • Offer the proper support to businesses part of the AdWords network
  • Keep expanding the network of businesses joining AdWords address
  • The privacy concerns of users. As I pointed out, companies like DuckDuckGo have built their business on Google weakness in terms of privacy. If those concerns are not addressed Google might be losing an increasing chunk of users, willing to switch because of privacy concerns

Google customer segment

In terms of value creation, with its massive business model, Google has several “customers” not intended only to businesses paying Google for service but also those people or organization that contribute to Google financial success. In that respect we have:

  • Internet users around the globe. To keep growing its users base, Google might also be going back to China
  • Those who are bringing big bucks to Google are agencies, marketers and businesses part of its Ad Network
  • AdSense Network Members that allow Google to offer targeted ads on their web properties

Google key resource

Google is very capital intensive; this implies a couple of key resources to keep running its infrastructures at best:

  • The most basic thing any sites with a large number of traffic needs is a massive server infrastructure. Back in the late 1990s when Google was still in the very initial stage at Stanford, it brought down its internet connection several times, by causing several outages. That allowed its founders to understand they needed to build up a solid infrastructure on top of their search tool. Today Google has a massive IT infrastructure made of various data centers around the world.
  • Another element to allow Google to stay on top of his game is to keep innovating in the search industry. Maintaining, updating and innovating Google‘s algorithms isn’t inexpensive. Indeed, in 2017 Google spent over $16.6 billion in R&D, which represented 15% of its total revenues.

Google distribution channel

My belief is that one of the vital ingredients to Google success was its distribution strategy, since its first few years of operations. That is also why Google relies on:

  • global sales team which uses business development to keep growing Google operations
  • Google deals and partnerships that bring it on billions of devices in the world

I’ve extensively covered Google distribution strategy below:

Google cost structure

With its over $110 billion in revenues in 2017, Google reported a $12.6 billion in net profits. This implies a few critical items in its income statements:

  • traffic acquisition costs is a crucial metric to assess Google ability to generate value over the years:
what-is-google-tac
TAC stands for traffic acquisition cost, and that is the rate to which Google has to spend resources on the percentage of its revenues to acquire traffic. Indeed, the TAC Rate shows Google percentage of revenues spent toward acquiring traffic toward its pages, and it points out the traffic Google acquires from its network members. In 2017 Google recorded a TAC rate on Network Members of 71.9% while the Google Properties TAX Rate was 11.6%.
  • As we’ve seen R&D costs represented 15% of its total revenues, or $16.6 billion
  • Sales and marketing represented 11.6% of its revenues or almost $13 billion
  • Datacenters costs also represent another good chunk of Google cost of revenues

Google revenue stream

Google business model can be broken down into three main lines:

Google business model canvas (video case study)

Google infographics

amazon-google-facebook-advertising-business

traffic-acquisition-cost
The traffic acquisition cost represents the expenses incurred by an internet company, like Google, to gain qualified traffic on its pages for monetization. Over the years Google has been able to reduce its traffic acquisition costs and in any case to keep it stable. In 2017 Google spent 22.7% of its total advertising revenues (over $21 billion) to guarantee its traffic on several desktop and mobile devices across the web.

googles-business-model

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Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which he brought to reach over half a million business students, professionals, and entrepreneurs in the last year | Gennaro is also Head of Business Development at a tech startup, he helped reach over six figures and become profitable in a year and a half | International MBA with emphasis on Corporate Finance | Subscribe to the FourWeekMBA Newsletter | Or Get in touch with Gennaro here

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