organization wl-no-link">Google is changing over the years. Even though advertising is still its cash cow, organization wl-no-link">Google has been diversifying its in other areas. While in 2015 90% of organization wl-no-link">Google came from advertising, in 2017, advertising represented 86%. Other grew from about 10% in 2015 to almost 13% in 2017.
It is critical to notice a few important aspects about organization wl-no-link">Google :
- monetization strategy: how the composition is changing
- profitability: how operating margin is evolving
- cost structure: how the TAC rate is changing
Google monetization strategy has been changing over the years. Even though organization wl-no-link">Google still follows an advertising business model at its core. Alphabet (this is how organization wl-no-link">Google got rebranded) has been diversifying its in several areas.
Revenue breakdown 2015
|Other Bets revenues||445|
Revenue breakdown 2016
|Other Bets revenues||809|
Revenues breakdown 2017
|Other Bets revenues||1,203|
It is interesting to observe how organization wl-no-link">Google composition is changing over the years. Advertising changed from 90% in 2015, to 86% in 2017.
Evolution of Google profitability
At its core, organization wl-no-link">Google has been a highly profitable company since its IPO. Indeed, when investors looked under the hood of Google the found a company which was highly profitable, it was growing at lightspeed, and it was meant to dominate the digital space.
Operating Margin Evolution
|Operating income||Revenues||Operating Margin|
Over the years organization wl-no-link">Google managed to keep its operating margins pretty high. Indeed organization wl-no-link">Google‘s operating or the percentage of that are represented by operating income has gone from 28% in 2013 to 24% in 2017.
Google cost structure evolution
One key ingredient of Google success is its ability to keep the traffic acquisition costs at a level that guarantees its search pages a proper distribution (each day people perform more than three billion queries through Google search algorithms) while being able to monetize its pages:
Evolution of Google TAC Rate
|TAC to distribution partners (as % ofProperties Revenues)||TAC toNetwork Members (as % of Members )|
It is critical to distinguish between the acquisition costs of Google on its search pages and that outside its search pages. Indeed, to get traffic on its search pages, Google has to close deals with partners to guarantee a continuous stream of traffic. Instead, to allow businesses part of the Google AdWords (now Google Ads) platform to be featured within web properties part of Google AdSense, organization wl-no-link">Google shares its with the that allow organization wl-no-link">Google to place banners on their properties. Therefore, organization wl-no-link">Google has way higher costs in a percentage of segment on its members’ properties, than on its properties.
Keeping this distinction in mind is critical to have a deep understanding of the Google business model.
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