Understanding the Google Buisness

Google has been a technology giant for a long period of time since its inception. It has been able to deliver the users results most relevant to them and has drawn huge number of people towards it. In india People are generally heard saying "Google humari mata hain humme kuch nahi aata hain" (Google is our mother, we donot know anything"). Ask an engineering or an MBA graduate and he would tell you the importance of Google in his degree. In fact it would be appropriate to say that all Engineerign and MBA colleges should on their degrees write in association with Google. Google is like an index to a book. You need to go to this page if you need to go anywhere otherwise you will be lost in the billion page book.

Google has managed itself well over the years and the culture prevalent is one that many would want to work in. But everyone is not so lucky. Well I can go on telling how Google has helped me and people around me. But the point of writing this blog is not to praise Google or anything, but understanding how Google earns its revenues and an understanding of the various terms on its annual reports which is pretty interesting to read btw.

Let us start with the most important thing, everything that Google offers to people like you and me is free of cost so where does it run, how do they generate revenues.
Well it was a question that pestered me quite a lot when i had the sense to understand that companies have to generate revenues themselves to survive, government does not help them. Finally i came to know that Google earns revenues through its adWords Program. Now next question would be do they earn enough through this to sustain themselves. The answer is yes they earn an amazing amount by this method.
To tell you in brief adWords is a program under which advertisers bid for placing their ads on the top, based on the key words entered by the users. These ads are displayed on the Google website when you search for a keyword as sponsored links on the right side. Every time you click on the ad Google gets revenue. Its like you are leasing a part of the Google web page and pay them only when the user clicks on the ads. Now a problem is the user might click accidentally on the ad. Earlier this used to be the case, so the simple solution was make click able only the link and not the whole ad thus preventing the accidental clicks.

The second program is the adSense, this program is used by people like us to earn revenues through our blogs. As an individual you need to get yourself registered on the adSense program and then you can paste the ads on your website. These ads are of two types adSense for Search and adSense for Content. adSense for search is when the website owner uses the Google search on his website customized to his tastes and the website. adSense for content becomes effective on html pages like blogs or articles. Google tries to draw an inference about the type of page and then on the basis of this displays the relevant ads. Now all these websites on which Google places its ads are referred to as Google Network Websites. Now the next logical question is what is the incentive for us to allow Google to place their ads on our websites. Well the logical answer to this logical question is MONEY. Google shares with us the revenues that the advertiser pay Google. The model works like this, if a reader on your website clicks the ads, then a part of the revenue comes to you and a part goes to Google. The portion of the fee that gets payed to the network members is referred to as the traffic acquisition cost or TAC.

99% of the revenues for Google since the past 4 years have been coming through the two programs alone. The remaining 1%comes from its licensing of its search application for enterprise clients.

Cost of revenues comprises of the following costs, money shared with the network members, cost in maintaining the data centers, to partners who put Google toolbars etc for distribution (referred to as Access points), money to those who direct search queries on Google website. It also includes depreciation, labor and bandwidth costs along with credit card and transaction fees.