How do search engines like Google make money?
Search engines make money by running search related ads alongside the organic search engine results. The search engine makes money every time someone clicks on one of these ads. This technique is known as pay-per-click advertising. Advertisers pay or bid for placements in the search results for keyword phrases of their choice. Each time a user clicks one of the ads in the search results it costs the advertiser – this payment is made directly to the search engine. Search engines have a reason to maintain quality organic search results – the better the organic search results for a given query the more likely a user will return to use the search engine again. The more users a search engine has the larger the possible audience there is for the paid advertising and hence the more revenue the search engine receives. It is in the search engines best interests to provide the best user experience – again the better the user experience, the more repeat searches and the more likely the user will click on an ad. This pricing model might seem fairly harsh at first glance; however the situation is actually beneficial for most parties involved. Those websites that are not taking part in pay per click advertising have every opportunity to appear in the organic search results given their website is highly relevant to the search term and informative to the user. They can accomplish this by running a search engine optimisation campaign. For the users of the search engines, it encourages quality results and user experience and finally for the paid advertisers it provides an additional highly targeted marketing channel through pay-per-click advertising.
How Does Google Make Its Money?
How does Google (Nasdaq:GOOG) make money? No less an authority than the company's CEO posed the question, hopefully rhetorically, in a recent letter to shareholders.
Or as the company's annual report succinctly puts it, "We generate revenue primarily by delivering relevant, cost-effective online advertising."
There was a time, not that long ago, when Northern Light and Ask Jeeves were the default search engines of choice for many people. But within a couple years of its 1998 incorporation, Google went from a burgeoning upstart company to verb status - almost a genericized trademark. How did this happen?
In a word, AdWords. In some respects Google is essentially the world's largest bus shelter, deriving 96% of its revenues from ads. That's what separated a nascent early-2000s Google, known primarily as a search engine, from its competitors. Google's founders realized that if people were going to visit the site and enter a term in the search box, they wouldn't be landing on the subsequent page by accident. Thus they'd be motivated to buy a product from any advertiser sharp enough to place an ad there.
How Google Profits Off You
Say you run a small company - a bakery located in Topeka, Kansas, for instance. It's safe to say that people who would Google the words "Topeka" + "bakery" would likely patronize your business. Buy an ad on a page that'd be visited onlyby people who are looking for a Topeka bakery, and you're targeting about as accurately as it's possible to target a potential clientele.
From a Google customer's perspective (defining a customer in the traditional sense, as someone who gives the company money in exchange for its service), this is a proposition with little risk. AdWords typically operates on a cost per click basis, meaning that an advertiser can place an ad with zero obligation. If no one clicks on the ad, the customer doesn't pay a dime.
A Revolutionary Business Model
The traditional advertising media - radio, television, newspapers et al. - were and are incapable of drawing a distinction between patrons looking to generate traffic, and those looking to make the public aware of their brand. A static general-purpose ad can't tell who's actively in the market for...
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