12 September 2008 - International [Global]
Google
Last week, In the News reported on the tenth birthday of Google. The company, and the web, have come a long way since Google first entered our popular vocabulary. Almost at the same time that it was celebrating its birthday, Google announced a beta release of its new web browser, Chrome. There have also been a number of other products from Google, including Google Earth, Google Maps, Android - an operating system for mobile devices - and Google Mail. There are undoubtedly others to come. The billions of dollars worth of revenue that the company generates have been well documented, and most analysts were generous in the praise they lavished on the company when reviewing it after 10 years in business.
In our last article, we hinted at the way in which Google generates its huge revenues, and this article will look in a little more detail at the business model behind Google. The first thing to remember about Google is that it is a free service. Anyone can use it, and its use does not require the user to pay out any money whatsoever. To have access to the amount of information that Google provides absolutely free might seem to be at odds with the massive sums of money that Google generates in revenue. So how does the company generate these revenues?
In our last article we suggested that Google was a very large advertising hoarding, and that is pretty much what it is. Advertisers pay for the privilege of using Google as their advertising medium - lots and lots of very small amounts of money. It has been reported that around 99% of Google's sales come from the fees it charges advertisers. What is it that advertisers are paying for that Google provides? The main thing is the network that Google has, which means that advertisers can reach billions of potential customers. Anything that happens on the Internet is Google's business. It collects massive amounts of data and information and shares this with its users via its network.
The more people use the Internet, the stronger Google becomes. This is because if more things are done online, then Google can collect more information, and that makes them more appealing to advertisers. The longer any user spends online, the more adverts they see and the more likely they are to select one of the links provided and buy a product or service as a result. One analyst has likened the relationship between Google and greater Internet use as an example of a complement. Complementary goods are those that tend to be purchased together, such as DVD players and DVDs.
Imagine what would happen if DVD players were available free of charge to everyone. What do you think would happen to the demand for DVDs? The chances are that the demand for DVDs would rise, and this would please film studios and entertainment producers very much! Such is the situation with Google. If it can launch new products that make Internet access easier and cheaper to use, then demand will rise, and when demand rises it makes Google even more attractive as a means of advertising.
A simple idea, but then again many of the best business ideas are the simple ones. It must not be forgotten though that the vision and technical skills that Brin and Page had were also crucial in providing the platform that allows Google to provide a service so valuable that advertisers around the world are prepared to pay, but which core users get for free!