Google has a lot of services that you're familiar with, like Android, Gmail, Google Maps, and of course, the Google search engine. But since all of those are free, you might have wondered exactly how Google makes money.
In 2019, Alphabet — Google's parent company — had over 162 billion dollars in revenue, and the majority of it came from one type of service: advertisements. Google Ads and AdSense are the company's bread and butter. Google Ads are those inline advertisements you see when you search for something using Google.com, and AdSense is the partner program that sites like Android Central use to display ads from Google. Both are worth a pretty penny, which is why regulators in several countries, including the U.S. and the U.K., are taking long, hard anti-trust looks into Google's operations.
What many investigators and regulators propose is that Google has enough control over the online ad space and enough online "clout" that it can influence both advertisers and publishers to prefer its services over the competition. Becoming popular because your product is great is fine, but becoming popular because you lessen competition isn't. The E.U. has already determined that Google has overstepped its bounds in the advertising industry.
Google says it's bad for Google if it becomes too dominant in the online ad space.
The New York Times wrote a fascinating article about all this. A document sent to Australian regulators, which are also investigating Google's so-called monopoly in the advertisement space, comes with a twist: it's actually bad for Google if it tries to squeeze out the competition.
The filing from Google's legal advisers basically says that aggressive competition among companies selling online ad space has made prices lower for companies advertising goods and that Google does nothing to hurt publishers (websites that display Google advertisements) because the content produced provides data to make Google search better.
As crazy as that sounds at first, it does make sense once you have a basic understanding of how website ads are displayed and how Google uses data in all of its products.
Google sells ad space in its search results and makes money every time someone clicks through one of the links. All major web companies like Microsoft, AT&T, Amazon, and Oracle also sell ad space on their properties the same way. With competition like Amazon.com, Google knows the best way to get smaller companies to buy space is to offer low prices. Big companies like Nike or Pepsi are always going to advertise on every platform, but with a more limited budget, the "little guys" have to consider price when deciding where ads are best placed.
I think this is a pretty simple concept — if Google charged too much, it might not get as many advertisers for less-common searches. Google wants ads on every page it provides. When Google offers these companies lower prices, Microsoft and Amazon and AT&T have to do the same if they are to be considered.
The Google AdSense program is what website owners use to make money from Google. Let's say I'm making a website, and I fill it with well-written articles that I am sure people will want to read and share. One way to make a profit is to sell parts of my website to advertisers.
With Google AdSense, I can sign up and define a spot on my website for Google to display ads, and every time someone clicks one of those ads, I get a small amount of money. I do not get to decide what ads are shown, because Google uses user data to display ads for products that it thinks the person visiting is going to find interesting. It can do this because Google collects data about things we search for and view online.
Every company that sells ad space does this. Facebook does it, Microsoft does it, Amazon does it. Google is just really good at it. Advertisers love Google because they know the ads they spend so much money to produce and spend so much money for Google to show off are going to be targeted to users who have already expressed an interest in similar products.
I just bought a new shower head, and because I searched for the best, I see shower heads everywhere now.
You can test this yourself. Try searching Google for something you've never shown any interest in before. I'll use shower heads as an example. Click around on a few search results, maybe click through some of the other suggested searches about shower heads. Do this a couple of times, then pay attention to the online ads you see. Do the same thing at Amazon, or on Facebook.
You will see ads for whatever you searched. That's how it works. Because it works this way — you actually clicking through to publishers (the people or companies who publish websites in this case) is helping Google collect data for both future search results and its own advertisement business. If Google went too far and mistreated publishers, it would also damage its own business.
Whether these arguments are going to work in Australia or other countries is yet to be seen. Maybe regulators will just see this as a way to beat the system by using out of the box style thinking, or perhaps the ideas expressed by Google's council will make sense to regulators and attorneys. Either way, the ideas are interesting and have a bit of truth behind them.