Google is a fantastically rich company. It reported revenue of more than ten billion dollars in the fourth quarter of 2011.
Google also offers a vast array of services. In addition to the search engine that we interact with dozens of times a day, Google runs all of these properties:
- Google Apps, a hosted business platform competing directly with Microsoft
- the Android operating system, which runs on more smartphones than Apple’s iOS
- Google+, competing with Facebook for social networking
- Chrome, catching up fast to Internet Explorer as the most popular web browser
- Mail (Gmail), phone service (Google Voice), photos (Picasa), mapping/GPS (Google Maps/Google Earth), digitizing the world’s libraries (Google Books), and oh so much more
How does Google make so much money? Even if you guess the right answer, you still might be surprised to see the visual below.
While you’re thinking, let’s look at how Microsoft and Apple make money. Columnist Ed Bott put the numbers together from SEC financial reports and created nifty pie charts that are well worth a look.
Microsoft is mostly a software company with income fairly evenly split among the business, server, and Windows divisions. There’s more revenue from the Xbox division than you expect but otherwise no surprises.
Apple is a hardware company. The iPhone and iPad generate nearly three-quarters of Apple’s revenue. The computer business is just a hobby and the iTunes store and other services are incentives to make you buy the hardware.
How does Google make money?
Here is a breakdown of Google’s revenue in 2009, 2010, and 2011 – the percentages were essentially unchanged in each of those years.
Google is an advertising company. “We generate our revenues almost entirely from advertising… Advertising revenues made up 97% of our revenues in 2009 and 96% of our revenues in 2010 and 2011.” (Source: Form 10-K for the fiscal year ended December 31, 2011, filed January 2012)
Use that knowledge to draw your own conclusions when you read articles about Google.
The tech world has been all aflutter in the last couple of weeks about changes to Google’s privacy policies. The important change is Google’s stated intention to aggregate all of its data about you and friends in your Google+ social circle and use that data throughout all of its services “to show you more relevant search results and ads, to help you connect with people or to make sharing with others quicker and easier.”
Microsoft used Google paranoia as an excuse to run full-page ads in the New York Times about how private things are if you use Microsoft services. Google tried to allay fears with a reassuring letter to Congress about how much of a lovable cuddle-bunny it is.
Google is an advertising company. Everything it does is driven by the desire to show you ads. That’s not good or bad. Microsoft and Apple are not altruists. Just look at the pie chart and don’t be fooled into thinking that Google has any other motives.