Google’s $2 Trillion Business Model | How Google Earns Money? | Dhruv Rathee — Transcript

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1. 0:00Hello, friends!
2. 0:00Do you know that on Google, every day,
3. 0:02there are more than 8.5 billion Google searches?
4. 0:06It's as if every person on Earth,
5. 0:09searches for something or the other on Google at least once a day.
6. 0:11This is not a small feat.
7. 0:13But more amazing than this is that
8. 0:15doing this is completely free.
9. 0:17And not only Google search,
10. 0:19almost every product by Google is completely free to use.
11. 0:22Watching videos on YouTube is free.
12. 0:24Using Gmail is free.
13. 0:26Google Maps is free to use.
14. 0:27Despite providing all of this for free,
15. 0:29Google's market cap is more than $2 Trillion.
16. 0:33How is this possible?
17. 0:35How can Google provide so many services for free?
18. 0:38It doesn't charge us any money,
19. 0:40but has still managed to become such a big company.
20. 0:42Friends, today, let's understand
21. 0:44the business model of the most famous company on the internet
22. 0:47in this video.
23. 0:58Friends, you must have heard a lot about
24. 1:00how we refer to photocopy machines as Xerox machines,
25. 1:03refer to white glue as Fevicol
26. 1:04and refer to adhesive bandage as Bandaid.
27. 1:07Whenever a company dominates in its field like this,
28. 1:10its name is associated with what it does.
29. 1:14Similarly, today, an internet search is known as "Googling" something.
30. 1:18This Google search started in 1998 as a college project.
31. 1:23Larry Page and Sergey Brin created it with a mission
32. 1:27to organise all the information in the world
33. 1:29and to make it accessible and useful.
34. 1:32"Our entire mission
35. 1:33is basically to organise world's information
36. 1:35and make it universally accessible and useful."
37. 1:39During its initial days, Google was a simple search engine.
38. 1:42This is how it looked.
39. 1:43A simple website to search for things on the internet.
40. 1:47The word "Google"
41. 1:48doesn't actually mean anything,
42. 1:50but it is inspired from the world Googol.
43. 1:52Googol is the name of a number.
44. 1:54The number 1 followed by 100 zeroes.
45. 1:57If there are 3 zeros after 1, it is called a Thousand.
46. 2:00If there are 4 zeros after 1, it is Ten Thousand.
47. 2:02Similarly, if there are 100 zeros after 1,
48. 2:04that number is called Googol.
49. 2:07Google was chosen as a name to refer to this number
50. 2:10to show that their search engine will look up so much information on the internet
51. 2:14that it will be in Googols.
52. 2:15If you used internet during its early days,
53. 2:17you'd remember that Google searches in those days,
54. 2:20showed numerous result pages.
55. 2:22And Google used to number and list these result pages endlessly.
56. 2:27And the name Google came with extra O's.
57. 2:31In 2000, Google took its first big step.
58. 2:34They introduced the system of AdWords.
59. 2:37Today, it is known as Google Ads.
60. 2:39Through this, the businesses
61. 2:41could pay to display their ads
62. 2:44on Google's search results pages.
63. 2:45Later in this video, we will talk about
64. 2:47how it became Google's biggest business model.
65. 2:50But over the years,
66. 2:51Google started offering many more products and services.
67. 2:54In 2004, Gmail was introduced.
68. 2:57In 2005, Google Maps was introduced,
69. 2:59which changed the world.
70. 3:01In 2006, Google acquired YouTube,
71. 3:04the very platform you are watching this video on.
72. 3:05Many people don't know that in the beginning,
73. 3:07YouTube was a separate company.
74. 3:10It was only in 2006 that Google bought YouTube.
75. 3:13After that, in 2008, Google introduced Android.
76. 3:16The same mobile operating system that is in most people's phones.
77. 3:20The same year, Google launched its own web browser.
78. 3:22Google Chrome.
79. 3:23Which is the most popular web browser in the world today.
80. 3:26Later, Google started making its own hardware products.
81. 3:29Their Pixel smartphones,
82. 3:30Chromebook laptops,
83. 3:32and smart home devices.
84. 3:33Today, Google is expanding in the Artificial Intelligence field as well.
85. 3:37And after hearing all this you will feel that
86. 3:39Google has been producing one powerful product after another.
87. 3:42And everything turned out to be successful.
88. 3:44But this is not true.
89. 3:45The examples I listed right now
90. 3:47are the examples of its successful products and services.
91. 3:50There are many things that
92. 3:52Google tried but eventually failed.
93. 3:54Like Google Plus.
94. 3:56Google tried to make its own social media platform
95. 3:59to compete with Facebook.
96. 4:01But it failed.
97. 4:02Google Hangouts, an app for chatting,
98. 4:04which was popular at one time,
99. 4:06but was shut down in 2022.
100. 4:08Google Nexus tablets,
101. 4:10which were also famous at one time,
102. 4:12they were competing with the iPad,
103. 4:13but after a while,
104. 4:14Google shut them down too.
105. 4:16Google Podcasts, Google Glass,
106. 4:18Google Wave, Google Reader,
107. 4:20the number of examples of failures,
108. 4:21in reality, are far more in comparison to the successes.
109. 4:24If you go to Wikipedia and look at the entire list,
110. 4:26there are more than 200 such products and services
111. 4:28by Google that have failed.
112. 4:30And here we have an important lesson.
113. 4:32"Failure is the mother of all successes."
114. 4:35If you really want to achieve success,
115. 4:37you will have to fail many times.
116. 4:39Keeping in mind these successes and failures,
117. 4:41let's talk about the present day,
118. 4:43and see which is the most profitable stream for Google.
119. 4:46With its oldest business model,
120. 4:48Google Search Ads.
121. 4:49Let's understand it in detail.
122. 4:51On the screen, you can see the revenue breakdown of Google for the year 2022.
123. 4:55That is, where did Google earn its revenue in the year 2022?
124. 4:59The total revenue is $280 billion,
125. 5:02of which 58% of the revenue,
126. 5:04i.e. $162 billion comes from
127. 5:07the ads shown with Google searches.
128. 5:09After this, the second biggest source of income is
129. 5:11Google Network ads.
130. 5:13The ads that you get on different websites
131. 5:15that partner with Google.
132. 5:17Google earns $32.78 billion from here.
133. 5:20Third is YouTube Ads
134. 5:22$29 billion comes from here.
135. 5:24The ads that you will see while watching this video.
136. 5:27Here, it's interesting that
137. 5:29these ads are the source of income for us YouTubers.
138. 5:32The money that advertisers pay to show these ads
139. 5:36is split between Google and the creators.
140. 5:3945% of the revenue goes to Google
141. 5:42and 55% goes to creators like me.
142. 5:45So the 45% share of YouTube from the content of all creators
143. 5:48generates about $29 billion in revenue for Google in a year.
144. 5:53Similarly, there are apps on Google Play Store.
145. 5:55When an app creator sells their app through Google Play Store,
146. 5:5970% of the revenue goes to the creator
147. 6:02and 30% goes to Google.
148. 6:05So, the revenue from the sales of these apps
149. 6:06and the other revenue by selling phones and laptops,
150. 6:10that part of Google's revenue is fourth on the list with $29 billion,
151. 6:14at around 10.4%.
152. 6:16And the last major revenue source is
153. 6:17Google Cloud with $26 billion.
154. 6:20Now, it is also interesting to see
155. 6:22where does Google spend this money?
156. 6:24Around $40 billion is spent on
157. 6:26Research and Development.
158. 6:28For their ongoing research to create more new products and services.
159. 6:31To keep on attempting at new failures.
160. 6:34About $44 billion is spent on
161. 6:36non-production costs like renting offices,
162. 6:39spending on advertising, marketing, and accounting,
163. 6:42and paying salaries to the employees.
164. 6:44Their total expenses are around $207 billion,
165. 6:49as you can see on the screen.
166. 6:50This is the Balance Sheet of their company.
167. 6:52Here you can also see that
168. 6:54income before taxes was $71 billion in 2022.
169. 6:59They paid $11 billion in taxes
170. 7:01and their profit was approximately $60 billion.
171. 7:05The most interesting thing in this business model
172. 7:08is providing things for "free."
173. 7:10How is it possible to earn a profit by providing things for free?
174. 7:14There are two reasons behind this.
175. 7:15First, these "free" things are not completely free.
176. 7:19The base level products are free,
177. 7:20but if you want premium service,
178. 7:22you have to pay.
179. 7:24This is a common business strategy
180. 7:25which is called the Freemium model.
181. 7:27Free plus premium.
182. 7:28And many companies use this.
183. 7:30Spotify, LinkedIn, Zoom, and now even Twitter uses it.
184. 7:34In simple words, the basic services will be given to you for free,
185. 7:37but if you want the Premium service, you will have to pay for it.
186. 7:41Like, Gmail is free to use,
187. 7:43but its storage limit is 15 GB.
188. 7:45If you want more storage, you will have to pay.
189. 7:48Google Drive is free to use,
190. 7:50but its storage limit is 15 GB too.
191. 7:52If you want more than that, you need to pay.
192. 7:54Watching videos on YouTube is free.
193. 7:55But you will get ads in between.
194. 7:57If you want to remove ads, you will have to pay money.
195. 8:00You will have to subscribe to YouTube Premium.
196. 8:01This Freemium model is very successful
197. 8:03because it gives you an opportunity to 'Try Before You Buy.'
198. 8:05You can try a product
199. 8:07and only if you like it, should you pay for it.
200. 8:10But in Google's case,
201. 8:11the interesting thing is that
202. 8:13most people do not use their paid services.
203. 8:1695% of people who watch videos on YouTube
204. 8:18have not subscribed to their Premium version.
205. 8:2095% of people who use Gmail or Google Drive
206. 8:23do not pay for it.
207. 8:25But still,
208. 8:27Google earns its majority revenue from its free services.
209. 8:31Here comes our second reason,
210. 8:33Data Collection.
211. 8:34The more free services we use,
212. 8:36the more can Google acess our data.
213. 8:40Everything we search on Google,
214. 8:42every video we watch on YouTube,
215. 8:44every email we send,
216. 8:46all of this data is anonymously collected
217. 8:49and used for targeted advertising.
218. 8:52You must have noticed this too.
219. 8:54If you search for a healthy recipe on YouTube,
220. 8:57later when you are on Google and its partner websites,
221. 8:59you will see ads for healthy tiffin services or nutritionists.
222. 9:03If you search for hotels in Dubai on Google,
223. 9:06you will see ads for Dubai tourism,
224. 9:09and different tourist attractions in Dubai.
225. 9:20What is your age group?
226. 9:21Are you a man or a woman?
227. 9:23Which country do you live in?
228. 9:24Which city do you live in?
229. 9:25What do you search about?
230. 9:28What do you like?
231. 9:29Based on these data, Google creates a profile for you.
232. 9:32And from a different perspective,
233. 9:34an advertiser can choose these as parameters.
234. 9:37If you have a small business selling clothes or glasses.
235. 9:41And you want your ad to be seen by 18-25 year old girls,
236. 9:46who live in the NCR region specifically.
237. 9:48You can choose these parameters.
238. 9:49And then you can choose some keywords,
239. 9:51like sunglasses or sarees.
240. 9:54And Google's task here is to
241. 9:56match an advertiser with a user.
242. 9:59If your age group, region, and gender matches to the parameters
243. 10:02and you search for a word related to 'sunglasses' on Google
244. 10:06or you watch a video related to it on YouTube,
245. 10:08like a review of some sunglass,
246. 10:11Google will know that
247. 10:13you are the target customer for this ad
248. 10:16and Google will show you this ad.
249. 10:18This is a simplified explanation,
250. 10:20but broadly speaking, this is how Google Ads work.
251. 10:23If we go into a bit more complexity,
252. 10:25there is a lot of competition between advertisers as well.
253. 10:27So, there's a bidding to show Ads.
254. 10:29Advertisers can decide how much money they are ready to pay to show their ad.
255. 10:34If another company is willing to pay more,
256. 10:38then their ad will be shown first.
257. 10:39Google calculates the Ad Rank to decide this.
258. 10:43It decides the rank for each ad.
259. 10:45For this, apart from the money
260. 10:46the quality of the ad is also considered.
261. 10:48On the other hand, the user
262. 10:49Google checks how well the user matches to each specific ad.
263. 10:54Based on whatever they have searched for,
264. 10:55how relevant will an advertiser be for that particular user.
265. 10:59And here, there are different types of ads too.
266. 11:01Like Search Ads,
267. 11:02when you type something on Google,
268. 11:03the ads on top of the search results
269. 11:06are called Search Ads.
270. 11:07Then there are Banner Ads.
271. 11:09When you go to different websites,
272. 11:11like a news website,
273. 11:12the ads that you see on the banners on the website
274. 11:15are part of the Google Display Network.
275. 11:18And then there are Video Ads shown on YouTube,
276. 11:20which are played in the middle, before or at the end of the video.
277. 11:23This is further bifurcated into the category Skippable and Non-Skippable.
278. 11:26If we see the combined revenue from all these different types of ads,
279. 11:30Google's total revenue from ads is $237 billion.
280. 11:35And in 2022, their total revenue was $280 billion.
281. 11:39So, out of the $280 billion,
282. 11:41Google earns $237 billion just from these ads.
283. 11:45Look at this chart.
284. 11:46You can see Google's annual advertising revenue.
285. 11:50You can see nearly exponential growth here.
286. 11:52This revenue has been increasing for the past 20 years.
287. 11:55And in 2020-21,
288. 11:57you will see a huge jump.
289. 11:59This was due to COVID.
290. 12:00Most people were spending time at home on the internet.
291. 12:03More and more ads were being watched.
292. 12:05Advertisers were willing to spend more money on ads.
293. 12:08So Google's revenue jumped so high during that time.
294. 12:10But Google is not the only company
295. 12:12which relies on targeted advertising
296. 12:15for its business.
297. 12:16Meta's Facebook and Instagram do the same.
298. 12:19In 2023, Meta's annual advertising revenue was $131 billion.
299. 12:24Amazon also makes money by showing ads like this.
300. 12:27You might be thinking, why would Amazon need to show ads
301. 12:29when it is already making money by selling products on its website?
302. 12:33Actually, while selling the products,
303. 12:35the purchase history data of each user that is generated,
304. 12:39is more important than the data collected by Google.
305. 12:41Because Google knows only about
306. 12:43where your interest lies.
307. 12:45When you watch a video on YouTube
308. 12:47or search for something on Google search.
309. 12:49those are you interests.
310. 12:51But Amazon knows which products you have purchased.
311. 12:54You can be more accurately targeted by these product sales.
312. 12:57If they know what are the things you like to buy,
313. 13:00then you be shown the ads of other similar things.
314. 13:03That's why Amazon generated $46.9 billion in revenue
315. 13:08from advertising alone.
316. 13:09In the last 20 years, this single Business Model
317. 13:12has helped these companies dominate the internet.
318. 13:15But now, cracks seem to have appeared in this model.
319. 13:19There are two major reasons for this.
320. 13:21First, the privacy concerns.
321. 13:23People are worried about the extent of things Google knows about you.
322. 13:26What you eat, where you live,
323. 13:28where you work.
324. 13:30Even the diseases you suffer from.
325. 13:32Because people often search for such things on Google.
326. 13:35What are your relationships?
327. 13:37What are the problems you face in your life?
328. 13:39"So I think Google does
329. 13:41have more information than Facebook does.
330. 13:43I don't know if that's a bad thing.
331. 13:44I think that it helps make the product better."
332. 13:46Look at this news from 2023.
333. 13:48Google paid a fine of $93 million to the state of California, USA.
334. 13:52because Google was tracking users' location
335. 13:56even though users had turned off their location history.
336. 14:00As awareness about privacy is increasing among people,
337. 14:03people are sharing less information on the internet.
338. 14:06And if these websites do not get more and more information
339. 14:09their ad targeting will get worse.
340. 14:11And if ad targeting gets bad,
341. 14:13advertisers won't want to spend more money
342. 14:15which will adversely affect their revenue.
343. 14:18But the second problem is even bigger.
344. 14:20You must have heard the famous saying
345. 14:23"Don't put all your eggs in one basket."
346. 14:27because if that basket falls, all the eggs will break.
347. 14:30This advertising model will completely fall apart
348. 14:32if someday people stop using Google search for some reason.
349. 14:37Already, with time,
350. 14:38Google search's reliability has been on the decline.
351. 14:40Earlier, you saw only one ad on the top.
352. 14:42But now, if you search for something,
353. 14:44the first few top results will be ads.
354. 14:47If you are hit by so many ads when you look up something,
355. 14:49then the usefulness of those search results starts to decrease.
356. 14:52And now imagine that if a competitor comes up,
357. 14:55which shows you exactly what you want to search for,
358. 14:58without any ads.
359. 14:59A platform like ChatGPT.
360. 15:01When you ask ChatGPT any question,
361. 15:03you get a direct answer neatly formatted into paragraphs
362. 15:06without any ads.
363. 15:07But if you look up the same question on Google search,
364. 15:09you will get a lot of results,
365. 15:11which will be full of ads
366. 15:13and you won't know the reliability of different search results,
367. 15:16which is reliable, which is a trustable source,
368. 15:19which website should you click on, and which website should you not.
369. 15:22In my opinion, these AI-powered chatbots
370. 15:24like ChatGPT
371. 15:26will be the biggest threat to Google's advertising business model
372. 15:30in the coming years.
373. 15:32Perhaps, Google already knows this.
374. 15:33That's why Google is also developing its own Artificial Intelligence software,
375. 15:37like Gemini,
376. 15:38as a competitor to ChatGPT.
377. 15:40Now, only time will tell
378. 15:42whether Google will remain as the face of the internet for the next 20 years or not.
379. 15:47Or whether some other company gets ahead of it.
380. 15:49But one thing is for sure.
381. 15:51This competition between different companies
382. 15:54is definitely beneficial for the consumers, for individuals like us.
383. 15:57Because we will get better services and products.
384. 15:59If you want to understand Artificial Intelligence in detail,
385. 16:03I have explained it in this video.
386. 16:05You can click here to watch it.
387. 16:07Thank you very much!