Google’s Trading Floor

Google dominates the online space. Google is often our homepage and the first place we go to when we open a web browser. We use Google Web Search when we’re looking for something on the Web. We use GMail to read and write email. We use Google Maps to get directions or find the nearest … Continue reading “Google’s Trading Floor”

Google logo

Google dominates the online space. Google is often our homepage and the first place we go to when we open a web browser. We use Google Web Search when we’re looking for something on the Web. We use GMail to read and write email. We use Google Maps to get directions or find the nearest stores. We use YouTube to find the hottest videos.

Within a relatively, short period of time Google has developed or acquired an unbelievable number of products. Here are some of Google’s more famous products:

Google products

Google has many more products, including experimental ones in Google Labs. Yet, with such a diverse set of products, Google generates almost all of their revenue through their advertising platform. Currently, Google’s stock market capitalization is larger than IBM, HP, Intel, Apple, Oracle, or Dell. Google is over half the size of Microsoft!

Still, many people are in the dark on how Google’s advertising platform and strategies have made it a money-making machine. How does it work? How do they stay dominant? Why can’t anyone beat them?

To begin with, Google has hired a massive number of the smartest minds in the industry. It is said that there has not been such an assembly of brain-power in one corporation since Thomas Edison‘s Menlo Park Research Laboratory (later to become General Electric).

Google’s advertising platform consists of several parts:

Google AdWords – Wordplay on Advertising Words (or Add Keywords). AdWords is Google’s program for advertisers. It allows advertisers to purchase keywords to advertise their products and services.

Google AdSense – Wordplay on Advertising Sense (or Add Cents). (see how PageRank makes sense of a page). AdSense is Google’s affiliate program for publishers. It allows websites to display advertisements and the publishers to make a percentage of the profits. This has increased Google’s reach by allowing every website to become a billboard and part of their advertising network.

Google Analytics – Formerly known as Urchin. Analytics is a statistics-based service that allows advertisers and publishers to see who their visitors are, where their traffic sources are coming from, what content is most popular, and whether or not they have reached their set goals.

Google Analytics

Google Advertisements for the Advertiser / Publisher

Impression ads are usually counted in Cost Per Mille (CPM). Mille is Italian for thousand, therefore, CPM means cost per thousand.

There are other forms of advertisements, some of which Google does not currently support. For example: Text Link or Content Link ads are not supported, because they may confuse readers of a site with regular hyperlinks. This could cause a user to be tricked into clicking an ad. Google has strict rules against deceiving users to inflate earnings. Neither do they support pop-ups, pop-unders, or other forms of “annoying” ads. As an aside, Google clearly differentiates between their search results and sponsored advertisements.

Google Algorithms

Google PageRank – Google’s algorithm determines the weighting and importance of websites by the way their hyperlinks are interconnected. PageRank is a wordplay on, Google co-founder, Larry Page, and web page. This algorithm forms the basis of the Google Search Engine.

Google TrustRank – Google’s algorithm helps to prevent click-fraud and spam. With TrustRank, Google can minimize fraudulent behavior and also better reward publishing websites that are reputable and trustworthy.

It is rather ingenious what Google has done. Let’s help you find what you’re looking for by providing you with a Search Engine. Then let’s provide you with targeted advertisements that are specifically related to your search. And show them together as search results.

An entire industry, called Search Engine Optimization (SEO), has been created around PageRank (and TrustRank) in the hopes of improving website rankings in Google’s search results. A top-ranking search result can often generate a lot of traffic for a business.

Google has been very clear that if you have good content on your website and a steady audience, then you have a good chance of monetizing it with AdSense. However, knowing practical ways to improve your website search result ranking will increase the size of your audience and ultimately lead to greater profits.

Matching Advertisers to Publishers

Keyword Auction Model – Google AdWords uses an auction model for selling contextual keywords to advertisers. This ensures that Google and the publishers get the highest returns for displaying advertisements. However, the bigging process also helps to ensure that advertisers receive the most prominent and relevant displays (via algorithms) for their advertisements; thus, a greater return on investment (ROI).

Google Keyword Auction Model

As you can see in the diagram, Google connects with the Advertisers and Publishers. It also connects the advertisers’ ads and the publishers’ content to the keywords. Google takes a small percentage of the profits, from the amount that the advertisers pay to have Google place their ads on the publisher websites, the publishers get the rest. In effect, Google provides an advertising brokerage service.

Google Infrastructure

One of the big reasons Google is dominant in the advertising market is because their infrastructure is the most scalable and cost-efficient. Together, their custom software and hardware systems form giant data-centers that are an absolute nightmare for competitors. Current estimates are that Google maintains 450,000+ servers world-wide.

Google Data Center

Google software that makes their hardware highly reliable and scalable:

This custom combination of software and hardware is unmatched in its ability to scale.

Google is always looking for ways to increase the scope and efficiency of their infrastructure, as documented in these research papers.

Google Mediums

Google started out by distributing advertisements on websites, but has begun to branch out across multiple mediums. While the web remains their dominant medium, here are some additional mediums they are targeting:

  • Mobile
  • Print
  • Radio
  • Television

Google Intangibles

Google has some intangible qualities that add to its allure. Their brand remains fun and cool. They have major partnerships (AOL, CNN, MySpace, etc). Their employees have a industry-leading number of perks which drives motivation, along with a 70/20/10 work schedule. They have user-trust.

Due to Google’s well-designed and thought-out advertising platform, they remain years ahead of the pack. It is unlikely that any competitor will be able to challenge them in the near future. Their algorithms, infrastructure, and branding are dominant. Google is the most cost-efficient and effective means for online advertising for advertiser and publisher alike. It is their game and their game to lose.

With the myriad of Google products out there, it is evident that Google’s core products will continue to revolve around search and advertising. If you would like to know more about Google check out these books:

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