Google has expanded far beyond its original claim to fame as a search engine. The company, founded in 1998 by Sergey Brin and Larry Page, went public in August 2004. In 2015 the company organized all of its businesses under the name Alphabet, Inc. In its financial reports, Alphabet breaks down its results in two categories: Google and 'Other Bets'. Google is the only reportable segment of the two since the Other Bets do not meet the quantitative threshold for reporting, according to the company.
Alphabet owns more than 200 companies, including those involved in robotics, mapping, video broadcasting, telecommunications, and advertising. The company is growing through acquisitions, but it is also increasing revenue and profits in each of the companies it owns. In cases where an acquisition or existing business stops growing, Alphabet will either cease operations, fold it into another business or sell it outright.
The companies and products inside Google include its advertising business - known simply as Ads - Android, Chrome, Commerce, Google Cloud, Google Maps, Hardware (including GoogleHome, Nest and Pixel), Search and YouTube. These businesses generate most of their revenue through advertising, app sales, in-app purchases, digital content products, hardware and licensing and service fees.
For the first nine months of 2018, these Google businesses combined to generate $97.1 billion in revenue, according to the company's 10-Q. Advertising represented $83 billion of that total.
[Fast Fact: Google was originally named BackRub by founders Page and Brin who linked their own personal homepages to it to get 'backlinks']
Other Bets is a combination of multiple operating segments that are not individually material. These businesses include Access, Calico, CapitalG, Chronicle, GV, Verily, Waymo, and X. These business segments generate revenue primarily through the sales of internet and TV services through Access as well as licensing and R&D services through Verily. For the first nine months of 2018 Other Bets generated $441 million in revenue for Alphabet.
X - Taking Moonshots
Google also develops companies in-house through X, formerly known as Google X. X is described as a 'moonshot company', with a focus on creating new companies that identify major societal issues and attempt to find tech-based solutions. If these companies are deemed worthy, they "graduate" out of X and begin a life of their own. This could mean they get folded into an existing Alphabet sector, become an independent company within Alphabet, or even get spun out on their own. The most recent graduate of X is called Chronicle, a cybersecurity platform designed to help business understand their own security data better and identify cyber-threats before they happen. The company is now an independent business within Alphabet. Google's driverless car program was also borne out of X, before it was merged with Waymo.
Google announced at its annual developer confab, I/O, on May 8, 2018, that it would integrate artificial intelligence with almost everything, from writing emails to computer chips.
Google introduced new ad-buying tools on July 10, 2018, that highlight a growing push to let machines fine-tune ads and determine where they should run. Jerry Dischler, vice president of product management, shared in a blog post that machine learning is at the heart of the company's latest updates. These advancements strive to help advertisers keep up with changes in how consumers interact with devices.
Four Businesses to Focus on
We have selected four companies to highlight based on their ability to produce and grow consistent revenue for the parent company. Each of these companies has a history of attracting customers and monetizing their services.
1. Google Maps
You can look up any location in the world using Google Maps. The views are aerial for the most part, but Google also provides street-level views of many cities. Google Maps is embedded in real estate sites, as well as sites for businesses that want to make sure you can find them. And that's how Google Maps makes money.
Companies pay to be included in Google Maps searches. Companies may also be featured as the user zooms in or out on any given map. Google does not list how much money it makes from Google Maps, but analysts predicted that the company could have earned $1.5 billion in incremental revenue in 2017 from advertising.
As of July 2017, the Google Maps Local Guides introduced gamification to persuade local users to update data and add photos of local venues. This may increase the number of users, and thus the value of Google Maps.
AdSense is Google’s network for selling advertising on its partner sites. Google provides text, images, videos, and interactive media for a fee.
This service has become the standard for advertising online, and Google doesn’t seem to be losing ground with it. AdSense has provided close to a quarter of Google’s income in recent years. Google Network Members' properties, of which AdSense is a part, saw revenues reach 17.59 billion in 2017, increasing $1,989 million from the previous year. However, the company attributed this growth primarily to strength in both programmatic advertising buying and AdMob. Google also reported a decline in the traditional AdSense businesses.
DoubleClick is an advertising service that can target customers and focus on an advertiser's specific pages to bring in revenues. It also allows website owners to place ads on their websites. DoubleClick can tell a publisher how long visitors are on a site and which pages they stay on the longest.
Online publishers use DoubleClick to build their web traffic, product sales, and service sales. Google also uses DoubleClick to promote its own services. If you have less than 90 million ad impressions per month, the service is free.
DoubleClick earned more than $30.6 billion in annual revenue in 2017. Google announced the acquisition of DoubleClick in April 2007 and completed the deal in March 2008.
YouTube is the most popular video platform on the internet. It generates revenue from video advertising and sponsored content. In 2017, YouTube reportedly earned $9 billion in advertising, although Alphabet no longer breaks out its sales individually. In 2017, YouTube launched YouTube TV in select markets as a subscription service, charging users a $35 monthly fee. YouTube has struck licensing deals with major networks and studios stream their content and create new shows for YouTube TV.
According to Omnicore, an ad tracking agency, there were 1.9 billion active monthly users on YouTube and 300,000 paying subscribers. The average daily viewing session for a YouTube user is 40 minutes, and 5 billion videos are watched each day.
Alphabet continues to acquire companies that bolster its strengths in online advertising, cloud-computing and hardware. In 2018, it acquired 8 companies across these areas for undisclosed sums of money. The company has proven to take chances on non profitable companies and give them time to mature, as it did with YouTube. It is also willing to divest of businesses or strategies that do not play into its core strategies.