The Google Business Model Explained

This videos is about Google’s business model and its business strategy. I explain the Google business model using Alexander Osterwalder’s business model canvas and explain how Google makes its money

I review who Google’s key customers are and how it delivers value to them via search and advertising. We then cover Google’s key partnerships which are the secret sauce of it’s success and how it continues to maintain market dominance.

Based on this we look at how Google looks after it’s customers and the marketing channels that it uses to acquire them. Finally, we cover the key resources that Google needs to deliver all this and its critical day to activities.

The result is a great explanation of not only Google’s business model but good insights into its business strategy and the defensive moat that it has constructed around its advertising cash cow

Key Points about the Google Business Model

There are three important groups of customers for Google. The most important for its business model are the millions and millions of websites that provide Google with information for free. They allow or invite, Google to go through the information on their website and index it. Without this raw data, Google does not have a business. Website owners allow this because they benefit from the additional readers of their content. You don’t write a book for nobody to read it.

Google then processes this information so that when people undertake a search it can use it’s index to deliver high quality, relevant search results. This is the value proposition for all the free users who use its services. They can find what they want. Google then looks to see what these people are searching for and then sells advertisers the ability to put adverts in front of all search results.

Google needs content – which gives it searches – which give it advertising revenue.

The Google business model depends on the free access to content that it can index

Google and YouTube

I haven’t really distinguished between Google and YouTube (Click the link to see the YouTube business model) in the video. This is because I see the business models as being very similar. The difference is that with YouTube Google owns the entire platform where the content is hosted. Put in another way it is as if every website in the world was hosted by Google. That’s a scary thought! Once the content – video – is on the YouTube platform then it is processed and marketed to advertisers in just the same way.

Key Resources in the Google Business Model Canvas

Google has three key resources

• The index
• The algorithm
• The computing power

The index is Google’s database of all the content freely available to it’s spiders as they crawl across the web. The faster and the more reliably that the index can be updated then the more accurately that search results can be delivered.

The algorithms (lots of them) determine what pages in the index should appear in search results and in what position. These are focused on several things – maximising relevance and value for users; minimising poor quality results (keyword-stuffed pages or off-topic pages) and maximising performance for advertisers

Finally the computing power delivers all this. I see the computing power as being a mix of the physical assets, software assets and the people who create the software. The physical assets include the cables, data centres and the Google VPN. The software assets include the codebase and the websites, whilst the people create and optimise the code. These are the key resources in the Google business model canvas.

The Rest of Google

The rest of Google isn’t really relevant to the Google business model described above. 95% of Google revenue comes from Adwords. The other 5% is not material. Google does own a number of other web properties such as Drive, Docs, Gmail, Waze, Maps, Flickr and more. The purpose of owning these is to ‘buy’ additional information that it uses to help refine the targeting data that it sells to advertisers.

It also helps to create a large defensive moat around Google to protect its core money generating machine. Any platform that attracts large numbers of people who are looking for information or exchanging it provides a potential pathway for competitors to sell ads. To continue the mediaeval castle analogy Google clears the forest for miles around its castle so no one else can get close.