Google's Core Business

Google's core business can be summarized in three words: advertising, search, technology.



Advertising provides 99% of Google's revenues. The AdWords program, which provides the bulk of Google's advertising revenues, lets advertisers pay Google to display their ads on Google's search results pages. The (considerably smaller) AdSense program enables Google to display these same ads on third party websites, sharing the advertising revenue with the third-party website owners.

Search is the key service that Google provides to its users. Search delivers the "eyeballs" that view the advertising. Google's brand and its user relationships are built around this service.

Technology is Google's core competency. Google's technology includes the people who work for Google, the software they develop, the hardware infrastructure they operate, and the data they index.

Drivers of Google's Future Revenue Growth

What major factors will influence the future growth of Google's revenues?

• Growth of the advertising market
• Increased share of online advertising as part of the overall advertising market
• [Extension of Google's business into offline advertising]
  
• Increased share of search-based advertising as part of online advertising
• [Extension of Google's business into non-search-based online advertising]
• Increase in Google's share of online searches
• Increase in Google's ability to monetize online searches relative to its competitors
• [Extension of Google's business into non-advertising businesses]

Any of these drivers can be considered, say, by country or by industry.

Google's Market Share

Google's U.S. Market Share

The Core Search Report from comScore measures competitive share of online searches. In July 2008, by this measure, Google had 62% share of U.S. searches. Google's relative market share was 3.0 times that of Yahoo!, Google's closest competitor.

IDC tracks online advertising spending. IDC's report for 2007 indicates that Google had 24% market share of online advertising dollars in 2007. Another report from IDC gives Google's market share of U.S. online advertising as 32.5%, representing a relative market share of 2.0 (twice that of Yahoo!, Google's closest competitor by this metric as well).


Google's European Market Share

European market share (of searches) is also available from comScore. These statistics show that Google has a dominant market position: Google's 79% market share is roughly 25 times the size of its nearest competitor, eBay. These results are supported by individual country data sources. For example, Hitwise indicates that Google has 87% market share of search in the UK, the largest online advertising market in Europe.

A detailed study by IAB and PriceWaterhouseCoopers found that search comprised roughly 45% of the overall European online advertising market in 2006. This would imply Google had 45% * 80% = roughly 36% share of European online advertising dollars. (Assuming the 45% proportion continued through 2008, that Google's advertising revenues are entirely driven by search and that Google monetized its searches as effectively as its competitors did.)

Google Revenue Mix (Domestic vs International)

Google's geographic revenue mix has steadily shifted from domestic to international. International revenue now comprises 52% of the total.

Google Revenue Mix (Line of Business)

Google's revenue consists almost entirely of advertising revenue. The remainder (roughly one percent) includes licensing and "other" revenue.

Google Revenue Seasonality

Google's revenue growth has a clear seasonal pattern: growth is highest in the December quarter.

Google Revenue Trends

Google has continued to increase revenues every quarter since the IPO. In March 2008, Google's revenues exceeded $5 billion for the first time.