Google: the auction process to define the price for an ad

JoostDuring my colleges at the Erasmus University, where I study Business Information Management, we discussed Google as a company. Within this discussion we focused on Business Models and how business models evolved over the last 15 years. During this discussion we also used the Google Search engine. During this discussion, we discussed the business model of selling advertisement within a product which is offered for free.

The Google Search engine is, as you all might know already, the most used Search engine on the planet.  Handling the most search queries and giving users the results isn’t the activity with which Google earns money. I cannot give the exact figures about he number of search queries that are performed by Google as they change every now and then. When looking for some statistics, Google on Google for ‘Google and info graphics’, and the most extensive info graphics will appear.

Google does not make any money on getting the search queries and handle these queries. Google’s business model is build upon the advertisement which is shown above the search results and at the right side on the screen. Why these areas? Because the top section of the page is the most viewed section of the page. As the right side of the page was empty, Google decided to place advertisement on this section as well.

The amount of money you pay for an ad isn’t always been a pay-per-click model. In the past Google used the Pay-per-View model to calculate the cost of an advertisement. Nowadays Google uses an auction system in order to calculate the cost of an advertisement on Google. The auction is being held during the transaction (or the click which is performed by the user). How this auction works is described in the following movie.

Description of the auctioning system of Google

Even when you look at the annual financial report of Google, the advertisements are very important. A huge amount of net income is generated from the advertisement, and only a small portion is generated through other services. In the video below an overview of all Google products is created. I liked the video a lot as the video gives a lot of information about the various products which are currently being offered by Google. The video also places several question marks at some of the products and from some of the competitors of Google.

Google: the products and the questions that can be raised