What is Google's Business Model Why Investing in Gold isn't a Good 2 days ago   04:15

Share
The Motley Fool
What comes to mind when you hear the word Google?

Perhaps it’s a number, a search engine, or one of the most powerful companies in the world.

Google’s parent company Alphabet is one of the richest in the world and owns nearly a third of the 50 most popular websites in the US. In this video, we’re going to break down exactly how Alphabet makes its money, and how its business model goes way beyond just delivering fast search results.

Google.com is just one part of a much bigger company known as Alphabet.

Back in 2015, the company created Alphabet to allow for a corporate restructuring that put all of Google’s internet properties in one basket, and the company’s nascent ventures – including biotech, healthcare, and artificial intelligence – in another basket.
Alphabet’s Other Bets like self-driving company Waymo and life sciences arm Verily get a lot of headlines, but they don’t really do much for the business.

In 2018, Alphabet brought in almost $137 billion. The company’s “Other Bets” segment contributed just $600 million in revenue.
All told, the company made over $30B in net income in 2018 and Alphabet’s Google segment did the heavy lifting – but Google is a free search engine, and consumers don’t have to pay anything to use the company’s Maps or YouTube properties either.
So where does all that money come from?

Google has turned the search for information and entertainment into an ad machine that prints money.

70% of Alphabet’s revenue comes from Google search and user activity on platforms like Gmail, Google Maps, Google Play, and YouTube. The vast majority of that money comes from ads.
When you use Google to search for something like wireless headphones, you’re served up refined web results… and advertisements. Same goes for your Gmail inbox.

These ads cost money to tailor and put in front of you, and Google is cashing in on that process every time it happens on its properties AND on some other sites.

Google works hard to make sure ads are as relevant to their users as possible.

The company allows for ad targeting using an auction process based on several variables like advertising bids, quality, and relevance. Bidding takes place quickly and often; many businesses are surprised to find that they need to increase their advertising budgets just to keep up with demand. Naturally, this is good both for Google and for its paying advertisers.

Here’s a graphic of how the Google advertising auction process works:

Ads vary in price depending on a keyword’s popularity. For example, a lot of people search Google for professional services like insurance, loans, and attorneys. The demand and the high dollar value of these searchers allows Google to charge more to advertise in these search results. Google will collect around $54 for an ad on with the word “insurance” included in a search, while the average ad spot comes in at around the $1 mark.

But Alphabet’s business model isn’t all about lightning quick advertising auctions. Since the company has built out an arsenal of highly popular software and social sites, including YouTube, Gmail, and Google Play, the company continues to gain new users -- and advertisers -- every single day.

It’s now estimated that Google has about two billion monthly users, which translates to 3.5 billion searches every day. As of 2019, Alphabet has approximately 90% of search engine market share globally.

It might surprise you to learn that more than 50% of that revenue comes from abroad. Even though international search engines like China’s Baidu are successful in their own right, most of the world uses Google.

Alphabet’s product popularity almost seems too big to fathom. Google Chrome remains the U.S.’s most popular web browser. Nearly 2 billion people use Google’s android mobile operating system. 1.5 billion people use G-Mail, making it the world’s most popular email service.

Alphabet’s family of powerhouse apps have shaped the way people find information and consume content. And the money they generate allows the company to test new technology that could shape the future. Alphabet is working on everything from glucose sensing contact lenses to self driving cars.

So advertising is the moneymaker for Alphabet… for now.

------------------------------------------------------------------------
Subscribe to The Motley Fool's YouTube Channel:
http://www.youtube.com/TheMotleyFool
Or, follow our Google+ page:
https://plus.google.com/+MotleyFool/posts

Inside The Motley Fool: Check out our Culture Blog!
http://culture.fool.com
Join our Facebook community:
https://www.facebook.com/themotleyfool
Follow The Motley Fool on Twitter:
https://twitter.com/themotleyfool
MailFootballSoccer

Comments 15 Comments

SRIKANTH SRIDHARAN
Please make a video on Google's accounts payable and receivable systems. To what extent their accounting systems are automated. How payments are disbursed to YouTube Content producers. Their Direct and Indirect tax handling system and return filing system.
Simon Desrochers
can you do Roku :)
Horazon
Great video. Qualcomm plz. AMD too.
SamT
👍
jeffrey dahmere
I remember the first time I listened to their web conference finance report , and I was very shocked to see how much they depend on ads , I mean its a marketing company behind all that tech
ROI Overload
Awesome Video!
Cool One
Please breakdown SalesForce (Ticker CRM, I think). I hear it’s name all the time, but what does it do? Thank you.
Nadeem Shaikh
I know their business models but I would love for you guys to cover the business models of Microsoft and Amazon. Excellent video! I learned nothing new but could clearly see how it would be very interesting to other people 👍
Tom F.
G00D SL0GAN: G00GL3 CAN G0 F.AC.E.B.00 K. THElR SELVES !
Alejandro Radilla
Greetings, how can I invest in this company? How much? And when will I see my return ? I'll appreciate your answer, thanks.
Add Reply

Why Investing in Gold isn't a Good What is Google's Business Model 2 days ago   04:09

Share
Buying gold as an investment -- good or bad?

There is a huge portion of financial media that fixates on gold. The most common argument you’ll see is that gold is a hedge for economic collapse – gold is seen as a safe place to store money because it’s been used as a form of currency for thousands of years.

That history, plus gold’s global appeal and limited supply sells a lot of people on the value of gold as an investment. But is it actually a good idea?

As an investor, you’re looking to buy something that will be worth more in the future than it is today. To measure that, a lot of people will look at the “intrinsic value” – or the inherent worth of a company, property, or asset.

Most of this analysis will look at the money the potential investment over time might generate

In the case of a company, you’d look at the expected profits the business would generate over time. As a shareholder, you’re a part owner of the business and so your stock entitles you to a sliver of those earnings. For a business that is growing over time, earnings should go up, and the value of your piece of ownership should follow.

What’s tricky about gold is that as an asset, it doesn’t actually generate cash. The piece of gold you own today will be the same piece of gold 5 years from now, no more and no less.

If you buy a house, you can decide to rent it out, and over time the rental payments you receive could provide a steady flow of cash. Alternatively, you can live in the house and instead of paying rent month after month, you would be making mortgage payments and building equity over time in an asset that is capable of creating cash flows.

On its own, gold can’t generate cash, which makes it harder to value.

The value of gold is really tied to its scarcity – that gives it value in the jewelry market and it makes it useful as a store of value and means of exchange.

Some of you probably heard that and thought “what the heck does that mean?”

Globally, gold is recognized as a precious metal, and that worldwide recognition means it readily can be exchanged across borders and cultures, which is part of the reason why major institutions like central banks maintain gold reserves.

It’s also why some investors want in on gold.

They view it as a hedge against economic instability and inflation. Paper dollars, like the US dollar are “fiat currency” -- meaning they have value because we say they have value -- sound familiar?

So, if events unfold that lead people to question the value of a fiat currency, OR the government takes actions that change the value of a currency -- like printing waaaaay more bills and giving them out to people -- the currency can lose value. If a currency loses value, the relative value of gold, as expressed in that currency, will shoot up, allowing investors in gold to profit.

Some people keep money in gold because it is less tied to any one government and isn’t as impacted by inflation or an economic collapse in any one country.

But it’s merit as an investment really depends on the timeline you’re looking at.

From September 2008 to August of 2011, the price of gold went up over 100% while stocks in the US eeked out 1% gains on a total return basis.

There’s money to be made investing in gold, but it comes down to being right about gold at the right time -- because gold tends to surge in value when major financial systems are struggling.

Since September of 2011, stocks have returned over 180% on a total return basis while the price of gold has fallen nearly 30% AND the returns of the S&P 500 trounce those of gold on a 1,3,5, and 10 year basis.

And for people with a very long time horizon, since 1990, The S&P 500 has posted 1,400% gains on a total return basis. Over the same nearly 30 year period, gold has returned 220%.

If you are worried about an economic downturn, it may make sense to have a small portion of your portfolio in gold, but it certainly shouldn’t be your main investing strategy, and for many time periods, you’d be better off being all in stocks.



------------------------------------------------------------------------
Subscribe to The Motley Fool's YouTube Channel:
http://www.youtube.com/TheMotleyFool

Join our Facebook community:
https://www.facebook.com/themotleyfool
Follow The Motley Fool on Twitter:
https://twitter.com/themotleyfool

Related Videos