$GOOGL had an amazing year 💸
What was once a plain white web page has now become a huge ecosystem
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The Giant Ecosystem
Google recently announced their fourth quarter and fiscal year 2021 results and the numbers were incredible. Ruth Porat, CFO of Alphabet and Google, said: “Our fourth-quarter revenues of $75 billion, up 32% year over year”. Google Cloud grew by 45% and Youtube grew by 25% YoY keeping the overall profit of $76 billion 😵.
Isn’t this fascinating!!
More than 80% of Google’s revenue came from advertisements (Google Ads, YouTube Ads, Android Ads, etc.) but this was not the case when the company was founded back in 1998. There were no talks of giving users free email accounts with ludicrous amounts of storage, no discussion of digitally mapping the entire Earth, and certainly not the faintest idea of using tiny aircraft to deliver packages to waiting customers. Sergey Brin and Larry Page (founders of Google) just wanted to make the minimalist search engine based on the PageRank Algorithm (named after Larry Page). This algorithm works by counting the number and quality of links to a page to determine a rough estimate of how important the website is. The underlying assumption is that more important websites are likely to receive more links from other websites. No one knew that this algorithm will work so well and will eliminate the current players of that time like yahoo, Ixquick, MSN, etc. Other search engines used tags and keywords to rate the webpage. The main problem with the tag method was authenticity. Let’s say I made a website called www.Rubric.com with all the correct data and information and you also made a website called www.RUbric.com with pseudo data, but you have used the word Rubric several times. There is a high possibility that when someone will search Rubric, your webpage will be shown at the top rather than mine. The other thing which helped Google is the 20% rule. It says that every employee should divide their time working so that at least 20 percent is spent exploring or working on projects that show no promise of paying immediate dividends but that might reveal big opportunities down the road. This practice has somehow accelerated innovation in the company. Google news, Adsense, Gmail, etc had their foundation in the 20% cut.
The Advertising
Google follows the Vickrey auction or sealed-bid second-price auction (SBSPA) method. Bidders submit their bids for the tags they want to use without knowing the other bids from the competitor. The highest bidder wins the auction but he pays the price of the second-highest bid. A fair deal for everyone. For example, X, Y, and Z are competing for the tag Rubric. X bids for $10, Y goes for $25 and Z goes for $16. Y will win the auction but will pay $16 (the second-highest bid). Advertisers are heavily interested to pay Google to run their Ads because Google is all about user-specific data. Google is very niche-specific while showing Ads. For example, if I want 18-24-year-old boys living near me to see my ads, Google will do this for me. Google works with something called Performance Advertising. This means that the advertiser only pays when the user takes the action, such as clicking on a link or scrolling through the advertisement. These links are then tracked and the cost per click (CPC) is measured by the average cost per click during the time that a particular ad was shown. A Major chunk of revenue of Google comes from advertisements.
Google without Ads
Google’s 5.5% of annual revenue comes from Google Cloud. It’s a subscription-based model where the company pays according to the number of resources they use. Amazon is leading this market with a market share of 32% (Google with 9%). Another chunk comes from Google Nest and Google Play Store. YouTube has also started charging for the premium model. Other revenues include the hardware products such as Google Pixel, Google Home, Google Fiber, Pixelbook, etc.
Sundar Pichai (CEO of Alphabet and Google) said: “Our deep investment in AI technologies continues to drive extraordinary and helpful experiences for people and businesses, across our most important products. Q4 saw ongoing strong growth in our advertising business, which helped millions of businesses thrive and find new customers, a quarterly sales record for our Pixel phones despite supply constraints, and our Cloud business continues to grow strongly.”
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