Google

Introduction
Google Inc is an American public corporation specializing in Internet search and online advertising. Well-known for offering faster and more useful searches compared to other competitors on a clean and user-friendly website, Google is currently the most used search engine on the web. Since its founding in 1998, Google has blossomed into the Internet's leading search engine, fielding nearly 200 million queries a day.

How it started
What started as a research project in 1996 became a gold mine for 2 PhD students at Stanford University, California. Sergey Brin and Larry Page, both graduate students in computer science, first met at Stanford University in 1995. They soon found a common interest in retrieving relevant information from large data sets. This interest led to their contribution of a scientific paper entitled “The Anatomy of a Large-Scale Hyper Textual Web Search Engine”.

The pair hypothesized that a search engine that analyzed the relationships between websites would produce better results than those which ranked results according to the number of times the search term appeared on a page. Page and Brin were convinced that the pages with the most links to them from other highly relevant web pages were likely to be the most relevant pages associated with the search. Following this, they tested their thesis as part of their studies, and laid the foundation for their new search engine.

The domain Google.com was registered on 15 September 1997, and the company was incorporated as Google Inc on 7 September 1998. The total initial investment raised for the new company eventually amounted close to $1.1 million and its initial public offering took place on 19 August 2004. Due to strong sales and earnings in the advertising market, Google’s shares surged to above $500 a share by 2007, giving the company a market value of US$147 billion, right behind Chevron and just ahead of Intel.

So how does Google make money?
Google makes money by selling ads associated with search keywords. Though this business model was actually pioneered by Goto.com (acquired by Yahoo! later on), it never became a top-tier search destination. However, Google saw the power of this approach and decided to grow its own.

Google indexes billions of web pages so that users can search for the information they desire through the use of keywords and operators. In 2000, Google began selling advertisements associated with search keywords. This meant that every time an Internet user ran a search, text ads relevant to the search keywords would be served. Google sold these keywords based on a combination of price bid and the clickthrough rate.

Advertisers understand the value of being able to bid for juicy keywords. The ads can be laser targeted and the number of clicks can be measured precisely. Google figured out that sponsored links could be placed alongside a more objective set of search results. It was a brilliant way to turn searches into revenue.

How does it work?
Advertisers specify the words that should trigger their ads and the maximum amount they are willing to pay per click. When a user searches Google's search engine on www.google.com, ads for relevant words are shown as "sponsored links" on the right side of the screen, and sometimes above the main search results.
The ordering of the paid listings depends on other advertisers' bids and the "quality score" of all ads shown for a given search. The quality score is calculated by historical click-through rates and the relevance of an advertiser's ad text, keyword, and landing page to the search, as determined by Google. The quality score is also used by Google to set the minimum bids for an advertiser's keywords.

In 2002, engineers at Google took the concept of pay-per-click search results and turned it into their flagship advertising product, AdWords. The AdWords program can schedule ads for local, national and international distribution. All AdWords ads are eligible to be shown on google.com. Besides this, advertisers also have the option of enabling their ads to show on Google’s partner networks, i.e. AOL Search, Ask.com and Netscape.

In 2004, Google launched its own free web based email service, Gmail. Gmail features spam filtering technology and the capability to use Google’s technology to search emails. This service further generates revenue - by displaying ads from the AdWords service that are tailored to the content of the email messages displayed on screen.

Today, most of Google’s revenue is generated from advertising programs. For the 2006 fiscal year, the company reported $10.492 billion in total advertising revenues and only $112 million in licensing and other revenues.

Google’s growth and acquisitions
Google has acquired several small start-up companies since 2001, often consisting of innovative teams and products. The company has also begun to experiment with other markets outside the web content arena by purchasing radio advertising company dMarc and also selling advertisements from its advertisers to offline newspapers and magazines.

In late 2006, Google bought online video site, YouTube for $1.65 billion. To cash in on this acquisition, Google will display YouTube videos on thousands of other websites, with the hope of profiting from ads attached to these clips. A typical advertisement would appear as a graphic straddling the video or as a link along the bottom. To bring in high revenue, broad distribution of YouTube video clips would be extremely essential.

Google’s competitive edge against main competitor, Yahoo!
In 2003, Yahoo! acquired Overture Services, Inc (Goto.com), the company that pioneered the keyword-based “pay per click”/ “sponsored search” Internet ad service. Although Yahoo! had its search engine and search advertising technology then, they had difficulties integrating the 2 together. As a result, this would cause Yahoo! to be 2 years behind schedule to compete in the search-driven advertising business.

Firstly, Google’s AdWords service allowed customers to buy ads through a fully automated system while Overture’s did not. Secondly, Google’s AdWords has an effective way to push ads onto blogs with matching subject matter unlike Yahoo!.

Crucially, Google determines ad prominence on a web page not just by the price advertisers are willing to pay per click but also, based on how many clickthroughs that ad generated. As a result, Google responded quickly to ineffective ads by taking them off. However, Overture’s practice of displaying ads was based solely on how much the advertiser had offered to pay per click. This meant that irrelevant ads could end up at the top of the “sponsored results” column.

Conclusion

Although Yahoo! would have beat Google by buying its own top-notch search engine and search-advertising technology, Yahoo! fumbled and mishandled its execution, allowing Google to rise in stature. Thus, Google today controls nearly 70% of the search related advertising market, an industry worth more than $15 billion a year and growing at roughly 50% a year. These ads are the source of Google’s riches and the basis of its expanding power.

Yahoo! has since overhauled its Overture technology and renamed it Panama. It provides advertisers with a digital dashboard where they can manage their marketing campaigns, aim ads geographically and test their effectiveness. The new advertising platform is Yahoo!’s effort to close the wide gap with Google in the race for advertising dollars. This improvement has brought about higher clickthrough rates for the search engine.

Although Panama is unlikely to help Yahoo! catch up with Google’s system in the near term, it’s the first step Yahoo! has taken to give Google a run for their money.