Research, Google
This is gonna be quite a read, but you’ll get out of it knowing at a much higher degree what Google businesses do. Feel free to subscribe after skimming through it!
Mission
Google’s original mission was “to organize the world’s information and make it universally accessible and useful.” Over time, it evolved to the following statement in their 10-K:
“Since then (1998), we have evolved from a company that helps people find answers to a company that also helps people get things done.”
This last quote is not a mission statement per sé, but it shapes the structural direction at which Google is aiming.
History
Google is a multinational and multi-field technology company headquartered in California, US. It began as a research project in 1996 by two PhD students at Stanford, Lawrence Page and Sergey Brin.
The 1990s were characterized by the appearance of the internet, unlocking a new world of products, services, distribution method and features. Search engines were invented in the early 90s under a particular premise, which was later disrupted by Google. Conventional search engines used to rank pages in terms of how many times did each page contain the keywords that were being looked for.
Larry and Sergey, along a few friends, theorized on how this system could be improved and wrote a paper describing such mechanism. PageRank is the algorithm the group developed. ‘It 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.’ PageRank’s and all associated patents expired in 2019.
The intended name for the tool was “BackRub”, but Larry and Sergey later decided to go for Google, after word ‘Googol’, which represents the number 10^100. They intended for the name to encapsulate the idea that Google contained large amounts of data.
The co-founders began looking for funding and, in August 1998, received the first investment, which motivated them to incorporate the company. From that point until early 1999, a series of angel investors, including Jeff Bezos, and venture capital firms invested in Google, which raised a total of around 26 million dollars.
Business Overview
Alphabet is a conglomerate of companies with Google being one of them, we’ll refer to the company as both Google and Alphabet. Google reports its financial results upon three different segments; Google Services, Google Cloud and Other Bets. There’s a lot of business units composing Google Services and Other bets, we’ll try to cover them all.
Google Services
Google Services segment consists on a wide range of products, most of which are cloud-based and/or platforms. The main avenue through which Google Services generate revenue is by advertising, but not solely from it. There’s also income from ‘other services’ which include selling hardware devices, revenue-sharing in the play store and subscriptions on YouTube. The company then reports Google Services results upon three different categories:
Google Search and Other
YouTube ads
Google Network
We will be diving into each category later, we’ll first break down each product that comprises this whole segment.
Google Search
Known by everyone, Google Search is a search engine, utilized by people to find information across the internet.
Google Search approach consist on delivering the most relevant and reliable information available, maximize access to information (only removing content due to compliance and legal issues), present information in the most useful way (text, images, videos), letting the person select its privacy settings and, lastly, selling ads. This last piece is extremely important, Google Search does not monetize personal information, it generates revenue solely through ads.
Over the years, Google Search has evolved to becoming the world’s largest library:
“The Google Search index contains hundreds of billions of webpages and is well over 100,000,000 gigabytes in size.”
To explain how this engine works, we’ll fragment the analysis into three stages:
-Organizing information
When a person searches for something, Google looks through billions of webpages and other content stored in the Search Index (like the Worldbank’s database or the ‘Knowledge Graph’) to find helpful information. This index is built via a software called ‘crawlers’. Crawlers go from page to page across the ones publicly listed in the index and store the information they find.
As crawlers do this, Google renders sites’ content and takes notes of things like keywords and website freshness, keeping track of this in the Index.
“It’s like the index in the back of a book — with an entry for every word seen on every webpage we index. When we index a webpage, we add it to the entries for all of the words it contains.”
- Ranking Results
When searches are performed, Google goes over its vast index and sorts information according to different things.
The query’s meaning is understood via language models that detect what the person is looking for, in which way would the person prefer information to be provided and how recent.
Relevance is determined through keywords, data aggregation and a machine learning model assessing webpages’ relevance.
Quality is assessed through the identification of signals that could indicate a website’s expertise, authoritativeness and trustworthiness. One of the key elements that allow the model to analyze these signals is if other prominent websites refer to this one.
Usability is measured through things like format analysis. If searching with a mobile, Google will look for content more mobile-adapted.
Context and settings boost all aforementioned points through the person’s location and search history.
-Rigorous Testing
To ensure its search engine fulfills at the highest possible degree the mentioned qualities, Google counts with two mechanisms. Firstly, it does not accept any sort of payment to modify rankings. Secondly, the company runs a series of tests every single year to evaluate searches’ usefulness, relevance and trustworthiness. Such tests are performed by actual people who are in charge of ranking these kinds of aspects and are then reviewed by a group of data scientists to improve the algorithm upon them.
“Last year along, we ran over 380,000 quality tests, plus nearly 63,000 with our search quality radar, resulting in more than 3,600 improvements to our search algorithms.” As another example, in 2021, over 700k tests were done, resulting in 4k improvements.
As aforementioned, Google Search generates revenue out of advertisements. These ads can have two objectives:
Performance advertising creates and delivers relevant ads that users will click on leading to direct engagement with advertisers. These are created through simple text leveraging Google ads tools. Performance advertisement revenue is recognized when a user engages with the ad through a click, a view or a purchase.
Brand advertising helps enhance users' awareness of and affinity for advertisers' products and services, through videos, text, images, and other interactive ads that run across various devices. Google helps the client select the correct audience among the different platforms for their brand-building marketing campaigns. Revenue here is recognized when the ad is displayed or when a user views the ad
As of 2022, Google was the most visited website on a monthly basis, with 85 billion visits. Google does not disclose how many searches are there in any given year, so the following statistics and chart are estimates obtained from different sources.
Google searches have grown at very high CAGR since inception, going from 10k searches in 1998 to around 3.3 trillion in 2022. In the latter year, searches grew 15.8% YoY, very in line with the last 15yr CAGR of 15.6%.
Before moving forward, even if by nature Google appears as a very profitable segment, and it still is, its margin is severely affected by how Google acquires traffic for the search engine. Mobile devices’ usage has been trending upwards ever since inception and they suppose a major contribution to overall internet demand. This implies that Google Search being the default search engine in mobile devices is of extreme importance for the company. To accomplish that objective, Google has arranged some contracts with smartphone manufacturer, browser providers, mobile carriers, software developers. All of these costs are considered in the ‘Traffic Acquisition Cost’ Google reports in all earning results.
In 2022, Google Search & Other generated 162bn in revenue and TAC amounted 49bn. Even though costs included are not exclusively for Google Search, most of them are meant for engine. According to estimates, to be the default search engine, Google pays:
- 15-20bn annually to Apple to be default in Safari
- 3-5bn to Samsung
It is not estimable (at least with my limited resources haha) how much revenue does Google Search engine make through each provider. However, given the high fee Google annually pays, all these deals, mainly Apple’s, suppose one of the major threats to the company’s top line.
Android
Operating systems are the mind of electronic devices such as computers, mobiles, tablets, smartwatches. Their task is to coordinate the software and hardware components to act in accordance to what the user is asking for. Furthermore, OS do not have to be re-developed in order to create new apps, the latter can be built leveraging OS infrastructure.
Android is an open-source operating system for mobile devices and a corresponding open-source project led by Google.
It is full of customizable source code that can be ported to nearly any device and public documentation. This means developers can utilize Android’s infrastructure, but changing some parts at will to create custom solutions that better suit their products.
Android Enterprise is a Google-led initiative to enable the use of Android devices and apps in the workplace. The program offers APIs and other tools for developers to integrate support for Android into their enterprise mobility management (EMM) solutions. Android Enterprise offers solutions for financial services, security, enrollment, management and employees.
This is one of Google’s historically monumental acquisitions. The company acquired Android in 2005 for 50 million dollars, but it was still in stealth mode. The first official version was released on September 2008. Google bought it under the following premise:
“Today’s announcement is more ambitious than any single ‘Google Phone’ that the press has been speculating about over the past few weeks. Our vision is that the powerful platform we’re unveiling will power thousands of different phone models.” Eric Shmidt, 2008
Again, Android is open-source and it’s free for anyone to install and use it. The business generates revenue through three different avenues. The first of them allows us to introduce another product Google has, Google Play Store.
Google Play Store
Google Play Store is the digital marketplace where all sort of apps can be published. The store was actually launched in March of 2012 with the intention of merging the previously known ‘Android Market’ and Google Services, like Google Music, Books.
As of May 2022, there were over 3.3million apps on Android App Stores. Its open-source approach allows developers to publish their apps in stores apart from Google’s, which explains the following image.
Being the intermediary between developers and users allows Google to cut its piece of every app purchased and every purchase made in-app, as it happens with every marketplace. It is estimated that the company’s take rate is 30% for the first-year subscription and 15% for all subsequent years.
To evaluate Google Play Store’s performance, I selected the number of applications downloaded each year and how many apps were there available as well. Both of them should be helpful to observe how has supply and demand trended over time.
Since the official release of Google Play Store in 2012, the ecosystem went through a 5yr period of rapid growth, followed by a sequential slowdown.
- App downloads grew at an 18.8% CAGR, from 25bn downloads in 2012 to 140bn in 2022
- Apps available grew at a 14.5% CAGR, from 700 thousand to 2.7 million, though they are well below the peak in 2017 of 3.5 million
Android makes Google money from advertisements via two different sources.
Firstly, developers that publish an app on the Play Store can opt for an advertising business model, from which Google would capture its share.
Although Android in an open-source OS, this doesn’t mean that anyone can make changes that affect all Android devices. When a device manufacturer wants to use Android on their devices, they must agree to a set of terms and conditions set by Google, which includes some requirements for default apps. That’s why most Android devices come with Google Maps, Google Play, Chrome, etc, pre-installed.
This turns Android into an indirect advertising source of revenue. By having these set of apps as default, it ‘makes’ Android users utilize them, boosting Google apps usage and, with it, the advertisement revenue they generate.
In parallel to ads revenue, Google Play Pass was launched on September 2019. It is a subscription service offered by Google to Android users. By paying a monthly fee of $5 or $30 annually, Google offers customers hundreds of apps of all kinds, free of ads and in-app purchases. Included in Google Play Pass, there are games, productivity and creativity apps, educational, lifestyle and utility apps. The apps offered vary depending on the user’s location and the catalogue is constantly monitored and renovated. As of today (1Q 2023), Google has not yet disclosed how many subscribers Google Play Pass has.
After analyzing all integrated features, products and services to Android OS and how does it earn money, a good proxy for its performance may be how has the ecosystem evolved. In line with Google Play, I’ll consider metrics such as users and developers. For the following and almost all charts, keep in mind one thing. Google doesn’t really disclose anything on a yearly basis, so most numbers are rough estimates. Regarding this particular one, it begins in 2011 because numbers were very tiny before, with 9M users and one thousand developers.
Since 2011, users have increased at a 38% CAGR, from 90M to around 3.3bn. On the other hand, Android app developers have increased at a 45% CAGR, going from 50 thousand in 2011 to around 3 million in 2022.
The last chart I’ll be sharing in this Android’s section is each vendor’s market share. Although this is not of extreme relevance, through these statistics, some insights could be potentially inferable. For instance, how much, relatively, does Google pay each vendor for the search engine to be default and how much dependence does Android have in each vendor.
Google Chrome
GChrome is a free browser used for accessing the internet and running web-based applications. Google began working in Chrome as early as 2006 under the open source Chromium web browser project. Its first version was released in 2008, which was built with multiple free software tools from Apple’s WebKit and Mozilla’s Firefox.
Curiously, Google Chrome also acts as the main component of ChromeOS, the operating system developed by Google in 2009. It derives from the open-source project ChromiumOS and utilizes Google Chrome as the principal interface.
Although most of Chrome’s code comes from Chromium, which is open source, Google licensed Chrome as proprietary freeware. At the same time, Google forked (made a copy and built upon it) WebKit’s rendering engine, which Chrome previously utilized, and created the Blink engine, which it utilizes today.
Google Chrome is monetized in a very similar manner as Android. The product itself is free, but it indirectly fuels all of Google’s ecosystem. Its free nature and high quality user experience allows the browser to continuously capture customers and expose them to all of Google’s ecosystem. This makes Google Chrome an invaluable asset to Google.
“Search is an integral part of Google revenue. That's the biggest area. But it is more. When users have been using Chrome, it tends to drive Web usage up, so it's display ads too, not just search ads. And it's a driver of Google Apps. Google Docs offline works in Chrome. Both Chrome and Android bring together a lot of our services, so they have a huge business value for us.” Sundar Pichai, 2012 interview
The distinctions between Chrome and other browsers are kind of limited. Besides the typical features such as dark mode, what sets apart Google Chrome from other players is:
The most harmonic synergy with Google products
The power of Google Address Bar
It’s the fastest
The second point stated is very relevant for user experience. Google Chrome search bar (which is based on GSearch) is much more resourceful than competitors, mainly due to how fed Google’s algorithm is. It allows things like math calculations, instant translation and it has a very smooth integration with products like Google Sheets and Google Docs.
Chrome’s usage had continuously trended upwards, and rapidly, ever since inception until 2021. On that year, it peaked at 3.2bn users and declined (according to estimates) by 16% in 2022.
Overall, in the period 2009-2022, Google Chrome has grown its users base at a 38% CAGR, going from 40M users in 2009 to 2.7bn in 2022.
After analyzing the product’s usage (its market share will be later discussed), the second indirect revenue stream can be spotted. Google Chrome saves the company multiple billions each year by capturing that many users, preventing Google from paying browsers and mobile manufacturers extra fees. As we discussed in GSearch’s bullet points, such deals can run up to the tens of billions of dollars. This, added to how much it boosts Google ecosystem, proves why Chrome is an invaluable asset to Alphabet.
Google Maps
GMaps started being developed by two danish brothers outside of Google in 2004 and their first intention was to make a downloadable app. They pitched the idea to Google that same year, but with a change in the intended distribution method, from its previous version to a web-based application. Google acquired the company and continued the development of Google Maps.
That same year, Google made two other acquisitions that ended up shaping the product. The first one was Keyhole, a geospatial data visualization company, upon which Google Earth emerged. The second one was called ZipDash, a company that provided real time traffic analysis. Google’s development team took many features offered by these two applications and integrated them into Google Maps. The company launched GMaps in 2005.
Google maps is, broadly speaking, a web-based mapping platform. Specifically, it offers satellite imagery, street maps with their 360 degree views, aerial photography, real-time traffic conditions and route planning. The basics of most of these features were introduced more than a decade ago.
However, for the past couple of years, Google has been working in ways to enhance Google Maps through new technologies like augmented reality. At the 2022 Google I/O event, they announced 3D images would be created using Street View and it was going to launch soon in some cities. On February 2023, Google posted on their blog some of these new Maps features:
- Immersive view. Using advances in AI and computer vision, immersive view fuses billions of Street View and aerial images to create a rich, digital model of the world.
- Indoors and outdoors augmenter reality. This feature allows users to utilize their camera to scan what they are seeing and Google offers information on it.
Moving forward, through Google Maps, Google offers some other vertical offerings. For instance, Google Maps creates a profile for each user based on their interests and then creates a ‘Match Score’ inferring how much would people like a certain place.
In the same line, it offers recommendations for new and trending places based on the user’s interests. Lastly, it offers them the possibility of creating lists of places they visited and add some keynotes and then share them or keep them private.
In parallel, Google Maps allows physical businesses to create their business store on the map to then appear in it for customers. Google lets users book reservations or appointments in these stores. Furthermore, the company offers people the possibility of contributing information to the map and objects within it, like correcting things or reviewing these stores they go to and appear on maps.
To finalize, as most of the company’s products, all Google Maps features mentioned are free to use. Alphabet monetizes this business unit through two channels:
Advertising
Businesses are offered advertising solutions in the form of search listing ads like in GSearch, branded location pins and retail locations as navigational landmarks.
Google Maps APIs
Google makes money through selling GMaps APIs to other businesses or developers that require mapping or navigation services.
Alphabet, as with the other offerings, does not disclose the number of Google Maps users. And, unfortunately, on this occasion there are no estimates of how many users did the product have each year since launching. The only pieces of data we have is that, allegedly, Google Maps was used by 54% of smartphones users in 2021 and its monthly user base is higher than a billion, with over 150M MAUs in the US.
YouTube
YouTube is an online video-sharing platform, co-founded in 2005 by three PayPal Mafia members. They were not directly co-founders of PayPal, but rather employees. YouTube beta platform was released on May of that year and it was officially launched on December. As soon as it opened its beta, YouTube attracted more than 30k viewers per day. When it was officially released, the platform had over 2 million views per day, number which grew to 25 million by January of 2006. At the end of that year, Google acquired the company for 1.65bn.
YouTube’s mission is to give everyone a voice and show them the world, with its core being around video. Upon that major foundation, the company has built multiple offerings. It allows users to upload videos, view them, share them, rate them through likes and dislikes, comment on them, create playlists and channels to which people can subscribe. When uploading a video, the creator is prompted to select a category for it, which could go from music to comedy, education, gaming, movie, etc.
YouTube allows creators to opt for different distribution methods, according to their content, and then provides them with analytics solutions for them to measure performance. Distribution methods:
- Uploading videos to their channel, which people can subscribe to. Having a channel is basically like operating a broadcasting station with built-in distribution.
- Livestreaming, allowing creators to engage in real time with viewers. Live streams can be scheduled for people to know beforehand.
- YouTube Shorts was launched in late 2020 in response to demand for a new form of vertical within video content. Shorts are meant to last less than 60 seconds and the discovery page is completely different to YouTube’s. It is a vertical and full screen video, through which people can swipe down to change the video. New videos that people see are engine recommendations.
- Community Posts can be used by creators to share text, images and polls with subscribers. The main intention is to further enhance the relationship creator-viewer and to give updates regarding the channel.
- YouTube Stories are vertical videos that disappear after 24 hours. They are mainly used by creators to show day-to-day activities.
In parallel, YouTube leveraged the technological infrastructure they’ve developed and launched YouTube TV in 2017. YouTube TV is a cloud-based paid over-the-top (OTT) internet television services that offers live TV, video on demand (VOD) and a cloud-based digital video recorder (DVR) from over 70 television networks.
In line with the previous segments, I’ll try to compute some charts and statistics that could let us infer the evolution of supply and demand for the platform. Since inception, YouTube has been a wide success and has seen its user base grow at a very fast pace.
For the examined period, YouTube monthly active user base has grown at a compounded annual growth rate of 24%. Furthermore, according to eMarketer, as of August 2022, YouTube was the second social platform in which people spent more daily time on. It averaged 45.6 daily minutes per user, just shy of TikTok’s 45.8. Keep in mind these are estimates and I’ve seen them all over the place, ranging from 25-55 daily minutes.
On the other hand, supply has also grown very fast. However, estimates are very rough. Google does not disclose any number on any basis.
Hours uploaded to YouTube can be an accurate measure on how much content are users providing on a daily basis. The chart itself reveals how inaccurate these estimates seem to be, but the trend is clear and I’ve read in many sources that 500 hours of videos uploaded per minute has been the rule for the past years.
Channels seem to have continuously grown over the past decade and a half, based again on third-party information. It seems as if there were 35-40 million channels in 2021 and increased to 51 million in 2022. Going backwards, the two most trustworthy number I’ve got to are 10k channels in 2010 and around 15 million in 2015-16.
Having the platform offerings clear, we now proceed to how does it make money. Unsurprisingly, Google followed the same business model as with most of its offerings, a free to use product, but with advertising capabilities. YouTube performs both performance and brand advertising by embedding advertisements on the land page, allowing sponsored videos and advertising on actual videos. The company reports the following stats in their YouTube blog.
In parallel, YouTube also runs a subscription-based model in which there are two levels:
- YouTube Music Premium is a paid service that allows users to access YouTube’s music streaming platform. In it, they can listen to music without ads, download songs and play them in the background. Individual plans cost $9.99 per month while family plans $14.99.
- YouTube Premium encompasses YouTube Music and counts with those same features but in the normal YouTube platform. Individual plans cost $11.99 and family plans $22.99 (YouTube hiked the latter price from 17.99 to 22.99 on late 2022).
- YouTube TV includes access to over 100 channels and allows for 3 streams at the same time, and 6 accounts per household. YouTube tv offers an only plan and costs $64.99 per month.
The company launched their subscription service in late 2014, early 2015. Since, YouTube’s music and premium subscribers have grown to 80M, as of Nov 2022.
On the other end, the last heard number of subscribers for YouTube TV was in July 2022, where sources estimate it reached 5M.
Before going over what the next 3 products do, a brief introduction. Over the past couple of decades, Google has been able to build a vast and extensive network of advertisers. On the other front, there are app developers and website owners who want to earn money through advertising on their properties. To fill this gap, Google has created a suite of platforms that connect both supply and demand by leveraging Google Ad Network and these website owners and devs. There are three products, being one for mobile advertisement, one for websites and one to manage all ad inventory, roughly speaking. Now, we’ll dive into each of them.
Google AdMob
Google AdMob, launched in 2006, is a mobile advertisement platform developed by Omar Hamoui. Google acquired AdMob in 2009 for 750M dollars. The platform allows developers to monetize their apps by displaying advertisements in them. AdMob counts with several tools and formats to help developers customize the ad experience for their users.
Google AdMob works with a real-time ‘ad bidding’ system introduced in 2018, meaning Google calls all participating networks simultaneously and continuously. Each impression generated is bid for in real time by advertisers, allowing app developers to always sell impressions to the highest bidder to maximize their revenue. Diving a bit deeper, AdMob offers (as Google states):
- Higher Earnings. Since Google has the largest ad network, ads placed have the highest fill rate. At the same time, the bidding system helps maximize each impression’s price.
- Engaging ad format. Google AdMob capabilities allow devs to create custom ad solutions for their app, enabling a maximization of engagement and seamlessness.
- Actionable insights. Google offers AdMob users a complete analytics solution for them to measure their performance.
- Automated tools. These include some built-in tools for reviewing and blocking ads displayed on apps.
The last thing to cover is how AdMob works and it’s quite straightforward.
Google AdSense
Google AdSense, launched in 2003, provides website owners to monetize their site through advertisement. The name was originally “Content Targeting Advertising”, but Google then acquired Applied Semantics (a competitor) and adopted the name they used.
By adding ‘one piece of code’ to a website, Google will automatically start displaying ads in the site’s layout. As AdMob, Google AdSense also works with a real-time auction system for impressions. Lastly, ads are completely optimized for mobile. Google AdSense offers three solutions.
- Auto ads. This tool allows owners to completely automate the process of displaying ads in their page. Auto ads automatically place and optimize ads, and it also analyzes the page to find where to place these ads based on the layout.
- Responsive ads that adapt to the user’s screen.
- H5 Games ads (beta) is to monetize HTML5 games with seamless and premium ads. Game developers pick an event trigger, an ad type and placement in-game. ‘Boost earnings with premium formats like Interstitials or Rewarded ads. These ads will show full screen at natural breaks in your game or give users a reward for interacting.’
Using AdSense requires 3 steps as well. I’ll be sharing another image. I found them very easy to understand:
Google Ad Manager
Google Ad Manager was launched on mid 2018 and it's an ad management platform for large publishers who have significant direct sales. Ad Manager provides granular controls and supports multiple ad exchanges and networks, including AdSense, Ad Exchange, third-party networks, and third-party exchanges.
It leverages the capabilities of an acquisition they made back in 2007 for 3.1bn, which has helped Google shape all of its advertisement solutions, Doubleclick. Formerly known as DoubleClick for Publishers, Google Ad Manager provides a range of tools for ad serving, ad delivery and optimization. It includes things such as ad targeting, forecasting, reporting and inventory management, as well as the embedded bidding system aforementioned.
Specifically, its capabilities include:
- Flexible ad formatting for all devices and platforms
- All forms video monetization for game developers, or video content creators. This includes monetization across digital, OTT and linear streams.
- Analytics and a unified dashboard to overview the workflow.
- Built-in automation tools that helps maximize every impression’s revenue.
It gets confusing when differentiating Ad Manager with the others. Some of their capabilities are embedded into Google Ad Manager, but the latter offers a more comprehensive platform.
Hardware
Google’s hardware segment generates revenues from the sale of Fitbit wearable devices, Google Nest home products, and Pixel devices. Google Nest home products include the following:
On the other hand, Pixel devices go from smartphones to earbuds, watches, smart home items, laptops, accessories and a set of different subscriptions like:
Google Photos, Waze and Google One
The last logo I included in the picture is Google Photos. I’ll use this last space to refer to it, but to other Google products that pursue the same objective. Google Photos is a cloud-based storage service, free until 15GB. After that threshold, users have to pay a monthly fee for the extra storage. Google One is a subscription plan that gives users storage to use across Google products like Drive, Gmail and Photos.
Google Photos launched in 2015 and, as of 2019 (last mention), it had surpassed 1bn users.
“In November 2020, Google announced that more than 4 trillion photos are stored in Google Photos, and every week 28 billion new photos and videos are uploaded.”
Waze is a community-driven navigation map. It was founded in 2006 and acquired by Google in 2013 for 1.3bn. Waze’s purpose is to connect drivers in real time for them to communicate and improve the other’s driving experience. People can, for instance, report incidents for others to avoid that route. At the same time, it has GPS integrated tools. As of 2022, Waze had over 150M active users.
There are several other products inherently free to use, but that grants Google one of the most valuable resources out there, information. All of these suite of different products are meant to capture user’s information, infer their interests and feed Google’s database for its algorithms to get better.
Google Cloud
Google Cloud consists of two main cloud-based business units that Google has developed over the years.
Google Workspace
Google Workspace was launched in 2006 under the name of ‘G Suite’ and the company rebranded the product in 2020. Google Workspace is a set of communication, collaboration and productivity tools built for individuals, teams and organizations.
- Gmail is a web-based email service created in 2004 and provides users with 15GB of storage. I’ll assume (which I never do) you are all familiar with the product, so I will not expand on its capabilities.
Over the years, web-based Email services have been gaining a lot of market share, with Gmail being one of the main beneficiaries. Its userbase has grown at a 22% CAGR over the past 15 years, reaching 1.8bn users in 2020, peak where growth stalled.
- Google Calendar is an electronic diary and calendar developed by Google. With it, users can schedule meetings, events and get reminders of upcoming activities. Furthermore, it has all Google solutions integrated to facilitate team collaboration and time management. The last heard of number was that 500 million people actively used Google Calendar.
- Google Meet is a real-time video meeting tool and was officially launched in 2017. Google Meet can be freely used individually with a limit of 100 participants and 60 minutes per call. As of 2020, Google Meet had over 100 million daily meeting participants, there hasn’t been update in the user base ever since.
“Google Meet can now livestream to up to one hundred thousand people who can also participate in Q&A and polls.” Q1 2022
- Google Chat is a communication platform developed by Google and launched in 2017. It allows teams and organizations to send direct messages, have group conversations and collaborate on documents.
- Google Drive is a cloud storage solution fully integrated with Google Workspace. It works as a sort of hub for all of your Google activity. The cloud-based nature of it allows users to actually share and collaborate in real time through uploaded documents.
- Google Docs is basically Goggle’s cloud-based Microsoft Word. It’s utilized to create, share and collaborate on written documents.
- Google Sheets is Google’s cloud-based Microsoft Excel.
- Google Slides is a cloud-based app that allows users to create presentations and collaborate with peers.
- Google Forms is utilized to create online forms and surveys with multiple question types to then ask people to complete it. Google also provides analytics tools to measure a surveys results.
- Google Sites allows users to Build internal project hubs, team sites, public-facing websites
The Google Workspace apps are free to use at an individual level. However, if an organization were to use Google Workspace, it would have to pay a monthly fee per user. Logically, by paying, organization have added features on some apps and an overall higher storage capacity.
The last component of Google Workspace consists on the in-built marketplace. Through it, third-party developers can publish their apps and sell them, after meeting Google’s requirements.
Google Workspace overall user base is not an easy to find metric for each year. However, we have the following two announcements Google made over the past 2 years:
“2021 was also a year for Platform milestones, Google Workspace grew to more than 3 billion users globally, we reached more than 5,300 public apps in the Google Workspace Marketplace, and we crossed over 4.8 billion apps installed (up from 1 billion in 2020)!”
“Google Workspace is now used by more than eight million businesses and organizations worldwide” Q3 2022
Google Cloud Platform
GCP is Google’s cloud computing business unit. We’ll not go into what it is, since we addressed this on Microsoft’s article. If you have some doubts on how do these cloud computing vendors work, check out Azure’s part.
Google’s complete spectrum of offerings are cloud-based. As it goes with Microsoft, GCP powers the completeness of Google’s business. It provides storage, computing power, machine learning and AI workflows to everything. From Google Workspace to YouTube, Maps, everything runs on Google Cloud Platform.
The project made its appearance in 2008, when the company oversaw the possibility of creating a platform for developing and hosting web applications in Google datacenters. This idea was labeled as Google App Engine. Over time, Google developed several cloud products and offered them as somewhat isolated items. In 2013, perhaps after seeing Azure and AWS taking this more holistic approach, Google itself decided to agglomerate all its cloud computing solutions under one roof, Google Cloud Platform.
Google Cloud Platform has several dozens of solutions and more than 100 products. I’ll go over some of them here. Solutions:
- Automotive (industry solution): For the automotive industry, Google offers clients 15 different solutions. Among them; collection, management and activation of vehicle data at scale, factory performance analysis, visual inspection for production, marketing analytics, autonomous driving development, e-commerce platform migration.
- Google Cloud Serverless allows cloud-based companies to outsource the completeness of the required infrastructure services to run their business.
- Under the artificial intelligence umbrella, Google offers solutions upon conversational AI and speech recognition verticals, search-like products (like recommendation engines for retailers) and ML/AI capabilities to analyze written documents.
- Software Delivery Shield is a fully managed, end-to-end solution that enhances software supply chain security
Google Cloud Platform offers, as mentioned, over 100 products. For you to get a taste of what of these are, here are a few of them:
- Compute Engine is a secure and customizable compute service that allows customers to create and run virtual machines on Google’s infrastructure.
“Tau VMs are the lowest cost solution for scale-out workloads on Compute Engine, with up to 42% higher price-performance compared to general-purpose VMs of any of the leading public cloud vendors”
- A container is a lightweight and portable way to package and deploy applications, ensuring they run across different environments. It runs in isolation, with its own file system, CPU resources and network interface. Kubernetes is an orchestration platform that automates the deployment, scaling and management of containerized apps. Lastly, a Kubernetes cluster is a group of computers, called nodes, that run Kubernetes software and work together to manage containerized applications.
When organizations grow larger, they tend to have their applications running on different Kubernetes, different cloud vendors or on premise. At the same time, each of these containers must be individually managed given they have to meet certain requirements. It eventually becomes a very complex and inefficient web. Anthos basically acts as a project management platform that allows companies to integrate all of these isolated nodes and operate them under encompassing management policies, services & security.
- BigQuery is a serverless enterprise data warehouse that’s compatible with multiple cloud environments. BigQuery has several AI/ML, business intelligence and analytics tools built on it which companies can leverage. It can also separate the compute engine that analyzes data from the storage solution selected, making possible for BigQuery to asses data where it lives.
Google Cloud Platform is, in general terms, a consumption-based service, for which the company’s most utilized pricing system is pay as you go with no upfront costs. However, pricing models are product specific.
For instance, when looking at cloud storage, Google charges its customer based on GigaBytes utilized, the region or regions in which the customer is, the type of storage needed (standard, nearline, coldline, archive) and according to data transfers.
When looking at virtual machines, it depends on the actual machine, the virtual CPUs and memory they employ, the optimization and some other things. At the same time, when speaking of these types of products that can be used as momentary demand goes, one can opt for the Spot model. In the latter, companies basically tell Google they do not need continuous computing power, so Google can assign them virtual machines as they are available. The increased efficiency these interruptible workloads generate for GCP makes spot models to be priced up to 90% lower in occasions.
Lastly, companies with predictable workloads can pay for a fixed amount of resources they’ll utilize. Since this helps GCP allocate resources more efficiently, these types of solutions cost less than the consumption-based.
Google Other Bets
Other bets is the last segment in which Google reports results. In it, the company groups all small and asymmetric projects they have in play. All together, this set of companies do not contribute meaningfully to Google’s topline. In consequence, we’ll focus on the most relevant.
DeepMind
DeepMind was created in 2010 by 3 co-founders with an initial focus of creating general purpose AI, but later shifted to the creation of specific AI solutions. In 2011, Founders Fund, a VC firm co-founded by Peter Thiel, and later received 6 more million from other investors. Google acquired DeepMind in 2014 for an undisclosed amount, estimated to be 400-600M.
DeepMind is mainly focus on research and developing some specific products that leverage neural networks. In their website, they have a large number of published papers and contributions they’ve made to the scientific community. To get a sense of their actual work, we’ll go over one particular product and 2 case studies in which DeepMind helped Google increase efficiency, user experience, etc.
Ithaca is a deep neural network that can restore missing text of inscriptions, identify their original locations and help establish the date they were created.
“Our evaluations show that Ithaca achieves 62% accuracy in restoring damaged texts, 71% accuracy in identifying their original location, and can date texts to within 30 years of their ground-truth date ranges. Historians have already used the tool to reevaluate significant periods in Greek history.”
DeepMind developed in 2016 an AI-powered recommendation system to improve Google’s datacenters energy efficiency. Every 5 minutes, the AI pulls a snapshot of the data centre cooling system from thousands of sensors and feeds the AI, which then predicts which combination of potential actions will affect future energy consumption. After the analysis is done, it then recommends the actions it expects will minimize it.
The problem relied on how operator-dependent was this AI so Google asked DeepMind to create the same thing, but automated.
“Whereas our original recommendation system had operators vetting and implementing actions, our new AI control system directly implements the actions”
DeepMind helped YouTube reduce internet traffic, data usage and time needed for uploading videos through their AI model, MU Zero. They also developed a label quality model that helps label videos with greater precision, improving the accuracy of ads running in videos that respect some policies. Lastly, DeepMind created an AI system that can automatically process video transcripts, audio and visual features to suggest chapter titles to creators, relieving a previously manual job done by the.
To summarize, DeepMind is an artificial intelligence research laboratory. Upon its research, it creates specific products to help solve problems and it leverages it findings to make Alphabet improve its business units from all perspectives.
Google announced DeepMind has grown to a considerable size now and, starting on the next quarter, they’ll report the company’s results separately. Some quotes from management on DeepMind:
“For example, DeepMind’s protein database of all 200 million proteins known to science have now been used by 1 million biologists around the world.” Q4 2022
“To reflect the increasing DeepMind collaboration with Google Services, Google Cloud and Other Bets, beginning in the first quarter, DeepMind will no longer be reported in Other Bets and will be reported as part of Alphabet’s corporate costs.” Q4 2022
Waymo
Waymo is a self-driving technology company. Google began Waymo’s development in 2009 as part of its Google Self-Driving Car Project.
Waymo is currently working on two particular solutions, besides the provision of technology to companies like Uber and Mercedes Benz. Both main products are still being tested, but work in a few areas.
- Waymo One is a private, on-demand transportation service that offers fully autonomous rides.
- Waymo Via is an autonomous driving logistics and delivery solution
Calico
California Life Company is a research and development biotech company that focuses on understanding aging and developing interventions that can potentially extend human lifespan. The company’s research is done on fields like genetics, cellular biology, data analysis and age-related factor identification. Furthermore, its mission is to:
“harness advanced technologies and model systems to increase our understanding of the biology that controls human aging”
Calico has received over 2 billion dollars in funding and has overtaken several hundred million R&D projects alongside companies like AbbVie.
“In Google's 2013 Founders Letter, Larry Page described Calico as a company focused on "health, well-being, and longevity" and the company's name additionally as a play on "California Life Company.”
Revenue Breakdown
Unfortunately, Alphabet does not provide a deep disaggregation of revenue. The following chart illustrates what has been the revenue generated by each of these segments in 2022.
Google Search & Other includes revenues generated on Google search properties and other Google owned and operated properties like Gmail, Google Maps, and Google Play. These business units did a collective 162bn of revenue in 2022, 72% of Google advertisement revenue.
YouTube ads revenue did 29.2bn in 2022, 13% of Google total ads revenue.
Google Network accounts for revenue generated on website and apps that display ads through Google’s AdSense, AdMob and Ad Manager. GNetwork generated over 32bn in revenue in 2022, 15% of ads revenue.
These three sources make up for Google’s advertising business, which has generated 224bn in 2022, or over 79.3% of total revenue.
Google Other encompasses revenue coming from Google Play, hardware sales, YouTube subscription, other products and services. These offerings earned 29bn in revenue in 2022 accounting for 10.3% of Alphabet’s total revenue.
Relevant information of how much does each business unit produces is very scarce. However, Google disclosed Google Play revenue for the first time in 2019 (I believe for a lawsuit or something alike):
“Out of the $11.2 billion total revenue, over $8.5 billion is the gross profit of the app, while the operating income of the Google Play Store is $7 billion.”
Estimates on 2022 revenue from the Play Store range from 18-25bn. On the other hand, even if Google does not disclose YouTube’s subscription revenue, I did an estimate on what it could look like, based on available numbers of YouTube TV and YouTube Premium and Music.
I’d assume a 20% standard deviation, for which the range of YouTube’s subs revenue could be around 8-12bn. The assumptions I used are $11 ARPU in YouTube’s subscriptions and $65 for YouTube tv (cost). For subscribers count, I utilized the ones mentioned in YouTube’s section.
Google Cloud revenue includes fees for infrastructure, platform and other services offered on the Google Cloud Platform, and Google Workspace. Unfortunately, it’s unestimable how much revenue could Google Workspace be generating. The last mentioned data point on it is that 8M enterprises use it, but there’s no mention in ARPU, nor in seats, nor on anything basically. Google Cloud’s business unit generated 26.2bn in 2022, accounting for 9% of Alphabet’s total revenue.
Other Bets derives revenue from all the small ventures Google has in play, but it is mainly generated (according to the 10k) primarily from the sale of health technology and internet services. In 2022, Other Bets did 1.06bn in revenue, or 0.4% of Alphabet’s total.
To finalize this first part of Google’s research (the second one won’t be this long), it is only remaining to see where does Google derive revenue from, geographically. The following chart will display revenue by geography as a percentage of revenue, based on the addresses of Google’s customers.
There’s a 1% remaining, which I did not include because it’s Google’s “Hedging gains” in 2022.
Personal Commentary
It took some time, but we finally have it. Hope you enjoyed Google’s first part as much as I enjoyed putting it together!
Disclaimer: Not financial advice
This was a great read and deep dive!
Excellent, as always!!