How Google Found Out It Should Be Doing Advertising
There aren’t many companies in the world more popular and famous than Google. The technology giant has been successful in taking control of the Internet. The brand popularity is evident in the name not being just a company name anymore, but also representing the action of searching information online. Not many companies can boast about making it into the dictionary.
But Google has been unique in its approach to advertising. Although the company makes most of its money through advertisements on its platform, the company itself can hardly be found on billboards and TV ads. What is this strategy all about and how has Google’s approach to advertising changed in recent years?
This article will look at Google’s successful business model, the benefits it enjoys from its unique business strategy and approach to advertising. Finally, we’ll also look at the evidence behind Google’s shifting strategy and whether the company will use a more traditional approach in the future.
In particular in this article, you will find out about 1) history of Google’s business model, 2) the benefits of Google’s focus on advertising, 3) Google’s experience with advertising, and 4) a conclusion.
HISTORY OF GOOGLE’S BUSINESS MODEL
Google is an interesting company to study because it has done many things differently to other big technology companies. Its business model has definitely had its quirks in the past. Before you can understand Google’s approach to advertising, it is important to understand the company’s business model a bit better.
Larry Page and Sergey Brin founded the company while they were studying for their PhDs at Stanford University. They both still have majority voting power in the company through a system called supervoting stock, although they don’t own the majority of the shares. The company went public in 2004 and it has reorganized its operations recently under a holding company called Alphabet Inc.
Google’s mission is focused on the idea of organizing “the world’s information” and making “it universally accessible and useful”. The unofficial Google slogan has often cited to be “don’t be evil”. The company’s mission statement is a great way to understand its business model as well.
Unlike most companies, which charge people for their services, Google has always provided its search engine and the other related platforms free of charge. The profits have been solely derived from its advertising platform AdWords, as well as through other ventures it is currently running. Some of its newest innovative ventures include the Google Class and Google Car.
While the company has since started many other adventures, its business model is still driven by selling advertisement page on its services. In fact, the company generates nearly 90% of its revenue through its AdWords program and other such marketing adventures.
Part of Google’s successful start came from the strong foundations it received in terms of funding. Despite the company being a small start-up, with the self-proclaimed geeks at the control, it received a huge venture capital backing. The funding allowed Google to pursue its business strategy, even though it didn’t have much to prove in terms of getting it all to work for the investors.
The company launched its revolutionary AdWords program in 2000. The system is an online advertising service that allows users, such as website owners, to add ads on their platform and to benefit from the clicks the ads generate.
Google has the right to select the ads used by the program and companies purchase advertising from Google through the service. But as well as becoming the main source of revenue for Google, the system also provides benefits to many users.
AdWords has become one of Google’s most successful systems and helped the company take its advertising game on to a next level. Following the footsteps of AdWords, Google has also introduced advertising services such as the Google Advertising Professional Program and the Google Online Marketing Challenge.
AdWords started out with a monthly subscription model, but it has since changed its revenue structure to accommodate separate business needs. The fee structure proved to be very successful, because businesses began noticing the benefits of advertising with Google. As Internet use grew, the program has become even more beneficial for many companies.
Improving its own advertising strategy
Google’s owners didn’t feel inclined to do a lot of advertising at the start of the business venture. Much of the company’s own advertising has relied solely on the word of mouth model, whereas satisfied customers are expected to provide the company with more users. With more users, the company will also increase its attractiveness to companies who want to pay Google for advertisement space.
But it is important to note Google has made sure to actively target its products and services to two separate groups: companies and the “tech geeks”.
The first group is obvious, as companies are what provide Google its main revenue. In this sense, marketing has been mainly done through hard cold data. Google is the master of metrics and it has been able to highlight the benefits of using Google as an advertising platform for companies. The more Google’s user base has grown, the easier this advertising campaign has become.
But the second group has also been a big target for Google’s marketing team. It relies highly on the word of mouth of the so-called tech geeks. The innovative new products are especially focused on targeting these relatively wealthy and technologically driven people. As we’ll discuss later, the tactic has worked especially well with the company’s more innovative products.
These technology converts help advertize the product and service further. By targeting these influencers, Google has been able to spread the word about its service to the wider public without the need to create costly advertising campaigns.
For example, the Google Glass was only available to a limited amount of people. First, offering a product, as a limited only option, will get the tech converts excited – people want to feel part of the exclusive group. Once these people got their hands on the actual product, they began talking about it and sharing their experience online. Blogs, tweets and YouTube videos of the product caught the public’s attention and Google was able to enjoy a buzz around the product before it has even launched!
THE BENEFITS OF GOOGLE’S FOCUS ON ADVERTISING
But why did Google’s focus on advertising revenue become such a successful model? To understand it, you need to understand the four Ps behind Google’s own marketing strategy: product, price, promotion and place.
Product, price, promotion and place
Google’s business strategy put a lot of focus on the product. From the start, the aim has been to enhance user convenience and to ensure people get exactly what they want from the product: an answer to their questions. When Google started its search engine business, other operators were already doing the same thing. But while search engines such as Yahoo were filled with clunky ads and mention’s of the company’s own products, Google simply had the company logo and a field to search for answers.
Google’s also been clever with its pricing. Because it has been so successful in its word of mouth advertising, companies have wanted to get a share of the advertising money. Instead of enjoying this revenue themselves, Google created the clever AdWords software. This way, simply by using Google’s services, users have also been able to receive a part of the revenue pie! Not only do you get many of Google’s services free, you might even use them to make money. This then gets more people interested, which in turn meanmore companies are interested in advertising with Google.
This leads to the third P – promotion. Google doesn’t need to do much of initial advertising for its own product because it spread like wildfire through word of mouth. Its product was so much better to the alternatives, which got people interested. Its pricing was just perfect to get the attention of users as well as advertisers, increasing its visibility on the Internet even further.
Finally, Google operates in the perfect place for advertising in the 21st century: the Internet. Advertising in the older mediums is becoming less relevant and by dominating the search engine world, Google has ensured companies can’t do without its platforms. For any company, it would be a near advertising suicide not to be on the Internet. Furthermore, when 1.2 trillion searches in the world are done through Google each year, it would be crazy not to associate yourself with this company.
90% of revenue comes from advertising
The above strategy of the four Ps has resulted in Google generating the majority of its revenue from advertising. This has been an effective method and allowed Google the freedom to skip branding its products and services with expensive marketing strategies.
By attracting a massive revenue stream without spending lots of money in marketing, Google has been able to use the money to enhance its current services as well as to innovate new things. Google hasn’t had to spend a lot of money on becoming a talked about business – it has done so by creating a great service.
Big part of Google’s success is its focus on innovation. Instead of just relying on its search engine, the company has pursued aggressive innovative strategies that have spiralled on from operating systems to smart cars.
Not all of Google’s products have become a success, but its revenue model has made it possible to pursue these different ideas. Undoubtedly some of them will fail, such as its tablet device, but some might become the key technology of the future.
Word of mouth tactic works well because it also strengthens the Google brand. In a meaner analogy, Google has created the perfect prisoner’s dilemma for advertisers. Because of its current position as the market leader, companies cannot afford to overlook the company, but companies might also not receive as many benefits from the business as they did in the past. You can read a bit more about this in the following section.
GOOGLE’S EXPERIENCE WITH ADVERTISING
Google’s founders Larry and Sergey have held rather hostile views towards marketing since the beginning of the company. While the company itself based its business revenue model on advertising, it didn’t think it needed to go aggressively after advertising itself. According to the founders, advertisement often lacked the accountability of conversion. A company could put millions into a TV ad, but not receive any new customers.
Much of the lack of enthusiasm towards marketing stemmed from the mistrust towards branding. According to reports, Larry didn’t like to use the word branding simply because it implied “technology alone was insufficient for success”.
But the technology geeks at Google soon also discovered branding doesn’t need to be solely about self-appreciation. With a popular product, a great branding follows as well.
Google’s winning concept in terms of its business has always been simplicity and speed. It managed to succeed as the world’s favourite search engine because it was fast and straightforward to use.
Focus on the heart not the head
It could be argued that Google’s approach to marketing is focused on the heart not the head. Instead of selling big ads on their front page or spending a lot of money to advertise on TV, the company focuses on winning people’s hearts. They want people to use the products because of the convenience and reliability, not because you happened to see their ads on TV.
Since the beginning, this has been the winning tactic for Google. Its whole success has relied on viral marketing – growing by word of mouth. The company has always relied on targeting the right influencers with their product.
For example, the latest example of this is the Google Glass. The product, or the prototype of the product, was available for people to test. Now, the whole point of it was to be a prototype and to give the users the chance to be part of the development process. It directly got people interested because it gave people’s inner geek room to play. Instead of targeting the people who would perhaps want the real and readymade experience, Google went after the heart.
Getting a core group excited about the product will help spark more interest. People will talk about the product and recommend it to other people – especially at a time when the blog has become a big part of our communication.
Creating a plan B
But Google’s business model is also partly the reason why the company has upped its advertising game. Since the company’s revenue mainly comes from one source, it has started to realize the problems this can cause to a company.
No matter how successful Google is now in attracting advertisers to its service and guaranteeing a relatively free service for the user, it cannot rely on its luck forever. The technology world is especially cruel and new companies have popped up to replace old ones in a blink of an eye. Consider, for example, Google’s social media platform Orkut, which was quickly rundown by the success of Facebook.
So far, Google’s strategy has been successful and advertisers continue to spend money to receive higher ranking or advertising space on Google’s services. But it doesn’t take much for this to change. In fact, studies have found companies aren’t benefitting as much through advertising on Google’s platforms as they might have hoped. While the model works quite well with new companies, established firms don’t necessarily benefit from spending thousands of dollars on the platform.
This is one of the reasons Google became involved with other things outside of the world of search engines in the first place. Glasses, cars, apps, and other such products are there to boost Google’s revenue stream – to act as a so-called plan B.
With these new sorts of ventures, Google has also required some advertising support as well.
Using crowdfunding as part of its marketing strategy
When it comes to marketing tactics, so far Google has relied heavily on the crowdfunding method. Consider its Google Glass project, for example. The company offered the Google Glass experience and was up front about it being still in development phase. The glasses itself cost quite a bit for the consumer, but the idea of being part of something new was enough to get people excited.
Asking people to spend money on an unfinished product worked with Google well. It received a lot more new funding, not to mention it was able to gather people’s input and data to further enhance the product. Although Google didn’t advertize the product as a general kickstarter project, it surely fits the model perfectly well.
When it comes to branding, Google has truly discovered the winning tactic: by creating a reliable and functional service and product, the branding will follow automatically. Google has been able to grow into a multibillion organisation simply by ensuring it offers customers something they want and something which works efficiently.
But the company has recently also understood the dangers of becoming too successful. Google’s traditional advertising model is not providing as many benefits to some of the biggest companies as previously thought and the company has realized it must adventure into new strategies in order to stay on top. But the heart of its strategy hasn’t changed much – it still wants to provide a top-class service and product to get people talking.