Google and Money!

Matthew Peyton/Getty Images/Space Adventures
Google cofounder Sergey Brin, center, training in zero gravity for a future vacation in space, 2008

Google plays such a large part in so many of our “digital lives” that it can be startling to learn how much of the company’s revenues come from a single source. Almost everyone online relies on one Google service or another; personally I make semiregular use of

Google Search, Gmail, Google Chat, Google Voice, Google Maps, Google Documents, Google Calendar, Google Buzz, Google Earth, Google Chrome, Google Reader, Google News, YouTube, Blogspot, Google Profiles, Google Alerts, Google Translate, Google Book Search, Google Groups, Google Analytics, and Google 411.

Yet few of these services support themselves (YouTube alone has lost hundreds of millions of dollars per year). In 2008 the advertising on Google’s search engine was responsible for 98 percent of the company’s $22 billion in revenue, and while Google refuses to provide more recent percentages, the company’s 2009 revenue of $23.6 billion suggests that little has changed.

The reason Google’s search engine remains its single largest source of revenue—and why that revenue exceeds that of any other website—can most easily be understood by studying the company’s history. In 1998, when the Stanford graduate students Sergey Brin and Larry Page launched Google, the existing search engines were so inadequate that only one was capable of finding itself when queried with its own name; a search for “cars” on Lycos, one of the better search engines, returned more pornography sites than sites about cars.

Google’s vast improvement on other search engines is usually attributed to a new algorithm, called PageRank, that made use of the links between sites to more accurately determine relevancy. In contrast to other search engines, which ranked results according to the number of times a searched-for word was used, Google ranked its results based on the number of links a site received, a method that revealed the “wisdom of crowds.” The pages to which many people link were, by Google’s model, listed higher than pages that were less popular, and if a particularly popular site linked to a page, that link would be given greater weight in determining relevancy. But Google’s success was not due primarily to its technical ingenuity; other search engines, including Lycos, used a similar ranking technology.

Google’s advantage over Lycos only became apparent when Page and Brin, still intent on pursuing their Ph.D.s, tried to sell their technology to another search engine, Yahoo. As Ken Auletta writes in Googled:

[The Yahoo founders] were impressed with [Google’s] search engine. Very impressed, actually; their concern was that it was too good…. The more relevant the results of a search were, the fewer [pages] users would experience before leaving Yahoo. Instead of ten pages, they might see just a couple, and that would deflate the number of page views Yahoo sold advertisers.

In the early years…

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