How Google (Alphabet) Makes Money: Advertising and Cloud

Alphabet is a collection of different businesses. Most know it as the parent company of Google, with its Class A (GOOGL) and its Class C (GOOG) shares. But the company also offers a variety of software and internet-related services and solutions, including web browsing and searching, cloud computing, streaming entertainment, mobile operating systems and applications, and more. Alphabet leverages its various platforms and services to generate a substantial portion of its revenue from advertising.

One of the primary ways Alphabet generates revenue through advertising is through its Google Ads program. Whenever you use Google's search engine, an algorithm generates a list of search results. The algorithm attempts to provide the most relevant search result for the query as well as related suggested pages from a Google Ads advertiser.

Google generates fees from advertisers when users engage with the ad in some way, such as by clicking on it or by simply seeing the ad. Advertisers pay Google to have their pages suggested to users and will attempt to outbid each other for the top spot on the search result list.

Alphabet also generates ad revenue from the Google AdSense program, which works similarly to Google Ads. But it differs in that it enables non-Google websites to incorporate Google display advertising on their pages. When a visitor clicks on a display advertisement on a member's website, a portion of the revenue is paid to the site owner while Google keeps part of the fee.

Alphabet competes with companies that provide online platforms for connecting people with information and relevant advertising, digital content and application platforms, enterprise cloud services, and more.

Alphabet reported revenue of $282.84 billion for the 2023 fiscal year (FY) ending Dec. 31, 2023. That's a 10% increase from the $257.64 that the company reported the previous year. Operating income came in at $74.84 billion compared to $78.71 billion in 2021. Net income dropped between 2023 and 2021 to $59.97 billion from $76,03 billion.

The company reported the following for each reportable segment for the 2023 fiscal year:

The company said it is confident about its deep computer science investments and is "extremely well-positioned" in the artificial intelligence market. Alphabet also remains confident in its cloud, YouTube, and Pixel segments.

Alphabet provides a breakdown of revenue and operating income for its three reportable segments: Google Services, Google Cloud, and Other Bets. It also reports certain unallocated corporate costs, including corporate initiatives, finance and legal costs, and costs associated with certain shared research and development activities.

Corporate costs also include hedging gains (losses) related to revenue. All of these corporate costs are excluded from the segment breakdowns below as well as in the pie charts above.

Now let's take a look at Alphabet's individual reportable segments and how they earn money.

The company began separating itself into its three reportable segments as of the fourth quarter of its 2020 fiscal year. Prior to this, Alphabet separated its business into two reportable segments: Google and Other Bets.

This segment primarily generates revenue from advertising through Android, Chrome, hardware, Google Maps, Google Play, Search, and YouTube. Other sources of revenue include app sales, in-app purchases, digital content products, hardware, and fees received for subscription-based products such as YouTube Premium and YouTube TV.

Google Services generated revenue of $253.53 billion for the 2023 fiscal year. That's about 90% of its total revenue. Operating income came in at $86.57 billion. This figure surpassed Alphabet's total consolidated operating income of $59.97 billion due to operating losses in the other two segments as well as unallocated corporate costs. Google Services is thus the only segment that currently makes positive contributions to Alphabet's overall operating income.

The Google Cloud segment is comprised of Google's infrastructure and data analytics platforms, collaboration tools, and other services for enterprise customers. The majority of the segment's revenue is generated from fees received for Google Cloud Platform services and Google Workspace (formerly known as G Suite) collaboration tools.

Google Cloud generated $26.28 billion in revenue in 2023, comprising about 9% of total revenue. The segment is still not profitable, posting an operating loss of $2.97 billion during the year.

The Other Bets segment is comprised of a number of different operations that are not individually material. Some of Alphabet's Other Bets include its autonomous driving business Waymo. Most of the segment's revenue is generated through the sale of internet services as well as licensing and research and development (R&D) services. The segment reported revenue of $1.07 billion and an operating loss of $6.08 billion in 2023.

Alphabet's major competitors include Amazon (AMZN), Microsoft (MSFT), Apple (AAPL), Meta (META), formerly Facebook, Alibaba Group (BABA), and others.

Alphabet made several key announcements that it said would shift its 2023 outlook. For instance:

As part of their effort to Improve the awareness of the importance of diversity in companies, they offer investors a glimpse into the transparency of Alphabet and its commitment to diversity, inclusiveness, and social responsibility. They examined the data Alphabet releases to show you how it reports the diversity of its board and workforce to help readers make educated purchasing and investing decisions.

Below is a table of potential diversity measurements. It shows whether Alphabet discloses its data about the diversity of its board of directors, C-Suite, general management, and employees overall, as is marked with a ✔. It also shows whether Alphabet breaks down those reports to reveal the diversity of itself by race, gender, ability, veteran status, and LGBTQ+ identity.

Google is one of the world's most popular internet search engines. The company went public in August 2004 under the name Google. But its leaders decided to take the company in a different direction by changing its structure and, more importantly, its name. In a letter posted on the company's website in 2015, co-founder Larry Page said creating Alphabet would open up opportunities within Google. The move, he stated, would also allow the company to create and develop new ventures, including investments in new technologies like artificial intelligence and drone delivery. As such, the company's name changed but retained its ticker symbols on the Nasdaq.

You can invest in Alphabet by purchasing shares of its Class A or Class C shares. Their ticker symbols are GOOGL and GOOG, respectively. The company also has a set of Class B shares but these are only intended for insiders rather than the general public. You can purchase shares by opening a brokerage account, buying shares in a mutual fund, or buying shares of an exchange-traded fund (ETF) that invests in the company.

Google is Alphabet's largest subsidiary, which has several major names under its belt. These include YouTube, Nest, and Fitbit. All of these ultimately fall under the Alphabet umbrella. Alphabet also owns Wing, which develops drone delivery systems, Calico (a health care and biotechnology company), and Verily, a life sciences research organization.

The top three institutional investors of Alphabet are Vanguard, BlackRock, and FMR. As of Feb. 10, 2023, Vanguard owned 482.28 million shares, which represents more than 8% of the company's outstanding shares. BlackRock's stake in the company was 415.92 million shares while FMR reportedly owned more than 222.68 million shares as of Feb. 13, 2023.

Alphabet has several share classes, two of which are intended for regular investors. Class A shares are traded on the Nasdaq under the ticker symbol GOOGL. This class refers to the company's common shares and gives the investor who holds them voting rights along with ownership rights. Class C shares, which trade under the ticker symbol GOOG, are held by regular investors but more commonly by employees of the company. Unlike Class A shares, GOOG shares do not supply investors any voting rights. There is a third class of Alphabet shares. Class B is only intended for insiders like the company's leadership.

Google is one of the largest and most popular search engines in the world. Once its own company, it became part of a newer parent company in 2015. As Alphabet, it owns a range of different companies that span a variety of services, such as internet searching, streaming, drone delivery, health care and life sciences research, and artificial intelligence. If you're interested in investing in the company, it trades on the Nasdaq under common shares (GOOGL) and non-voting stock (GOOG). You can easily invest in it by opening up a trading account or by investing in mutual fund or ETF shares.

Google Ads Outages Impacting Majority Of Advertisers

Google just confirmed an issue with Google Ads that has been impacting advertisers all day. Advertisers are getting notices that read "Google Ads can't complete your request right now. Please reload this page to try again."

Here is a screenshot of the error advertisers are seeing in the Google Ads console:

Ginny Marvin, Google's Ads Liaison, confirmed the issue on Twitter saying, "We are working to address an issue affecting a majority of Google Ads users. Please see the dashboard for updates https://ads.google.com/status/publisher/."

The status site reads, "We expect to resolve the problem affecting a majority of users of Google Ads at Aug 3, 2023, 6:00 PM UTC. Please note that this time frame is an estimate and may change. The affected users are unable to access Google Ads."

Here are some tweets with these complaints throughout the day:

Hopefully things will get better soon...

Forum discussion at Twitter.

Update: This is now fixed, Google updated the status site to say "The problem with Google Ads has been resolved. They apologize for the inconvenience and thank you for your patience and continued support."

Google Ads Performance Max Upgrade Tool Now Available For Dynamic Search Ads (DSA)

Google announced that the self-upgrade tool for "upgrading" your Google Ads to Performance Max campaigns is now available for Dynamic Search Ads (DSA) campaigns and Google Display campaigns.

Dan Taylor, the Vice President, Global Ads at Google, wrote on Twitter, "Search and Display advertisers continue to see new opportunity through Google's Performance Max, and now can more easily upgrade their campaigns."

Google wrote, "By upgrading to Performance Max, you’ll be able to use new features like inventory-aware ad serving. It makes sure your out-of-stock pages don’t serve with Search ads by automatically factoring in your product inventory–with no work required on your end. Google AI in Performance Max will also use your campaign’s creative assets as a helpful signal to find more converting search queries. This is especially beneficial if your landing pages have sparse or minimal content."

Google Ads will start the process of automatically "upgrading" accounts to Performance Max for Local campaigns. Automatic upgrades will gradually progress and finish in September for most advertisers. As a note, performance max campaigns has been available to all advertisers since November 2021 and a beta launched October 2020. Google started this process with auto-upgrading accounts to Performance Max for Smart Shopping campaigns in July.

Eligible advertisers can use their tool via the recommendations page to follow an easy and guided process to self-upgrade single-channel Dynamic Search Ads to Performance Max.

For more details, see this help page.

Forum discussion at Twitter.