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116 Part 1 Introduction

For 2007, Google spent around 12.8% of its revenue in web sites exceeded that from Google’s own web sites,
research and development, an increase from less than which had a negative impact on its operating margins.
10% in 2005.
Risk factors
Google revenue models
Some of the main risk factors that Google declares
Google generated approximately 99% of its revenues in include:
2007 from its advertisers with the remainder from its
1 New technologies could block Google ads. Ad-
enterprise search products where companies can install
blocking technology could, in the future, adversely
search technology through products such as the Google
affect Google’s results, although there has not been
Appliance and Google Mini.
widespread adoption of these ad blocking approaches.
Google AdWords, the auction-based advertising
2 Litigation and confidence loss through click
programme that enables advertisers is the main source of
fraud. Click fraud can be a problem when competi-
revenue. Advertisers pay on a ‘pay-per-click’ cost basis
tors click on a link, but this is typically small-scale. A
within the search engines and within other services such larger problem for Google to manage is structured
as Gmail, but with cost-per-thousand payment options click fraud where site owners on the Google content
available on Google Networks members’ web sites. network seeks to make additional advertising feeds.
Google has introduced classified style ad programmes 3 Index spammers could harm the integrity of
for other media, including: Google’s web search results. This could damage
Google Audio Ads (ads are placed in radio Google’s reputation and cause its users to be dissat-
isfied with our products and services.
programmes)
Google Print Ads Google says: ‘There is an ongoing and increasing effort
Google TV Ads by “index spammers” to develop ways to manipulate our
Google Video Ads, user-initiated click-to-play video web search results. For example, because our web
ads. search technology ranks a web page’s relevance based
in part on the importance of the web sites that link to it,
So, Google’s revenues are critically dependent on how
people have attempted to link a group of web sites
many searches it achieves in different countries and the
together to manipulate web search results.’
proportion of searchers who interact with Google’s ads.
At 31 December 2007, Google had 16,805 employees,
Research by Comscore (2008) suggests around 25% of
consisting of 5,788 in research and development, 6,647
searches result in an ad click where sponsored search
in sales and marketing, 2,844 in general and administra-
results are included (around 50% of searches). Of
tive and 1,526 in operations. All of Google’s employees
course Google is also looking to increase the number of
are also equityholders, with significant collective
advertisers and invests heavily in this through trade
employee ownership. As a result, many employees are
communications to marketers. Increased competition to
highly motivated to make the company more successful.
advertise against a search term will result in increased Google’s engineers are encouraged to spend up to 10%

bid amounts and so increased revenue for Google. of their time identifying new approaches.
International revenues accounted for approximately
48% of total revenues in 2007, and more than half of Further reading: Bala and Davenport (2008)
user traffic came from outside the US. In 2007, 15% of You can find updates on this case study by searching at
ad revenue was from the UK alone. DaveChaffey.com for ‘Google Marketing updates’.
35% of Google’s revenue is from the Network of
content partners who subscribe to the Google Adsense Question
programme. From the inception of the Google Network in
Explain how Google generates revenue and iden-
2002 through the first quarter of 2004, the growth in
tify future levels of revenue given some of the risk
advertising revenues from our Google Network members’
factors are for future revenue generation.

Intranets and extranets

In Chapter 1, illustrated by Figure 1.4, we introduced the concept of intranets and extranets.