How does Google make money?

How much is a search worth?
Google apparently now makes $0.20 per search from advertising revenue, according to Caris & Co. analyst Tim Boyd as quoted in the BusinessWeek article, “Why Yahoo’s Panama Won’t Be Enough”.

Using data on total search queries, released by comScore, Caris & Co. analyst Tim Boyd estimates that Yahoo made on average between 10 cents and 11 cents per search in 2006, bringing in a total of $1.61 billion for the first nine months of the year.

Google, meanwhile, makes between 19 cents and 21 cents per search. As a result, it made an estimated $4.99 billion during the same period.


Why does Google make so much money?

It turns out that owning the starting point on the Internet is really, really valuable.

Not just because it gets a lot of traffic. It’s because that traffic is so much more valuable than the rest of the page views bouncing around the net.

Google’s CPMs [cost per 1,000 impressions] are $90-120, vs. $4-5 for an average page view elsewhere.

This value premium on search vs. content is because of the massive concentration of choice potential which exists on the decision point, Google.

John Battelle calls this power behind user search queries “intent“. This is why the ROI of a clickthough bought from Google is so much higher than a clickthrough bought from a banner ad impression. It represents a higher likelihood that someone is going to take action if they came from a search instead of a mouse click.