Google’s parent company, Alphabet, has observed record revenues for the second straight quarter with growth bolstered by advertising spend throughout the Christmas holidays.
Alphabet shares rose almost 8% in extended trading on Tuesday after the company reported fourth quarter earnings that surpassed even the most optimistic analysts’ expectations, demonstrating a strong return to growth in its core advertising business.
This should come as little surprise to anyone in the know as online businesses, most notably retailers, continued to invest heavily in online advertising to weather the storm created by the COVID-19 pandemic.
How Google Generates Revenue
Google generates revenue through dual advertising services – Ads and AdSense. Both of these services are invaluable to businesses who want to get their brands in front of customers online.
Advertisers submit ads to Google that include a list of keywords relating to a product, service, or business. So, if you’re a florist with a bricks and mortar shop in Cheshire, for instance, advertisers will submit keywords like, ‘florist’, ‘flower delivery’, ‘flower delivery near me’, or ‘flower shop near me.
When Google’s search engine looks at different pages on the internet, using one or more of those keywords, the ad will appear in the search engine page results at the top of the search results. The goal is to choose keywords with high search volume and low competition. Why? This maximises your chances of customers finding your business.
The advertiser pays Google every time a user clicks the ad and is directed to the site. The is known as pay-per-click.
But this isn’t the only way that Google generates revenue. They have another advertising service – AdSense which is similar, except that instead of displaying ads on a Google SERP (search engine page result), a webmaster can choose to integrate ads onto a site.
Google’s search engine crawlers analyse the content of the site and ranks by authority. The search engine then selects ads that contain relevant keywords (including LSI keywords – or similar words and phrases) relevant to the webmaster’s site.
These ads are fully customisable, with elements like the type of ad and display location considered. Each time someone clicks on the site, the webmaster shares a portion of the revenue shared between Google and the advertiser.
Google’s Growth in Statistics
The last quarter of 2020 saw Google’s parent company, Alphabet, revenue grow by 23% (when calculated as an annual rate.) This represents stronger growth than Q4 2019 which witnessed a 17% rise in revenue and shows that Google’s advertising business is recovering well after a sharp drop in revenue in Q2 of 2020.
Google’s advertising business, including video production favourite platform YouTube, accounted for 81% of Alphabet’s $56.9bn in fourth quarter sales. Revenue from the search, video and online advertising juggernaut rose increased $10.82bn which was $7.05bn more than even the most generous of industry analysts had predicted.
YouTube ads which brought in $6.89bn in Q4 2020 rose by 46% from 2019 when they amounted to $4.72bn. Moreover, YouTube saw a jump in viewers and longer viewing times, with executives saying that YouTube now reaches more 18-49-year-olds than all linear TV networks – combined.
Google Cloud rose by $3.83bn as opposed to the $3.81bn expected. Traffic acquisition costs were $1.15bn higher than expected, with costs amounting to $10.47bn.
Google’s Growth in Perspective
Google’s revenue, which has consistently grown by 20% annually, increased just 12.8% in 2020. This was the slowest growth since the Great Recession of 2009 when the company recorded 8.5% annual growth.
However, there are other mitigating factors to consider. We’re all still grappling with COVID-19. The impact that it has had on the global economy shouldn’t be underestimated – with a similar slump being experienced during the Great Recession of 2009. However, despite the challenges, Google still announced record growth for Q4 2020.
It’s clear that more and more businesses continue to rely on Google’s advertising platforms to invigorate their businesses after 2020’s slump. Why is this important to know? Well, for starters, if you’re not optimising your marketing strategy through Google’s products, it’s likely that your competitors will be.
Google’s Resilience
Observers have said that Google’s revenues demonstrate massive shift to online advertising. Alphabet has reported strong online growth in the face of the pandemic because advertisers are drawn to better targeting, measurement reach and ultimately ROI during these challenging times.
Reductions in advertising spend by entertainment and travel advertisers in 2020 where offset by the burgeoning spending of existing retailers – not to mention new retailers who have migrated their bricks and mortar shops online in the wake of the pandemic.
The results show the strength of Google’s business model and the company’s resilience in times of crisis. It’s apparent that Alphabet is well on its way to having a $2trillion market cap.
Challenges Ahead
Despite this, Google faces challenges ahead. It’s lead over the global advertising market is shrinking. With interests in eCommerce, cloud computer, digital streaming and artificial intelligence, online multinational tech behemoth, Amazon, has continued taking a bigger and bigger market share.
Alibaba – a Chinese tech conglomerate – has enjoyed a faster rebound from the pandemic, occupying a 56% market share in the country, and it has signalled its intent to enter the US and European market in a move that will challenge Google’s dominance.
The platform added 121 million users in Q4 2020. Yet despite its growth and ambition, Alibaba still has a long way to go to rival Google.
What Does the Future Hold for Google
Although we don’t have a crystal ball, it’s quite clear that the world’s biggest search engine will continue to weather the storm caused by COVID-19. Whether or not, Google will achieve the 20% growth in revenue they experienced prior to the pandemic remains to be see, however, despite the challenging economic times, the strength of their position is undeniable.
However, if global economic forecasts are anything to go by, there is reason to be optimistic about what the year will bring. Countries across Europe are rolling out a COVID-19 vaccine which will encourage more and more people to return to normalcy. Although we’re not quite out of the woods just yet, there are signs that normalcy may well return for many in the coming year.
Yet, perhaps more relevant is the increased emphasis on online eCommerce. The mass migration of businesses from bricks and mortar premises to sole online services will lead to increased advertising spend. Businesses will need Google – and by extension – digital marketing agencies more than ever to help them reach more customers and grow their businesses.
Interested in learning how Jungle Marketing can help you grow your business with Google 2021? Get in touch with us today to find out more.
