What is Google?

In many of the conversations I have online with commenters on my posts or on Twitter, it becomes clear people have very different conceptions of what Google is as a company. I’ve heard at least the following descriptions:

  • “Google is an advertising company”
  • “Google is a search company”
  • “Google is a data company”

And so on.

The reality is there are at least three different ways of looking at Google as a company. I wanted to explore each of those briefly with a view to seeing what each of these lenses can teach us about why Google does what it does, where it might be going next, and what its future prospects might be.

Lens 1: Google is a search company

This first lens is a product lens: it shows Google through the products it provides and the most well known and biggest driver of revenue is search. Google doesn’t break out its revenue by product, but it does distinguish between ad revenues from its own websites and ad revenue from its network. Revenue from its own sites is about two thirds of its total revenues. Much of that likely comes from search with YouTube, Gmail, and others making up the rest. Search is likely also the most profitable part of Google’s business – again, it doesn’t break out profitability by product, but there are other signals to suggest this business is the healthiest. To a great extent, search advertising is Google’s highly profitable core, an idea I talked about two weeks ago.

This lens works beyond just the financial picture too: search is a key component of Google’s portfolio in other ways. Search is the window onto many other Google services, whether YouTube, Maps, shopping or Gmail. Search now operates across these properties and it’s a key feature within those other properties as well. Google is still seen first and foremost as a search engine that has other products.

So where would a future rooted in search take Google next? Well, into searching more and more domains. It’s already taken Google beyond websites and into Maps, items for sale, emails, books, videos, images, and much more. It’s now moving into search within apps, as announced at I/O, and it’s easy to imagine it extending further into both real world and digital information that is currently inaccessible. But Google has also been changing the way it responds to search queries, from pointing people to results elsewhere to presenting answers itself.

And some of Google’s activities are very hard to fit into a search-centric view of the world. While search itself, Gmail, Maps and YouTube all arguably come into focus through this lens, others such as Calico, Google’s investments in robotics, Google Fiber and self-driving cars remain stubbornly blurry. Can another lens help to make sense of those?

Lens 2: Google is an advertising company

Many more people describe Google as an advertising company and I often hear this description applied pejoratively. But this too fits and, arguably in some ways, fits better than search. One of my favorite quotes from Steven Levy’s book on Google, In the Plex, is from Andy Rubin:

“We don’t monetize the thing we create… We monetize the people that use it. The more people that use our products, the more opportunity we have to advertise to them.”

This lens, and Andy Rubin’s description of it, is primarily about business models – i.e. how Google monetizes its products and services. A business model lens can be a phenomenally useful way of thinking about companies, as I wrote a few months ago. From a financial perspective, advertising dominates Google: until about a year ago, Google derived over 90% of its revenue from advertising and even now the number is just barely under 90% (I’m ignoring the brief ownership of Motorola). The vast majority of Google’s revenue comes from advertising. This is clearly its major business model and so this is an entirely acceptable way to describe Google.

Again, many of Google’s products also fit within this way of looking at the company. Almost all of what it does has an advertising component: Search, Gmail, YouTube, Maps, etc. However, there are products where Google doesn’t serve up ads or it monetizes in other ways: Calendar, Android on both phones and newer devices, Chromecast and so on. And when you start to apply this framework to some of its newer initiatives, it breaks down almost entirely: Calico, robotics, Google Fiber and self-driving cars all fall outside the scope of ad-supported services.

Lens 3: Google is a machine learning and AI company

There is one last lens which I almost never hear anyone talking about, but which I think is actually the most useful way to think about Google. Google is first and foremost a machine learning and artificial intelligence company. The problem with this description is it’s very hard to see directly either in Google’s product portfolio or in its finances. Google’s products revolve around search and its revenue comes principally from advertising but, behind the scenes, essentially all of its products either have a foundation of machine learning and AI, or help to drive Google’s effectiveness in machine learning and AI. If the search description is about products, and the ads description is about business models, this description is about core competencies.

Of course, this is where Google started: Larry Page and Sergey Brin didn’t set out to build a search engine or an online advertising powerhouse: they set out to organize the world’s information and make it accessible, which was fundamentally a data ingestion and machine learning problem. Essentially all the iterations of the Google search engine since the early PageRank systems have come through machine learning that better interprets user queries and finds the most appropriate results. But of course, machine learning is used throughout Google’s other products too, both for search and for other purposes. Entering a new Calendar entry is made easier by interpreting normal human language. Google Now responds to queries and even strings of queries almost like a human being.

But here’s the key thing: a machine learning and AI lens is the only one of the three that helps to make sense of Google’s more recent investments and acquisitions. DeepMind, Nest, US Robotics, Calico, Self-driving cars, etc., can all be explained through the lens of machine learning and AI as the core of Google, but are unexplainable by reference to either business models (advertising) or past product focus (search). The chart below illustrates this starkly by showing in red those areas where a product, service or investment matches a lens:Google lenses

This doesn’t mean we should ignore either the role of search in the development of Google as a company and its product focus today or the role of advertising as the main monetization model for Google. But, in my view, Google is best thought of as a machine learning and artificial intelligence company which monetizes primarily through advertising and whose most successful and lucrative product *to date* is search.

The problem with this view

The major problem with this view of Google is it tells you little about Google’s future products beyond those already public, and even less about future business models. If Google isn’t a search company, and advertising isn’t its only business model, how will it monetize these future investments in machine learning and AI? How will Calico, robotics, self-driving cars and these other initiatives ever pay off? Advertising doesn’t seem like the answer for any of these initiatives, but the bigger issue is it’s not yet clear what the business model is for any of these things. That’s one of my biggest concerns about Google: though this lens helps make sense of Google’s recent activities from a core competencies perspective, it doesn’t help us figure out where Google’s money will come from in the future. Away from both search and advertising, which have a very clear track record, what evidence do we have Google’s future will be as lucrative? For all that, I’m comforted by this understanding of what Google is as a company, because it makes sense of what it’s doing. I’m still concerned about its ability to turn profits from most of those activities, though.

Published by

Jan Dawson

Jan Dawson is Founder and Chief Analyst at Jackdaw Research, a technology research and consulting firm focused on consumer technology. During his sixteen years as a technology analyst, Jan has covered everything from DSL to LTE, and from policy and regulation to smartphones and tablets. As such, he brings a unique perspective to the consumer technology space, pulling together insights on communications and content services, device hardware and software, and online services to provide big-picture market analysis and strategic advice to his clients. Jan has worked with many of the world’s largest operators, device and infrastructure vendors, online service providers and others to shape their strategies and help them understand the market. Prior to founding Jackdaw, Jan worked at Ovum for a number of years, most recently as Chief Telecoms Analyst, responsible for Ovum’s telecoms research agenda globally.

133 thoughts on “What is Google?”

  1. I’d still stick with Google being an advertising company. That is the driver of the other two, products and machine learning. I would disagree that machine learning and AI are “unexplainable by reference to either business models (advertising) or past product focus (search)”. The more Google improves its products the more it can engage users, which leads to a better advertising model. Machine learning and AI are a big part of this, driving the improvement of products, connecting with users, which all ties back to the advertising. How a company makes money is the important thing in my opinion, since the profit motive sets the direction the company moves forward in. Hmm, maybe the products are the ship, the machine learning and AI are the sails, and the advertising is the wind?

    1. Again, this only works historically. Look at all the new stuff they’re doing, and the connection to either advertising as the business model or search as the core of the product is tenuous or non-existent.

      1. Again, I disagree, everything in your list is an important part of Google weaving itself into the daily lives of users and the information we deal with daily, and that is the key to the future of their advertising business. To be clear, I don’t hate advertising, if it’s done well it can provide some value to me.

        1. Yeah, we’ll have to agree to disagree. I don’t hate advertising either. But I suspect that if one’s fixated one Google as “an advertising company” or “a search company” one will miss what Google does next and why.

          1. No problem. It’s obvious to me that what Google is doing will improve their advertising model going forward. The AI stuff improves the products, which in turn makes Google more useful to people, which in turn helps the advertising business. It’s not a bad strategy.

          2. Although I’m certain that the AI stuff helps Google’s advertising business to some extent, I’m not aware of any data that proves that it is significant. In fact, I think the recent slowing growth of AdSense may suggest that AI isn’t helping at all at the financial level.
            http://www.zdnet.com/analysis-whats-the-future-for-googles-plunging-12-7bn-adsense-business-7000022145/

            My logic is as follows;

            1) AdWords (search ads) is driven largely by the search keywords. As far as I can discern, the effect of sophisticated AI stuff is quite small. I doubt that the logic has changed much compared to say 5 years ago.

            2) AdSense (display ads) was historically driven by the keyword context of the page on which it was displayed, but is now more driven by your personal search history and what Google knows about you as a person. This is where Google’s AI stuff comes to play. The AdSense ads that I see are very different from those I saw 5 years ago.

            3) If Google’s AI was significantly driving up ad engagement, then we should expect to see AdSense growth exceeding AdWords growth. The reality is the opposite which suggests that Google’s Ai is not driving up ad engagement (or not enough to counter other negative effects like increasing ad blindness).

            This is still an early hypothesis but with the dearth of data coming out from Google, it’s hard to either confirm or dismiss.

            I do think though that the assumption that AI stuff helps advertising should be treated with care. It is by no means a sure thing. Keep in mind that TV advertising has no AI stuff, but seems to work fine.

          3. The connection doesn’t need to be direct as you describe. The AI and machine learning part of Google certainly should help make their products and services better, which in turn should engage and connect with users more, and that should translate into better advertising opportunities.

            Take your TV advertising example. Perhaps Google can actually deliver something good and useful in the TV arena, because of improvements in AI or products. Voila! An opportunity to deliver TV ads. The TV ads don’t need any AI or product innovation, but that is what created the opportunity.

            Long term, the better Google can get at engaging users in their daily lives, the more opportunity there is for communicating with those users, the more points of intersection there will be between Google and users. Advertising fits very nicely into that.

          4. I have absolutely no solid reason to doubt your logic at a hypothetical level. The problem, which stems from the dearth of data that Google discloses, is that there is no proof that it actually works in a way that positively improves their financials. And for any indirect reasoning, I generally consider factual proof to be a requirement.

            I’m sure that this is what Jan means by;

            the connection to either advertising as the business model or search as the core of the product is tenuous or non-existent.

            If we could get more data on this, I’m sure our opinions would converge.

          5. I do see this as a long term strategy for Google, so it’s not surprising that we don’t see a financial impact today. A lot of their AI and new product stuff is in various stages of development, they have to deliver some of that in a way that creates new useful connections with users. I suppose I shouldn’t assume that Google can do this, that could be a flaw in my reasoning.

          6. I think Google’s aim is to improve their connection with users, but that should naturally lead to improved advertising opportunities. Again, assuming Google can deliver on those improved connections. I don’t use much of what Google offers because I’ve found their offerings to be mediocre. But I do see signs of improvement.

            It also occurs to me that we might not be able to see this directly in the financials, ever. If ‘desktop web’ advertising was a peak and the opportunity in mobile is smaller, then even as Google improves its advertising model that could mean less revenue. I suppose we could tease it out of some measure of usage per person, how engaged users are with Google, a per capita metric. I would think we should see that slowly improve over the next few years *if* Google can use the products and AI to build better connections with people.

          7. “ … if one’s fixated one Google as “an advertising company” or “a search company” one will miss what Google does next and why.”

            The same could be said for CBS in the 1960’s. Still, though, it’s important not to forget that the TV networks were driven by advertising back then.

            “I don’t hate advertising either.”

            I do. We are at the beginning of the electronic or digital age. Smokestacks belching smoke were seen as signs of progress at the beginning of the industrial age. Advertising is pollution of a different kind, but on the same scale and equally as harmful.

            This is day to day Google right now: “Organizing the world’s information, for the benefit of advertisers.” I agree that Blue Sky Google may change things, and that is worth paying attention to.

      2. You’re wrong.
        Google Fiber? Just a means to serve me the ads faster.
        Driverless cars? If I’m not watching the road, I can be watching ads.
        Calico? I’ll live to be older, so I’ll have more years to watch ads.

        It’s ads all the way down. No thanks, Google. You can keep it.

  2. Jan, very helpful to see the core competence that makes sense of the things Google pursues. I had not seen this before. But I still have trouble getting past the money trail which makes them an advertising company. I have trouble trusting them because of the incongruence between helping me and then selling information about me which they gained by helping me. A friend who sold information about me to a tabloid would not be a friend. If Google really is a machine learning/AI company, they may need to find a better way of earning their money.

      1. I wonder if Google doesn’t still have some aspect of heart, though. I do not see advertising when I use YouTube—YouTube, I suspect is as important as was the Gothenburg press in its time. (I do have blocks on advertising in my Safari preferences.)

        Media, television, radio, newsprint is bough and sold with due to questionable agenda, but on YouTube so much can be found that is allowing for some excellent discussion and exchange of challenging ideas; though trolling is certainly an issue.

        I do worry that corporate purpose could see openness hindered at some point.
        N/C
        mhikl

        1. YouTube is chock full of advertising, inside the videos. I didn’t know you could block it. I’ll have to explore that.

          1. Space G; I have AdBlock 2.13.2 by Michael Gundlach (surprisingly, seems available for Chrome ) which I think is what does it. It is under extensions. You can set preferences from it.
            N/C
            mhikl

          2. For those who try to make money from advertising, the irony of Adblock doing a fundraiser for a NYTimes Square ad is interesting. What about businesses that need advertising – it seems entitled to expect things for free.

  3. Maybe I’m missing something but I don’t see what’s wrong with saying that advertising pays the bills for self-driving cars, etc. and will presumably continue to do that in the future. How does it matter that we don’t know what Google’s future products might be? I don’t think Page and Brin are dumb enough to turn Google into a profitless company, or one with small profits.

    1. And that’s not what I’m saying at all – it’s just clear to me that advertising revenue won’t be the business model behind most of the new stuff, and it’s not yet clear what will. It might be licensing, it might be selling stuff directly to consumers or OEMs, or some other model. But their history is all about the high revenues and margins derived from search advertising – future revenue growth and margins are a lot more opaque.

      1. “it’s just clear to me that advertising revenue won’t be the business model behind most of the new stuff”

        We’re on opposite sides here for sure. It’s clear to me that all the new stuff helps Google’s advertising model improve.

      2. You probably know even less about Apple’s future products since they’re so secretive, but I think it’s a question of faith in the management based on their record.

        1. The difference is that Apple’s future business model is likely to be very much the same as their past one – tightly integrated hardware, software and services. E.g. Apple Watch. Some additional revenues come from stuff like iTunes, but the bulk will likely come from hardware sales.

  4. I think the greatest threat to Google’s revenues is the increasing concern for privacy on the internet. There is NO privacy (from Google’s prying AI) with any Google product, nor will there ever be. This is why Apple, Microsoft, Amazon and IBM are making inroads that are eroding Google’s advertising revenues.

  5. “But here’s the key thing: a machine learning and AI lens is the only one of the three that helps to make sense of Google’s more recent investments and acquisitions. DeepMind, Nest, US Robotics, Calico, Self-driving cars, etc., can all be explained through the lens of machine learning and AI as the core of Google, but are unexplainable by reference to either business models (advertising) or past product focus (search).”

    Machine learning and AI are but tools to get to the bounty. And they are the tools of companies with too much money. All those toys are the building of a patent portfolio for the future. I see them as the future vampire of “Patent Alley”. MSFT makes more money than Google on Android. They Machine Learned and AI’d that lesson.

    1. I’m not sure that machine learning and AI are patentable in a meaningful way.

      First, machine learning is by no means new and there has been a lot of academic research in this area. Unless Google has made breakthroughs in fundamental aspects of machine learning, as opposed to sequential improvements in scale, the patents that it might hold are unlikely to be blockades for competitors.

      Second, the machine learning software will be run behind closed doors on servers. This means that even if another company copies your patents, it will be difficult to prove infringement. Whereas you can easily prove infringement if you have full access to the device, it’s much harder to do so if you can only access it through a limited web interface.

      1. i think he was referring to Google X project such as Driverless Car which will help them build a huge portfolio of patent that can be licence to other Auto company in the Future.

  6. Well, there could be an argument made for an automotive version of Android where Google provides the software for free to car makers in exchange for advertising in those automobiles.

    Other than that, I got nothin’.

    Joe

  7. Great post. Though I don’t think everything falls under “machine learning and AI” as neatly as the table suggests.

    Android is really just classic software, not AI. Content and apps, a strongly growing segment, likewise is not machine learning or AI.

    Google definitely isn’t an “advertising company”. It was very reluctant to do it in the first place. I get the sense the founders were a little disappointed they had to resort to that.

    I believe they will use different business models for their future products. They never loved advertising and it’s not a good fit for material products.

    1. “I get the sense the founders were a little disappointed they had to resort to that.”

      I also get the sense the founders are disappointed that Google ended up making basically all its money from advertising. But what other model is there for Google that also keeps revenue as high as it is now? I’m not sure they have a choice going forward.

      1. From their behaviour, I get the sense now, that it became the goal very early on. Once they began seeing the results of the algorithm, it was apparently the only way to generate income as people had already become too cheap and greedy to consider a subscription model.
        As usual, we only have ourselves to blame. This advertising based model works for broadcasting around the world, and is far less intrusive than google, though obviously very annoying even though recording devices offer useful ways of avoiding it (see, cheap and greedy).
        I can’t understand though, how so many people in the USA are prepared to shell out so much money for cable based television. Do you people have that much time and money to make it a worthwhile outlay? It still has advertising, WTF? Does the monthly sub give you a generous internet allowance as well, or is it just for tv? KableTown seems to have you by the sensitive areas.

  8. I search with Start Page that piggybacks off Google Search and Google can’t follow me though the behemoth still might get its pound of flesh in advertising. Duck Duck Go is now supported by Apple. That is a nice comeuppance on Apple’s part; but taking please from an other’s distress is false pride. Still, at times one reaps what one sews.
    Namaste and care,
    mhikl

  9. Right now, investors don’t really seem that much concerned about Google’s future business models because the current one is working fine. However, at some point in the near future, it is very likely that Google’s advertising revenue growth will slow down. We might already be seeing some signs of it.

    http://www.bloomberg.com/news/2014-10-16/google-revenue-falls-short-of-estimates-on-declining-ad-prices.html

    I expect much more investor scrutiny on how Google intends to monetize their initiatives then. Depending on how rapidly growth falls, it might get ugly.

    Rapid growth tends to conceal a lot of problems brewing inside a company. People, inside and outside, get the illusion that everything is going great. Bad stuff surfaces only when things start to get challenging.

  10. I think Google’s target is to build the finest possible digital profile of its users for the purpose of contextualizing advertising. All Google services and products, old and new, have one single purpose: to generate usage data.

    Machine learning is essential both at the stage of data collection and at the stage of data interpretation. Robots and self-driven cars are there to collect more and more user data over more and more domains of life. Since everything we do generates data, everything we do could potentially be of interest to Google …

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