HOW GOOGLE EARNS MONEY

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Google makes most of its money from selling advertising opportunities on the search pages so many of us use.
Advertisers bid to have ads for their products or services displayed on relevant search query result pages. A combination of the amount bid and the quality of a potential ad influences if an advertisement will feature at the top of the page, where more users are likely to see it. In order to encourage efficient bidding practices, Google uses a Vickrey auction system. Bidders don't know their rivals' bids. When all bids are in, the highest bidder wins but actually pays the price of the second highest bidder.
But that's not the end of it. Google also takes into consideration the relevance of the advertiser's landing page to the search query. For example, if an advertiser has a page which is all about car insurance, it would have to bid less to appear high up in the paid advertising results for a user googling "car insurance" than an advertiser who has a page on general insurance. Google calls this 'Quality Score'.

Charging for every click

The attraction of the service to advertisers is they can target advertising at Google users who have already expressed an interest in what the advertiser sells and ignore Google users who have not. This is known as contextual advertising. Furthermore, advertisers only have to pay Google after someone has actually clicked on one of the ads they bid to have displayed – and they can set budgets to limit their monthly spend.
Spin-Off YouTube. 
Speaking of YouTube, this business is another of the great mysteries of Google. It seems likely that YouTube is the company’s fastest growing segment. However, just like Google Play, investors are left to guess about how well the service is doing.

When it comes to search, Google gives investors detailed measurements. We know that paid clicks increased by 18%, and the Cost per Click declined by 11% annually. When it comes to YouTube we know that watch time, “is now up over 60% year-over-year.” Even more important for investors, “Advertisers running video ads on YouTube is up more than 40%.”
The fact that Microsoft’s Search & Advertising division reported a 21% increase in annual revenues should worry Google investors. By comparison, Google Sites revenue increased by just 13% year-over-year. In addition, Facebook said that it now sees 1.5 billion searches per day through the site. If Microsoft and Facebook are stealing searches away, knowing specifics about YouTube becomes even more important.

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