W6 Discussion: Case Study on Google: The Drive to Balance Privacy with Profit

Chapter 10: Google: The Drive to Balance Privacy with Profit: 10-3b Advertising Book Title: Business Ethics: Ethical Decision Making and Cases Printed By: Kennisha Holloman ([email protected]) © 2019 Cengage Learning, Cengage Learning

10-3b Advertising

Google’s main source of revenue is advertising. The company earns approximately $70

billion in advertising revenue. Google’s signature advertising platform is Google AdWords,

first introduced in 2000. Google AdWords differs from traditional advertising in that

advertisers do not pay Google anything upfront, but only pay when customers take action

—either by viewing the ad (pay-per-impression), clicking on the ad (pay-per-click), or

performing a certain predefined action such as making an online purchase (pay-per-

conversion). This model is attractive to advertisers because they only pay when their ad is

effective, as determined by the metric of their choice. The twist, however, is that Google

does not set ad prices but rather puts its limited advertising space up for auction; companies

submit “bids” for how much they will pay per customer action, and higher bids generally get

more ad time (other factors are also considered, such as how popular an ad has been so

far). Google makes no money from even a very high bid if customers do not engage with the

ad. Advertisers are therefore incentivized to bid high, which benefits Google’s bottom line.

Google promotes the model as a win-win; it makes a profit, and companies get more bang

for their advertising buck.

Google leverages its various product offerings to provide a variety of attractive advertising

options. Companies can choose to have their ads displayed as “sponsored links” alongside

search results for certain keywords, or as banners on any of the more than two million

websites that display Google ads in return for a cut of the profits (known as the Google

Display Network). YouTube is another option, offering video ads before or during videos as

well as traditional banner space on the site. Mobile is also becoming a critical advertising

space, through both searches on mobile devices and apps that allow advertising. Improving

the effectiveness of its AdWords service is a key driver of Google’s collection of user

information—the more it knows about its users, the more targeting options it can provide to

advertisers and the more precisely it can serve targeted ads to desired consumer segments.

Chapter 10: Google: The Drive to Balance Privacy with Profit: 10-3b Advertising Book Title: Business Ethics: Ethical Decision Making and Cases Printed By: Kennisha Holloman ([email protected]) © 2019 Cengage Learning, Cengage Learning

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