How do Internet Search Engine companies make money?

Like many businesses, search engines have more than one source of revenue and are working to develop new revenue streams to solidify their profitability. Advertising, lead generation and sponsored web page positioning are the top three source of revenue for the majority of search engines. In the future, paid for content in the form of subscriptions to valuable or timely information may provide a new source for search engine revenue.

One of the most popular forms of paid advertising is pay-per-click (PPC) or cost-per-click (CPC). This is a type of lead generation model where the web site owner pays the search engine each time someone clicks on the web site owner’s ad and is referred to the owner’s website.

PPC/CPC has become the primary revenue stream for Google, accounting for 90% of its revenue since they launched their pay-per-click advertising model in February 2002. Businesses use a bidding model to determine how highly they rank in “sponsored listings”, the clearly marked advertisements that are displayed above, below and to the side of natural or organic results from the search engine’s index.

Generating advertising revenue through Pay-Per-Click, or PPC, or Cost-Per-Click, or CPC, earned Google $9.288US million in 2004. Since visitors primarily choose their next destination with a click from the page they are viewing, portal sites like MSN™ and Yahoo were built to deliver traffic to advertisers.

Another type of advertising involves graphical banner advertisements where advertisers are interested in the number of visitors that the website displaying the banner tracks on a regular basis. These are known as impression based advertisements as in each visitor that loaded the page was given the impression the banner suggests. Banner ads are often paid for by a set monthly fee determined by the size and placement of an advertisement.

This has evolved as more websites seek to build traffic from a variety of sources. Rather than pay a set monthly fee, advertisers were willing to pay a premium for placement and pay only for traffic delivered to their website. The company most successful with this model was Overture™, who successfully sued Google for infringing on Overture’s patented Pay-Per-Click technology in 2004. The $328US million settlement paid to Overture in the form of Google stock did little to dampen Google’s operations, cash-laden as they were from one of the most successful initial offerings of public stock in recent years.

Google has announced future services that may have content charges associated with them therefore opening another potential revenue stream. The content Google has talked about so far are access to University library materials from several well recognized organizations, specifically Stanford University, Harvard University, the University of Michigan, the University of Oxford and the New York Public Library.

Read more: How do Search Engines find Web Pages?