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Innovation at Google

Explain how Google generates revenue and identify future levels of revenue given some of the risk factors that affect future revenue generation.

“Google’s revenues are critically dependent on how many searches it achieves in different countries and the proportion of searchers who interact with Google’s ads.” Google’s revenue will increase when competition to advertise against a search item increases because this will in turn increase bid amounts. In 2007, Google generated about 99% of its revenues from its advertisers. Google spends more than 10% of its revenue from the previous year on research and development. Google’s main source of revenue comes from the auction-based advertising program, Google AdWords. This program enables advertisers by having them pay on a “pay-per-click” cost basis. The Network of content partners who subscribe to the Google Adsense program makes up about 35% of Google’s revenue.

Google declares three main risk factors that could affect future revenue levels. The first main risk factor is new technologies blocking Google ads. There has not been a widespread adoption of ad-blocking approaches, but future ad-blocking technology could adversely affect Google’s revenues. The second main risk factor is litigation and confidence loss trough click fraud. Competitors clicking on a link or click fraud could become a problem. The third main risk factor is index spammers harming the integrity of Google’s web search results. This could ultimately damage Google’s reputation. It could also cause its users to be unsatisfied with Google’s products or services.

The fact that all of Google’s employees are equity holders with significant collective employee ownership, they are highly motivated to make Google as successful as possible. They strive for that achievement and are willing to spend up to 10% of their own personal time identifying new approaches. Employees are involved and appreciated which makes for happy employees....