Unlike some Internet companies, Google has multiple ways of generating revenue beyond private investment or selling shares of its stock. Google uses three methods to partner with merchants and advertisers: Google Checkout, Google AdWords and Google AdSense.
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Google Checkout is a service designed to make online purchases easier for both the consumer and the retailer. On the consumer end, users create a free Google Checkout account. Part of the account creation process includes entering a credit or debit card number, which Google stores in a secure database. When the user visits a retailer that subscribes to Google Checkout, he or she can click on the checkout option and Google facilitates the transaction. This means that the user doesn't have to enter a card number every time he or she makes a purchase.
Retailers can set up Google Checkout accounts for free, but as of August 2008, Google charges a 2 percent plus 20-cent fee per transaction. For example, if a customer buys a $10 item from a merchant, Google will charge that merchant 40 cents for that transaction.
Another way Google generates revenue is through a pair of Web advertising services called AdWords and AdSense. With AdWords, advertisers can submit ads to Google that include a list of keywords relating to the product, service or business. When a Google user searches the Web using one or more of those keywords, the ad appears on the SERP in a sidebar. The advertiser pays Google every time a user clicks on the ad.
AdSense is similar, except that instead of displaying ads on a Google SERP, a webmaster can choose to integrate ads into his or her own site. Google's spiders crawl the site and analyze the content. Then, Google selects ads that contain keywords relevant to the webmaster's site. The webmaster can customize the location and color of the sidebar containing the ads. Every time someone clicks on an ad on the webmaster's site, the webmaster receives a portion of the ad revenue (Google gets the rest).
With both AdWords and AdSense, Google's strategy is to provide targeted advertising to users. Google believes that by providing advertising relevant to the information for which the user is already searching, the chances of someone following the ad are greatly increased [source: Google].
In the next section, we'll learn about the equipment Google uses to provide users with these tools and services.