Alphabet (NASDAQ:GOOGL), generally referred to as Google, is one of the world‘s biggest companies with a market cap of $782 billion.
It is the dominant leader in online search, making most of its money from ads shown to people who type queries into its search engine. But Google also controls a large portion of the online advertising landscape via its publisher network, so many of the ads you see on different sites are actually served through Google.
In the fourth quarter of 2018, Google made about $32 billion from ads, which grew about 20% from the previous year and accounted for 83% of total revenues.
However, they also had $6.5 billion in the „Other revenues“ category, which was an increase of 30% year-over-year. This shows that Google‘s non-advertising business is actually growing a lot faster than its advertising business.
But what exactly is included in the „Other revenue“ category? How can Google continue to grow and diversify its revenue streams away from online ads?
This article looks at Google‘s top 5 non-advertising revenue soruces, all of which have the potential to become major sources of profit in the coming years and decades.
1. Cloud Computing
Google is one of the major players in cloud computing through its Google Cloud Platform and G Suite range of enterprise services.
Cloud computing is one of the most promising technological trends in the coming years and decades. It makes computer resources available on demand through internet access to high-powered datacenters that are distributed around the globe.
Businesses can save money and increase efficiencies by offloading their computing resources to cloud computing providers like Google.
Google Cloud Platform is currently estimated to be the third biggest cloud computing provider, after Amazon‘s AWS and Microsoft‘s Azure.
Source: Statista.
Although Google doesn‘t report exactly how much money they are making from their Google Cloud Platform each quarter, they did say early in 2018 that they were making over $1 billion per quarter.
Given the rapid growth of cloud computing and Google‘s strong growth momentum in the category, it seems likely that this could already be closer to $1.5-2 billion per quarter.
The cloud computing market is estimated to be worth around $140 billion worldwide, with a projected 20% annual growth rate in the coming years.
Google is very focused on grabbing market share in the cloud computing space. Their new head of cloud, Thomas Kurian, recently announced an aggressive push in hiring a big sales force to accelerate their market share gains.
Google also spent a record $25 billion on capital expenditures last year, a lot of which went into building new data centers for their cloud business.
2. Google Play Store
The Google Play store is the place where Android users buy apps and subscribe to various paid services.
Like Apple‘s App store, Google takes a 30% cut of app and subscription sales that are performed through the Play store.
This is actually a massive revenue driver for Google, with an estimated $24.8 billion in sales in 2018. This was an increase of 27.3% from $19.5 billion in sales in 2017.
At the same time, Apple‘s app store had estimated sales of $46.6 billion in 2018, almost twice as much as Google‘s Play store.
This revenue source is likely to continue growing for a long time as more people download apps and subscribe to paid services through their phones.
If the estimated $24.8 billion in sales is correct, this suggests that the Google Play store currently provides $7 billion in annual revenue for Google through the 30% cut.
3. Smartphone Sales
Google owns Android, which is the world‘s biggest mobile phone operating system.
However, Google doesn't directly derive any revenue from Android sales. It gives the operating system away for free but instead asks phone manufacturers to include a wide range of Google‘s services on the phones.
When the phones land in the hands of users, most of them use Google‘s web browser which has Google search enabled by default. This helps Google maintain their massive market share in search. The phones also include Google Maps, Gmail and other services that drive ad revenue.
That being said, Google does also get some non-advertising revenue by selling its own phones. They manufacture the Pixel brand of phones themselves, which is differentiated from competitors by running „stock“ Android, without any of the additional apps and services that many phone manufacturers add.
The Google Pixel phones are very popular among more advanced Android users and considered one of the premium phone brands. Their cameras are among the best, if not the best, of all smartphones.
However, their market share is very small compared to market leaders like Apple (NASDAQ:AAPL) and Samsung (KS:005930).
Google doesn't disclose exactly how many Pixels it sells, but one research report estimated that they sold 3.9 million devices in 2017. Using an average price estimate of $799 per phone, that amounts to $3.1 billion in sales.
Given the massive size of the global smartphone market, selling more Pixels could lead to huge revenue growth if Google were able to grab more market share.
4. Smart-Home Products
Smart-home products have become incredibly popular in the last few years.
These include various home devices that can be controlled with your smartphone or your voice. Examples include smart light bulbs, air conditioning, home alarms, robot vacuums and even coffee machines.
Google and Amazon (NASDAQ:AMZN) are currently competing aggressively in the smart speaker market with speakers that you can talk to and use to control your smart home. Amazon Alexa is currently leading this market at a 63% market share with their Echo line of devices.
However, Google is in the second place at 17% market share, with their Google Home, Home Mini and Home Max smart speakers. Apple was a late entrant to this space and the Apple HomePod currently has a 4% market share.
Google has the best voice assistant in the world, by far. Google Assistant is far more intelligent and better at answering questions than Apple‘s Siri and Amazon‘s Alexa.
But Google also owns Nest, which it acquired for 3.2 billion in 2014. This is a company that offers a wide range of smart-home products like security cameras, alarm systems, thermostats, doorbells and others.
Google‘s Nest division had revenue of $726 million in 2017.
The global smart home device market is predicted to grow from $31.4 billion in 2018 to over $53 billion by the year 2022. Since Google is one of the leaders in this space, it seems likely that their revenue will continue growing as this market expands.
5. Paid Subscriptions, Self-Driving Cars, Health And More
Google also has various other projects going on that currently drive little revenue, but have the potential to become massive in the future.
For example, Google is offering several paid subscription services:
- YouTube Red: This is a paid subscription to YouTube, offering an ad-free experience and some exclusive content for $10 a month.
- YouTube TV: This is a live tv service with over 60 channels, competing with cable TV providers. The price is $40 a month.
- Google Play Music: This is a music subscription service that competes with Spotify and Apple Music. The price is $10 a month.
- Google Fi and Google Fiber: These are telecommunications and networking services offered by Google in the US.
But Alphabet, Google‘s parent company, also has many different ongoing projects in its „Other Bets“ division – which includes self-driving cars, healthcare, life-extension and others.
The most impressive of these is Alphabet‘s Waymo, which is considered to be the current leader in autonomous driving. They have even started a paid robo-taxi/ride-hailing service in Phoenix, Arizona, and are expected to expand to many more cities this year.
If Waymo can grab a lot of market share in the ride-hailing business then you can expect that to become a massive growth driver for the company as this market is predicted to reach $120 billion by 2023.
Waymo may also license their self-driving technology to other car manufacturers, which will be another way to monetize this incredible technology.
Despite currently having very little revenue, JP Morgan estimates Waymo‘s value at a whopping $175 billion dollars due to its future potential.