With $270 million a day, how does Google's advertising system become a money-printing machine?

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Advertising revenue accounts for 85% of Google's total revenue, the absolute number one source of revenue, and Google is at the top of the U.S. advertising market with a 22 percent share.


Titanium Media Author Weixi Refers to North


How profitable does Google make?


According to 2018 earnings, Google's revenue for the first three quarters has exceeded $97.6 billion, or $270 million a day, and even with that amount, it is growing at a high rate, with revenue up 21 percent in the third quarter and a 37 percent profit. Baidu has just celebrated a 100 billion yuan revenue this year, while Google completed its own 100 billion yuan last year.


But Google's unit is the dollar, thanks in large part to Google's extremely powerful advertising system, which, like a money-printing machine, continues to contribute to the world's top technology company. Today, advertising revenue accounts for 85% of Google's total revenue, which is the absolute first source of revenue, and Google is at the top of the U.S. advertising market with a 22% share, and today we'll take a look at Google's advertising system and dissect how the money printing machine works.


The history of Google's advertising system


We know that Google was founded in 1998, and in its first two years, Page and Brin focused on optimizing search technology, and Google didn't consider commercialization at all, so it wasn't until October 23, 2000, that Google first launched its own advertising products, and now we can see that press release in Google News. Google launched its self-service advertising system, and in its first month of opening, they got 350 customers, the first of whom sold fresh lobsters.


The initial system was immature, in Redefining The Company: How Does Google Operate? At the beginning of the book, Google Chairman Eric Schmidt tells the story of the system improvement:


On a Friday afternoon in May 2002, founder Page wandered around Google's website, typing "Kawasaki H1B" to see an ad for "How to get an American H-1B visa" and "French Cave Mural" to see an ad for "Buying French Cave Murals to XX." So he printed the results and posted them on the board in the company's rest room and went home.


To his surprise, on Monday, two days later, a search engineer named Jeff Dean sent out a complete problem analysis and solution that he did not belong to the advertising department, but he and five colleagues over the weekend analyzed in detail the causes of these Cases and offered a solution centered on relevance. This is the beginning of Google's advertising system's famous "ad quality score" and an important evolution in Adwords's history.


At that time, Google's average daily search is 20 million, today, Google's average daily search has been more than 5 billion, Google ads have grown into a super system with annual revenue of more than $100 billion, here's a look at the super system's major milestones:

In May 2002, Google began to fully use the bid ranking approach and began to auction the auction using the "GSP" auction.


In March 2003, Google launched Adsense, AdSense is an ad traffic alliance, the webmaster joined AdSense after the site's advertising space contracted to Google, Google is responsible for soliciting customers to deliver, the two sides after the proceeds, this model let Google break through its own traffic bottleneck, Simply put, from head card to mommy.


In April 2007, Google paid $3.1 billion for DoubleClick, a full-scale advertising technology service company that improved its advertising chain capabilities through its acquisition, from advertising creativity to delivery to monitoring.


In November 2009, Google acquired mobile app provider Admob, which can be understood as the mobile APP version of AdSense, which is responsible for contracting idle advertising spaces for small and medium-sized apps, google is responsible for the sale and delivery of ads, the two sides split, which also allowed it to expand its advertising boundaries in the mobile era.


In May 2015, Google launched UAC (Universal App Series Ads), a set of APP full-link solutions tailored for APP advertisers, from delivery, optimization to conversion, an important move google has done in the field of APP promotion.


In May 2018, Google turned all its advertising product lines into "Google Ads" and, in order to unify the overall image of Google Ads, the company unified all its product lines into one brand, Google Advertising, on July 24, 2018, and launched a new brand, Logo.


Second, the basic principles of Google's advertising system


In fact, today's Internet advertising field of many trading models and important mechanisms, in a sense, Google's first large-scale use and definition.


Before Google, even mainstream online advertising, mostly focused on display- and pricing ads, which simply moved offline advertising online, and although Google was not the inventor of the "bid ranking" model (the inventor was Overture), Google was the first to use it on a large scale and set off a revolution in advertising. As a starting point, technology has become an important competitiveness of advertising, which has crossed from the Big idea era to the Big data era.


Many people think that with the development of Internet technology, the precision of advertising is constantly improving - search is more advanced than portal, social network is more advanced than search....


But this is not the case, for Facebook, Weibo, WeChat and other social media, it is more access to the user from the personal dimension of the long-term interests and characteristics, but for the current user's intentions, social media is very weak, real-time intention is critical to the effectiveness of advertising, Your search for a watch means you have a great probability of buying a watch, it is very appropriate to push your watch ad, and social media is difficult to calculate how likely you have to buy a watch based on your gender, age, interests and so on...


So Google has been at the forefront of internet advertising accuracy from the start, which is why Google is still more likely than Facebook to have a better user-time ratio than Facebook, which is still a more logical part of Facebook- no more accurate expression of a person's true intentions than search.


As a top technology company, Google has gone to great lengths to bring in the top talent in the field in designing its business model, and in 2002, Google Chairman Eric Schmidt invited Mr. Van Ryan, dean of the School of Information at the University of California, Berkeley, to join Google as chief economist. Was Google, a startup with fewer than 200 people, single-person with an economist?


In fact, one of the most important jobs of this prominent economist was to design the auction mechanism for Google's ads, and before joining Google, the legendary economics professor published "Information Rules: Strategic Guidance for the Internet Economy," which focuses on the impact of online economic behavior. On the one hand, Google's overall transition to bid advertising, and the second is a pioneering push for Google to use GSP (broadsecond price) as a bidding mechanism.


GSP is a counterintuitive bidding mechanism - the highest bidder wins the auction, but it only costs the second bidder, such as Aldi with 10 bucks and Nike five, then Aldi wins the ad show, but it only pays five, which seems counterintuitive. But it is an extremely rational design from the point of view of game theory.


Today, many advertising platforms, including Baidu, use this mechanism, and to learn more, you can read another of my articles, "From CCTV to Google: Talk about the mechanism design of bidding advertising".


Google has also pioneered the PROMOTION of CPC as the main stream of bidding, advertisers only need to bid for clicks, for this reason, Google relies on its own technical advantages to introduce the concept of "ad quality score", the quality of statistical dimensions including ad click-through rate, and keyword advertising, landing page quality, landing page quality, Advertiser's historical performance is evaluated in a comprehensive way in a number of dimensions.


Whether an ad can win depends on two factors, namely, if the quality of the ad is poor, even if the higher price, the ranking may be ranked last, of course, there are a lot of technical factors involved, such as to calculate the quality score of which you need to know the click-through rate, then before the delivery, click-through rate is not known, It is necessary to predict click-through rate, light click-through forecast this module, there will be a very large technical team to support, understand the common sense of ad click-through rate prediction, see my other article "Machine skilled you know you will click on the ad - chat about the ad CTR estimate."


Designing and perfecting the advertising system is an extremely complex project, in a sense Google is indeed a gathering of "the smartest minds of this era to study how to make people click on advertising more", the founder of the single-minded Huang Qi, Xiao Hongshu CTO Xiaohu before are members of Google's advertising department, It is the continuous optimization of these top talent that makes the system so efficient.


According to Xiaohu, Google's comprehensive clicks are as high as 3%-4%, while the first page hits are usually as high as 30%-40%, which is a particularly scary number.


Third, Google's design of the experience


In addition to the technology, data leadership, Google advertising on the user experience understanding is also very deep, many excellent advertising design mechanisms have become a follow-up company to follow the example, advertising system is an extremely balanced complex project, it must at least take care of three interests - the interests of advertisers, advertising platform interests, the interests of users, the interests of users, There needs to be a delicate balance between these three parties.


Google's YouTube Skip Ads is a case in point, and I once wrote a special article about Google's design, "The DeepLy Scary YouTube Skip Ads"


First it uses the skip button to solve the first 5 seconds of the user arrival problem, second, it adds an effective direct to monitor the advantages and disadvantages of advertising, and then it only pays for real playback to solve the problem of advertiser budget control, and finally through the underlying bidding mechanism to optimize the quality of advertising, this design is extremely delicate to solve the interests of advertisers, Platform interests and user interests, really do win-win.


There are many similar cases, such as as as an advertising platform, Google certainly does not want users to block ads, but in fact in Google's Chrome browser, ad blocking plug-ins such as Adblock are unobstructed, and Adblock has now accumulated 40 million users. So why does Google turn a blind eye to this type of ad blocking plug-in?


Ad plug-in Adblock


Google's logic is that those who install browser plug-ins are not interested enough in advertising, which is equivalent to installing a blockplug plug-in that itself gives Google a manual audience screening, which instead improves the effectiveness of ads that don't screen.


Under the guidance of Google's "no evil" concept, Google will mark the advertising in a clear location, so that users can clearly identify the ads, and Google will have a sound negative feedback mechanism, when you click no longer display ads, will be clear the reasons for the negative feedback - "inappropriate content", "repeated", "irrelevant" for users to choose, It also clearly tells Google what information is based on the ads you serve.



It is these friendly details that allow Google's advertising products to balance the interests of advertisers, users and platforms.


The challenges faced by Google Advertising


Google's large advertising system, will inevitably face many difficult challenges, and the process of facing these challenges is also the process of the maturity of Google's advertising system.


A tricky question for Google, for example, is how to avoid placing some brand-name ads in front of violent, racist, sexually suggestive videos, even though advertisers choose the type of video they run, and Google identifies the type of video and then confronts you for up to 1 billion hours of YouTube a day. Google can't be 100% accurate, even with industry-leading image and video machine learning algorithms.


On YouTube, the 400-hour video sprm. is uploaded every minute, with more than 3 million ad ideas running every day, making it extremely difficult to make 0 mistakes, but Google is trying to train it to identify the small differences in videos, such as some offensive words that appear in a hip-hop dance that may not be offensive. But appearing in other videos is different.


Similarly, there is always a relationship between advertising and privacy, Google is faced with the question of how to handle user privacy properly, when Google pushes you about the relevant ads, it will always be based on your previous information and behavior to match, and even Google in its ad interpretation text explicitly tells the ads on which information to be pushed on. As the government and the public become increasingly concerned about privacy issues, Google also faces a balance between precise advertising and privacy assurance.



V. What does Google rely on to laugh proudly in the mobile age?


Let's discuss an important question next, is the god horse that underpins Google's transition from the PC era to the mobile age?


From the TRANSFORMATION process of PC to mobile, accompanied by the change of information structure, THE PC era, Internet information in the form of a website, with a common HTTP protocol can be freely accessible, so the browser, search become sentry, Google firmly mastered these two entrances, and in the mobile era, information has become an island, Behind the countless apps that are not connected, the importance of search has diminished.


An important factor in Google's lead in the mobile age is its extraordinary vision - it bought YouTube in 2006 and Andy Rubin's Android in 2005, and now YouTube has become an important entertainment hub for Internet users around the world with Google's powerful technology, funding and recommendation algorithms. It is also the most important part of Google's display advertising, contributing a steady stream of revenue to Google.


And the strategic significance of Android is self-evident, that the Android team that spent only $50 million to buy less than 60 people that year for Google to consolidate its advantage in the mobile era, with Android, an open system, all but Apple, the default search for all smartphones became Google, and for this Android does not need to pay a penny, Analysts at Bernstein Research estimate that Google will pay Apple $3 billion a year to set the default search engine for all iPhones sold into Google.


Android's ecology has undoubtedly had an extremely strong impact on Google's advertising revenue, with the Google Play Store becoming the entry and default option for Android phones to install new apps, and Google has launched UAC (Universal App Series Ads) in its advertising system, which specializes in full-process optimization for APP-type ads. Unlike typical Adwords click-to-click billing, UAC supports optimizing app ads by installation, usage, pay, and more.


The advantage of UAC is that it is Google's app-specific app promotion program, because Google has a natural advantage over Android Eco's data, combined with the relevant tools and advertisers' own optimization objectives, through machine learning to automatically help APP customers find suitable prospects, for app developers, Google advertising is already an extremely important option if it is to be promoted on Android Ecology.


Maybe you'll ask why Google can make so many successful products while other companies can't? Maybe you should change the question - why did Google make so many products so few? The following image shows an incomplete count of Google's failed products.




Titanium Media Author Introduction: Wei Xi, senior advertising product manager, is committed to analyzing the basic logic, ideas and techniques of Internet advertising. Author WeChat Public No. " "Weixizhibei"


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