I’ve always wondered how Google makes all that money. Like many small business owners I’ve tried advertising through Google Search and similar methods. It didn’t work. I’ve talked to other business owners who reported the same thing. They paid Google money for clicks and generated few sales. From that it’s easy to see how Google could earn initial revenue from everyone trying various Google ads. But there wouldn’t be any repeat business, and word of mouth would slow the traffic of new business. So how does Google make money?
One avenue is revealed in The Wall Street Journal in a long article detailing a government sting. For those who don’t have access to the article, here’s a summary. Last summer Google agreed to settle criminal charges by paying $500 million in a forfeiture, one of the largest ever in the U.S. In the sting, the federal government recruited someone who recently was convicted of selling illegal drugs and other things online and was awaiting sentences. In hopes of earning a reduced sentence, he posed as a broker for various web sites that wanted to sell steroids, human growth hormone, and other prescription or illegal drugs without prescriptions. He bypassed the automated features of Google’s advertising network to talk with Google employees. They were fully informed of the details of the sites and knew they were illegal. Yet, they accepted ads for them on Google, and the sites generated a lot of traffic and orders. After accumulating enough evidence, the feds presented it to Google and closed the operation.
This could be just a sample of how Google makes money. There are continuing allegations that it knowingly accepts ads from web sites that are selling pirated entertainment (music, movies, etc.) and fraudulent mortgage brokers or restructuring firms. It’s a strange story for a firm that boasts the motto: “Don’t Be Evil.”
“We banned the advertising of prescription drugs in the U.S. by Canadian pharmacies some time ago,” the company said in its sole comment on the matter. “However, it’s obvious with hindsight that we shouldn’t have allowed these ads on Google in the first place.”
The half-billion dollar forfeiture, although historically large, was small change for Google, which holds $45 billion in cash. But the company’s acceptance of responsibility opened the door to potential liability for taking ads from other people involved in unlawful acts online, such as distributing pirate movies or perpetrating online fraud.
Google has long argued it wasn’t responsible for the actions of its more than one million advertisers. But the forfeiture paid by Google represented not just the money it made from the ads, but also the revenue collected by illegal pharmacies through Google-related sales.
In an important shift, the settlement “signals that, where evidence can be developed that a search engine knowingly and actively assisted advertisers to promote improper conduct, the search engine can be held accountable as an accomplice,” according to Peter Neronha, the lead prosecutor.
Unknown is whether the company will toss aside advertisers as a result. “If Google were to adopt a much more restrictive definition of problematic advertisements, everyone would immediately notice a drop in their revenue,” said Eric Goldman, director of the High Tech Law Institute at Santa Clara University.