How does Alphabet work and earn income?

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This week, in addition to Microsoft Corp. and Apple Inc., traders are awaiting a quarterly report from another tech giant. Alphabet is not just a company, but a conglomerate consisting of several businesses. It is best known as the parent company of Google, but it also owns other assets, including a variety of software and Internet services. These include cloud computing, streaming services, mobile operating systems and applications. Alphabet uses its platforms and services to generate a significant portion of its revenue from advertising.

Let’s analyze the company’s business model.


Alphabet’s main sources of income

Google generates most of its advertising revenue through the Google Ads program. When you use a search engine, the algorithm shows the search results it thinks are most relevant to your query. These results are displayed alongside contextual advertisements that pay to be seen by users. Google charges advertisers a commission when users interact with their ads.

Alphabet generates advertising revenue not only through Google Ads, but also through the Google AdSense program. It allows non-Google websites to display Google advertisements on their pages. When a user clicks on an ad on a site, a portion of the revenue is paid to the ad owner, and Google keeps a commission.


Alphabet business segments

Alphabet divides its revenue and operating income into three segments: Google Services, Google Cloud and Other Bets. The report also provides data on certain expenses that are not allocated to segments. These include costs for corporate initiatives, financial and legal expenses, and costs for certain joint research and development activities. Corporate expenses also include hedging gains (or losses) associated with revenue.


Google Service

This segment of Alphabet, known as Google Services, generates revenue primarily from advertising that appears on products and services such as Android, Chrome, Google Maps, Google Play and YouTube. Other sources of revenue include app sales, in-app purchases, digital content products, hardware, and subscription fees for products such as YouTube Premium and YouTube TV.

In fiscal 2022, Google Services revenue was $253.53 billion, accounting for about 90% of Alphabet’s total revenue, and operating profit was $86.57 billion.

The figure topped Alphabet’s total consolidated operating income of $59.97 billion. This was due to operating losses in Alphabet’s other two segments, as well as unallocated corporate expenses.


Google Cloud

Google Cloud is a segment of Alphabet that provides cloud computing, data analytics, collaboration and other services to enterprise customers. The majority of the segment’s revenue comes from fees for Google Cloud Platform services and Google Workspace collaboration tools. In 2022, Google Cloud’s revenue was $26.28 billion – about 9% of Alphabet’s total revenue.


Alphabet’s participation in the AI race

In late 2023, Alphabet unveiled its most advanced artificial intelligence model, Gemini, a technology capable of processing multiple forms of information such as video, audio, and text. Gemini is capable of processing more complex information than Google’s previous technology, the company said. Google has added some of the new Gemini model technology to its Bard AI assistant and said it plans to release the most advanced version of AI development through it in early 2024.


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