How search engines make money and why being the default search engine matters

A critical question arises about the underlying business model of online search engines like Google, Bing, Baidu, Yandex, and Yahoo.

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By Kaarika Das and Arvin Kamberi

Samsung, the maker of millions of smartphones with preinstalled Google Search, is reportedly in talks to replace Google with Bing as the default search provider on its devices. This is the first instance of a threat confronting Google’s long-standing dominance over the search business. Despite Alphabet’s diversified segments, its core business and majority profit accrue from Google Search, which accounted for US$162 billion of US$279.8 billion of Alphabet’s total revenue last year. Naturally, Google’s top agenda is to protect its core business and retain its position as the default search engine in electronic devices like tablets, mobiles, or laptops.

A critical question arises about the underlying business model of online search engines like Google, Bing, Baidu, Yandex, and Yahoo. What do these search engines stand to gain by being the default devices search engine? Let us examine how search engines generate revenue while allowing users to explore the internet for information and content for free.

The profit model of search engines

Search engines make money primarily through advertising (billions of dollars yearly from its Google Ads platform). The working mechanism is as follows: Whenever users can enter a search query into a search engine, the search engine provides a list of web pages and other content related to the search query, including advertisements. Advertisers pay search engines to display sponsored results when users search for specific keywords. These ads typically appear at the top and/or bottom of Search Engine Results Pages (SERPs) and are labelled as ‘sponsored’ or ‘ad’. Search engines get paid based on the number of clicks these ads get. This model is popularly known as the PPC (Pay-Per-Click).

Apart from sponsored listing, search engines also track user data for targeted advertising, using people’s search history. Search engines can easily gather information about users’ search history, preferences, and behaviours. This is done through cookies, IP address tracking, device and browser fingerprinting, and other technologies. Search engines then use these data points to profile their users to improve the targeting of advertisements. For example, if a user frequently searches for details about recipes and food, the search engine may display advertisements for restaurants and related food ingredient products. Thus, the user search history effectively helps improve search engine algorithms and enhances search accuracy by identifying patterns in user behaviour. In capitalising on user data, search engines allow advertisers to manage their advertisements using strategies such as ad scheduling, geotargeting, and device targeting – all made possible because of accumulated user history data!

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Google making money from search engine. Image generated by DALL-E/OpenAI.

The power of default

Let us now delve into the edge granted to a search engine by being the default setup. Regardless of the default search engine, people can always change their search engine on their respective devices based on personal preferences. Despite the absence of any exclusivity, there is massive inertia to change the default search engine. It happens because the effort required to manually navigate to a different search engine to perform search functions makes the transition process a hassle, especially for ordinary people. Parallelly, technologically challenged people may not be aware of alternative search engines and might have no explicit preference for a specific search engine. Even with awareness of alternatives, the effectiveness, performance, and security of the search engine paired with their current device remains unapproved and may lead to apprehension among users.

Therefore, a default search engine further provides a sense of security (however misleading) as its performance and device compatibility are assumed to be vetted by the manufacturers. As a result, being the default search engine is advantageous for search engines as it provides them with a broader audience base leading to increased traffic alongside greater brand recognition. Thus, being the default search engine is vital for a search engine’s success as having large traffic ensures that search engines remain attractive to advertisers, their primary source of revenue – the higher the number of search engine users, the dearer the advertising space becomes, generating better returns.

For users, however, pre-installed search engines deprive them of the choice to select their preferred alternative and select those search engines that do not track user details. In 2019, the European Commission stated that Google had an unfair advantage by pre-installing its Chrome browser and Google search app on Android smartphones and notebooks. To circumvent antitrust concerns, in early 2020, Google enabled Android smartphones and tablets sold in the European Economic Area (EEA) to show a ‘choice screen’ that offered users four search engines to choose from.

While Google pays billions to device manufacturers like Samsung and Apple to remain the default search engine, the ongoing AI leap in the industry has enormous ramifications for the future of internet search and its ensuring business model. With unprecedented developments in AI and search engine functionality integrated with AI, the tussle of search rivals battling for popularity and influence is set to continue.