How Does Google Maps Make Money? (GOOG)

There is no doubt that Google (GOOG) has come to dominate the Internet landscape since its creation in 1998. As intertwined as this company has become in the day-to-day lives of Americans, many of its most popular products remain free to use and easy to access. From its famous search engine to Google Books and YouTube, anyone can easily use many of the most useful Google products for free. Google Maps, in particular, is a popular navigational tool that is just as powerful on a mobile device as on a desktop computer. As you'd expect, Google has competition in this space — but Google acquired the best of the bunch. 

With almost universal reliance on its technology, how is Google able to provide access to so many of its most powerful products for free? How does Google make money on its maps program, for example? The answer is, unsurprisingly, through advertising.Via the Google AdWords program, businesses pay to have ads placed on search engine, map, video and email platforms to increase the number of times consumers are exposed to their brands. Essentially, Google can provide free products to the public by selling consumer attention span to businesses. (Read more: How Amazon Competes With Google.)

For example, a search for a map of Boston on Google.com yields, among other things, a detailed map of the city via Google Maps. The Maps program allows users to zoom in and out, rotate and move the map to search neighboring areas. Along the right side of the search results screen are a number of small advertisements for Boston-based businesses, hotels, restaurants and links to other sites selling hard-copy maps of the city. This kind of paid advertising is the primary way in which the Google search engine generates revenue, and Maps searches are no different.

Although Google does not report specific figures identifying the financial performance of its Maps product, the statements filed with the SEC list this business entity under the Google Websites Category. According to the company's latest quarterly report, ending September 30, 2016, Google Websites generates over 70% of Google Revenues and includes AdWords revenue from Google.com, as well as advertising revenue generated from YouTube, Gmail, Maps, Finance, Google Play, etc. In the third quarter of 2016, Google websites segment revenues were $16,089 million, a $3,002 million increase compared to the similar quarter in 2015.  Google websites segment growth was driven at large by mobile users "due to the improvements in ad formats and delivery launched during 2016."

Google also generates income from its free Maps program through another, more subtle, form of advertising. Google maps are highly detailed. Each map shows individual businesses on the street level, making it easy to find an exact location. Different business types – such as hotels, restaurants, banks, bars and retail outlets – have different symbols to make them easier to identify. However, in very large cities with hundreds or thousands of businesses, it can still be difficult to locate a specific firm without knowing its address.

To streamline the user experience while increasing revenue, Google allows businesses to use their company logos instead of the generic icons. For instance, Hilton (HLT) can pay a fee to have its signature H logo embedded in each map, instead of having the usual bed icon used for hotels. Despite being fairly unobtrusive, this small-scale advertisement can help drive traffic to businesses through the power of brand recognition.

The logos are in full color and easy to spot, making it simple for users to patronize the businesses they know and trust or to locate new places they haven't tried yet. Being able to see the logo of a known and trusted company such as Starbucks (SBUX) or the Holiday Inn (IHG) and quickly chart a route right to the door can help take some of the stress out of traveling. For tired, hungry travelers in an unfamiliar city, for example, seeing a map full of generic restaurant logos can be overwhelming. On the other hand, with the improved advertising scheme, Google Maps makes it easy for travelers to spot the nearest McDonald's (MCD) restaurant simply by looking for its iconic golden arches. Even though each Maps user is not necessarily converted into a business patron, the repeated brand exposure that this advertising program offers is of untold value to businesses.

Though advertising provides its primary income stream, Google also makes money from its Maps platform through sales of the enhanced, customizable mapping program, Google Maps API, geared towards businesses that benefit from having a tailored version of the Maps in their online or mobile applications. Although there is a free version of the Maps API available, the company also offers a premium variant that includes 24-hour technical support and ability to sell products with Google Maps integrated in them, along with increased search and request capacity, higher-resolution imaging and advertising control. Because the public widely uses the standard Google Maps program, businesses benefit from using a mapping program that is compatible with consumers' most trusted platform.