How the company works
What it sells, how it makes money, and the anatomy of the extremes: what has to break for the result to land far from the forecast, either way. In Alphabet's own words, from its annual report for 2025.
Alphabet runs Google: it sells advertising beside search results, YouTube videos and partner sites, and rents computing and AI models to businesses through Google Cloud.
How it makes money
Mostly advertising: Alphabet generated more than 70% of total revenues from online advertising in 2025, and Google Search & other alone brought $224.5B. Users pay nothing; advertisers pay for the attention. Cloud is the second engine, renting data centers, its own TPU chips and Gemini models to companies. 2025 revenues were $402.8B, up 15%, with Google Services up 12% and Google Cloud up 36%.
What it sells
| Business, 2025 | Revenues | Operating income |
|---|---|---|
| Google ServicesSearch, YouTube ads, Network ads, subscriptions, Play, Pixel devices | $342.7B | $139.4B |
| Google Cloudcloud computing, AI models and TPUs, Workspace | $58.7B | $13.9B |
| Other BetsWaymo, health technology, internet services | $1.54B | −$7.5B |
| Alphabet-level activitiesshared AI research and development | −$16.8B |
Segment revenues and operating income as Alphabet reports them; total revenues of $402.8B also hold hedging losses of $127M.
Unit economics
Scale on infrastructure is the lever. One search engine, one video platform and one fleet of data centers serve every user, so each extra query or ad costs little. Capital expenditures, mostly technical infrastructure, were $91.4B in 2025, against operating cash flow of $164.7B; research and development was $61.1B, 15% of revenues. The new costs follow AI: depreciation, compute for training and inference, and leased data center capacity.
Competitive position
Alphabet names formidable competition in every part of its business: general purpose search engines, AI model developers, social networks, e-commerce providers, enterprise cloud providers and device makers. Its edge is the size of its user base, its own models and chips, and $242.8B of revenue backlog, primarily Google Cloud, just over 50% of it due within 24 months. The flip side is the courts: in the DOJ search case a final judgment in December 2025 restricts how Google distributes its services; Google has appealed.
Biggest cost inputs
Traffic acquisition costs, paid to the browser, phone and network partners that send users to Google: $59.9B in 2025, a rate of 20.3% of the advertising revenues they bear. Then content acquisition, largely for YouTube, depreciation of technical infrastructure, energy and equipment for data centers, and employee compensation for 190,820 employees. Cost of revenues was $162.5B, 40% of revenues.
Anatomy of a large upside
- AI makes search bigger, not smaller. Gemini answers keep users in Google, queries grow and advertisers follow, so the business that brings most of the profit keeps growing without a rise in what it pays partners for traffic.
- Cloud becomes a second Search. Google Cloud grew 36% in 2025 and its operating income more than doubled; the revenue backlog of $242.8B turns into revenue on capacity already built, and its margin climbs as the data centers fill.
- The bets pay. Waymo scales its autonomous rides into a business, Wiz ($32.0B, expected to close in 2026) adds cloud security, and the losses of Other Bets shrink.
Anatomy of a large downside
- AI moves the question away from Google. Users ask AI assistants and social networks instead of a search engine, and advertising, more than 70% of revenues, follows them. Alphabet names AI model developers among its competitors.
- The spending runs ahead of demand. Capital expenditures of $91.4B and leased capacity are built for AI demand; if it slows, Alphabet warns of excess capacity that it cannot easily redeploy, and depreciation stays.
- The courts change distribution. The search judgment restricts how Google distributes its services and makes it share certain search data with competitors; if the appeal fails, the traffic partners send can fall or cost more.
Written from Alphabet's annual report for 2025, in its words and numbers. The extremes are the long view, what has to break for the result to land far from the forecast; the quarter's own cases, each model's, are on the quarter forecast.