How Innovative Is Google?

Google (NYSE: GOOG  ) is beloved of tech hounds for its constant innovation. From search to social media, from mapping to digitized libraries, from smartphone systems to photo editing, Google's got its fingers in the pie, creating free applications that are smarter, cleaner, and easier to use.

But what if I told you that 97% of its revenue comes from advertising? That's pretty old-school.

Advertising? Really?
Relying entirely or largely on advertising is a risky business, as many companies have found out. Ad revenues have been declining since 2007, and the newspaper industry is subsisting on ad revenues that are 46% lower than they were four years ago.

And it's not just print media that has felt the cut. AOL's (NYSE: AOL  ) advertising revenues are down 19% year over year -- and that's the part of the business it's trying to grow.

Here's where Google is firmly new-school: Instead of relying on information or entertainment to get eyeballs to ads (the basis of ad sales, after all), it relies on tools.

The difference that matters
Information and entertainment are both cheaply produced and easily dispensed with -- which means the competition is fierce and ever-more fragmented.

Tools, on the other hand -- those apps we use every day to accomplish the things we want to get done -- are fewer and farther between. Less competition means more opportunity.

In other words, Google's innovation goes beyond the technical, and that may explain why its revenues have gone up every year since it went public, despite its reliance on a business model that hasn't worked out for many other companies lately.

Julie Clarenbach doesn't own either of these companies ... yet. Google is a Motley Fool Rule Breakers recommendation. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.


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