THE world’s most popular search engine drives an increasingly hungry money-making machine.

Although tens of millions of people use the Google search engine every day, not one of them pays for the privilege. How, then, can a company that offers a free service be valued at $95.12 billion (£54 billion)? The answer is carefully targeted advertising.

The Californian company, spawned in the garage of two university students, exceeded even its own expectations this week by reporting profits, for the three months to September, of $381.2 million — more than seven times those of a year ago. Eric Schmidt, chief executive, declared himself “pleasantly surprised”.

The figure — the highest for any three-month period since Google’s birth seven years ago — amazed Wall Street analysts by coming at one of Google’s slowest trading periods of the year, helping to send the group’s shares up 9 per cent on Thursday and up 12 per cent in early morning trade yesterday.

Safa Rashtchy, of Piper Jaffray, said: “There is something fundamental going on inside Google that continues to pick up momentum.”

Though Google, as it has matured, has diversified far from its original search service to offer e-mail and internet phone calls, more than 90 per cent of its revenues come from paid-for online advertising.

The money comes both from advertising on its own websites and adverts on websites with which it has partnerships, such as AOL. Under these pacts it shares revenues it generates.

During the third quarter revenue from Google’s own website accounted for 56 per cent of the total. Revenue from its partnerships — its so-called Google Network service — made up 43 per cent. The remainder came from licensing arrangements.

In the $7 billion-a-year paid online search market, Google, with a share of about 30 per cent, is the dominant player.

And despite its phenomenal success, the figures show that there is much more for Google to get its teeth into.

At present, the bulk of the search engines’ revenue — 61 per cent — comes from the US. Revenue from companies outside the US, though growing, is still just 39 per cent of the total.

Companies do not pay Google just to have their brand flashed up on one of its websites. They also bid fiercely with one another to ensure that when a potential customer is surfing the internet, it is their name that pops up to attract their interest.

Last year JPMorgan Chase, the Wall Street bank, estimated that Google’s average price per click was about $0.34. Imran Khan, a technology analyst with the bank, says such advertising is so valuable to companies now — and will become even more so in the future — because of the direct link to the customer.

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