Advertising
On the surface, a search engine, no matter its popularity, doesn't seem like the most profitable of ventures. You type in your query, hit enter and then find your results without making any payment. The oft-overlooked money-making machine for Google is advertising, which allows Google to make its profits off its sites and other sites that participate in Google's advertising schemes.

Sponsored Links
You may not notice it, but when you perform a search in Google, sponsored links appear on the right side of the screen. These are advertisers that make a business agreement with Google in order to get their ads displayed alongside the results of the most appropriate searches. That way, people searching for used cars may find people selling cars with the sponsored links.

Search Results
In contrast to other search engines, the sponsored links are never displayed with the other results that your search turns up. Certain search engines take money from websites so that when those websites come up in search results, they appear higher up on the results than other non-paying websites. Google refuses to do this and instead puts the ads alongside the rest of the results, clearly setting them aside as "sponsored links."

AdWords
Google uses an AdWords system that allows a potential advertiser to specify the search terms she would like to specify as the words that, when searched, will display her ads. A flower shop in San Francisco, for example, could have a keyword that involves the city in which it does business and type of business, such as "San Francisco florist."

AdSense
Because of the immense popularity of Google, plenty of customers that want to advertise on the grand frontier that is the Internet. When people pay for these advertisements, that is where Google makes the lion's share of its money. Website owners can also sign up for Google's AdSense program, which includes ads on the website that are contextually relevant. When visitors click on them, all parties make money.

A Win-Win-Win Situation
Although the idea of making money off of a search engine can be difficult to understand, it all lies in advertising, which allows everyone to benefit. Those who advertise get increased business, and Google gets the money from their payments. Consumers who search for certain products may find it easier to find what they are looking for by using the sponsored links than to pore through all of the results, so it is a win-win-win situation.

Resource : http://www.ehow.com/how-does_4564568_google-make-money.html