Why does Google do what it does? A report by the faberNovel management consulting firm describes Google's "key success factors" and how it goes about achieving them. The report talks about "Google as platform" and goes on to describe how it makes money serving the network effects of that platform. For instance, it subsidizes one side of its platform -- search engine users searching for free -- to gain large amounts of traffic (eyeballs) that advertisers want (the network effect). Even more than that, though, Google sees advertising as a form of information in and of itself. The report says: "With [its system of selecting ads to be placed on a page], Google is able to claim that their ads are in fact a way for them to provide additional information to the user."
faberNovel's analysis is chock full of consolidated insights and tidbits about how Google operates. One of my favorites, for instance, is how it is building a good-enough geolocation service based on the location of cellular towers. Each cell tower has its own cell-ID, and the mobile carrier companies maintain a database of cell-IDs and their locations. The mobile carrier companies are also very protective of that information. Google, however, uses its Google Maps application to build its own database: "All mobile devices using Google Maps with a GPS [receiver] are exploited by Google to identify the location of mobile operators' cells: for each cell, these mobiles upload the cell-ID...and the GPS geographic coordinates." It now has its own, admittedly rough, database of cell towers that it can use for geocoordinated search and advertising enhancements.
The analysis comes in two forms: a[PDF] and a [PDF]. Both documents are included here: