Google is a web based search engine and is considered as one of the fastest growing companies and brands online today. According to the brand ranking given by one of the biggest research organizations, Millward Brown, the largest global brand of 2009 is Google with brand value of more than $100 billion. It has crossed brands like Coca Cola, McDonalds and IBM already. (Millward Brown, 2009).
Google is an American brand, and Google Inc. is a public limited company that earns more than Ten billion Dollars in revenues. It earns these revenues by focusing on providing services including Internet search, online advertising, email, video sharing, social networking and wide variety of other online services (Google, 2009). Its headquarters, which is known to the world as the Googleplex, is situated in Mountain View area of California. “As of March 31, 2009, the company had 19,786 full-time employees. The company is running thousands of servers worldwide, which process millions of search requests each day. ” (Vogelstein, 2009).
This paper examined Google as a company. It will give a thorough profile of Google including its history or origin, its growth, products and services and the business model that it has adopted over the years. It will highlight Google’s strengths, weaknesses, threats and opportunities. It will further study the search engine business that Google is in and the market segments that Google serves effectively. It will identify the financial position of Google to date. In addition to that, it will carry out an analysis of what factors have worked for Google in brining it where it stands today. It will aim to provide an overview of the development of Google’s strategic business over the years. Finally, it will highlight Google’s business strategy and will show a thorough analysis of it.
Profile of Google
Google has become one of the largest organizations in the world and is the biggest brand in the world as of 2009. It employs around twenty thousand employees and processes millions of requests everyday. This clearly makes it an immense business entity. The following section will provide a thorough overview of how this giant was brought to inception by two geniuses, and how it grew over the years.
Google started off as a research project in January 1996 by Larry Page along with Sergey Brin, both who were at that time completing their PhD from the Stanford University. They were looking to find the best kind of data for your purpose from the extremely large data that was available on the World Wide Web (Scott, 2008). They came up with the hypothesis that a search engine that understood that there was a connection between websites would give results in a more suitable order than existing programs which ranked the results input by the user with respect to the number of times a search term appeared on a website (Page et al, 1999). Therefore, they developed a search engine the ranked results according to relevance called PageRank (Scott, 2009)
The strengths of both Larry and Sergey welded in well. They collaborated perfectly to work on this search engine. They initially named their baby search engine ‘BackRub’ due to its unique ability to consider the “back links” that linked to a specific website (Scott, 2008). Another small search engine known as Rankdex was also looking for a similar strategy by then. (Li, 2009)
Larry and Sergey, at this point, were not looking to launch their own search engine, thus, they went on searching for partners. They met up with potential partners including the founder of Yahoo! David Filo, who was also a Stanford graduate. He bucked them up to start their own company. Other potential partners were just not interested as they thought there wasn’t enough demand for such a relevance-oriented, optimized search engine. This is when they decided to finally start their own company called Google Inc. (Scott, 2008).
In the beginning, Larry and Sergey did not have their own domain name so they used the one that Stanford University website provided them with. They registered their own domain on September 15, 1997, and so, the organization came to existence as Google Inc. on September 4, 1998. As beginners, they were located in the garage of their associate’s apartment in Menlo Park in California. The total expenditure it took them to put up Google came up to approximately 1.1 million USD which included 100,000 dollar investment from Andy Bechtolsheim, one of the initial angel investors and one of the founders of Sun Microsystems.
By March 1999, Google had shifted office to Palo Alto. It then rented a compound in Mountain View, California at “1600 Amphitheatre Parkway from Silicon Graphics (SGI) in 2003” (Olsen, 2003). Since then Google has remained there and this building where its headquarters are located is called Googleplex. (Olsen, 2003)
By 1999, Google had really started to become big. Search queries on Google, by this time, had gone from ten thousand a day to five hundred thousand queries (Scott, 2008). In 2000, Google started to sell keyword targeted advertisements. The ads contained only texts and no images so that the websites takes no addional time to load a new page.
Following this, Google started selling a wide variety of other services and enhancements to its customers such as the Google Toolbar, Google Groups and Google Zeitgeist (Scott, 2008). Google, by now, had started to make significant profit. It changed its first CEO from Larry Page to Dr. Eric Schmidt. He was just what Google needed at a time like this in its growth. Google became more popular globally and made alliances in Asia and Latin America (Scott, 2008).
Finally, in 2001, a patent for PageRank was granted to Google to protect the intellectual property of Larry Page and Sergey Brin. “The patent was officially assigned to Stanford University and lists Lawrence Page as the inventor” (Page, 2009). After this, there was no stopping Google, as it offered better than ever services to its customers at a continual basis. More about Google products will be studies in the section that follows.
Google has come out with a long list of desktop, mobile and online products since its inception. It has offered its customers many enhancements that make the ‘Googling’ experience better and more convenient for them.. Some of the products in this list include:
- Google Talk
- Google Toolbar in Internet Explorer and Firefox browsers
- Google Maps
- Google Earth
- Google Image Search
- Google Videos
- and several others.
There are so many of them that explaining each one would be time and word consuming. Therefore, this section will aim to explain only a few of them.
To help small scale businesses advertise, Google introduced Google AdWords in 2001. This is a keyword targeted ad service. How it works is that as soon as a visitor hits a keyword, relevant ads appear. It is also easy to register through the credit card and takes no time at all. A year later the company introduced cost-per-click (CPC) model which made this kind of ads reasonable for both small and big businesses. This method of displaying ads is very popular because it shows only relevant ads according to the keywords that you have typed. It does not show a clutter of them, where there is a push of irrelevant and unimportant information (Http://www.theoriginof.com/the-origin-of-internet-giant-google.html, 2009)
Google Toolbars was one of the earliest products offered by Google in 2000. It allowed visitors to use the functionality of Google search without actually having to visit the Google page. It appeared on the top left of internet browsers like Internet Explorer and Mozilla Firefox. Through this approach of searching, whenever a peson types in a search query, the result from the keywords is highlighted. This has proved to be a very useful service for the customers and hence, has been downloaded by millions of them. Another advantage that it provides is it blocks annoying pop up ads and translates the document into English from whichever language (Http://www.theoriginof.com/the-origin-of-internet-giant-google.html, 2009).
Google kept trying to enhance its basic search engine services. In 2001, it introduced the Google Catalog Search which allowed for searching more than a thousand catalogues online which were previously only available in print (Scott, 2008).
In 2003 (three years later), Google launched Google AdSense which was targeted towards the general public, whoever wished to place any content on the web, be it blogs or websites. It was not only targeted to businesses. It gave web content holders a way to make money on their websites by displaying and positioning advertisements along with the contents. Google AdSense, as the name clearly advocates, has the sense to automatically evaluate the substance in the website and display and place adverts which are related to that particular website. The advantage that this is has is that increases the likelihood of a visitor clicking on a link while randomly viewing the website.
With the introduction of Adsense, in fact before, Google added Blogger to its list of many services. This gave users the ability to create online journals and write blogs online. The Google Adsense program worked very well with it because it allowed bloggers to earn revenues through blogs.
Another Google Product launched in 2002 called Froogle allowed viewers to search for all the sources of one product. It also allowed them to see pictures and process of it. All the relevant websites related to this product would be displayed and this allows the viewers easy access of information, all in one place and juts a few clicks away. This was later called Google Product Search (Scott, 2008).
Google Groups was also launched. It used better methods of posting and threading, and hence, it was more efficient than other groups. Google Zeitgeist was also introduced for people who wanted to find out about the most popular searches globally. This allowed advanced as well as personalized searches (Scott, 2008).
It was obvious from the growth of Google that it will also come out with an email service like its competitors such as Yahoo!. Therefore , in 2004 Google finally did come out with an email service that provided 1 Giga Bytes of storage space which was more than any other email services’ storage spaces. This left competitors like “Yahoo!” and “hotmail” far behind. Moreover, it enhanced this mail service by adding ads in the mail messages. AdSense was used once again to display relevant ads along with the email messages. A distinctive feature that Hotmail or Yahoo! did not have was that it allowed Gmail users to chat from the mail page with people they mailed, without having to download a software. At present, Gmail provides more than 2800 Mega bytes of storage space for emails.
Google also developed many desktop applications. The Google Desktop Search program was launched in 2004 with its first version. Google Desktop Search, like many other services, was a free one that allowed the users to locate files on the computer. These files could be anything; photos, documents, web pages, mails, etc. According to an article, a version of this application that was introduced later also had the functionality of locating PDF files along with mp3 files. Google Directory was also added, in the very beginning, for people who wanted to search in their local languages (Scott, 2008). A similar introduction was of Google Search Appliance, which was a plug n play solution for users who wished to use the search engine to locate their own private documents (Scott, 2009).
Google came out with yet another innovative product in 2005. This was called Google Earth. Google Earth allows its users to view any place on the earth. What is required of them is to insert the address of a place they want to see, Google Earth will locate it for the user. It is like a satellite view of the location you want to view. Viewers have the option of taking a view of the map, or zoom in to see the actual landmark. It was important because it gave people directions to many places they were not aware of. It saves their time and brings convenience to them.
A few months later, Google introduced an instant messaging service. This was called Google Talk. It was also launched as a free of cost service and it allowed users to communicate with each other through instant messaging and gave them the option of a good quality voice chat.
Google Language tools such as Google Translator were then introduced to translate an entire web page from one language to another. For example, users had the capability of converting an article originally written in French to an English one. Users could also place in text and change it from language to another.
Analysis of Google or any company, for that matter, cannot be complete without touching upon the financial position of that organization to date. It is of considerable significance to see where Google stands financially as this would enable us to conclude how Google is performing and it will also help us to compare the performance of Google in previous years. In this section, we shall study the most important financial aspect of an organization.
Google’s revenues went to almost six billion dollars in the third quarter of 2009 which was a 7% increase as compared to the third quarter of the year of 2008’s revenues of $5.54 billion. This increasing trend can be attributed to the number of key technologies and strategic position that Google has adopted recently. As a result, it has managed to increase the revenue to a great extent in just one quarter.
Now that we are discussing the revenue, it is imperative that we discuss the sources from which Google earns its revenues. This will help us in understanding what contributes the most to the total revenue and what aspect of the business has room for improvement.
The revenue that Google earns basically comes from a number of sources. Firstly, Google earns a good chunk of its revenues from a number of Google Sites all over the internet. More particularly, sites owned by Google made revenues of about four billion dollars in the third quarter of 2009. This represents an 8% increase as compared to the third quarter of the previous year’s revenues.
Another source of revenue is the income coming from Google Networks. Google Networks refers to the revenue generated from its AdSense program from a number of Google’s partner sites. This contribution to the total revenue was $1.80 billion (Google, 2009). This suggests that the results in the third quarter of 30% of total revenues came from Google Networks which represents a 7% increase from third quarter 2008 network revenues.
Next, there are the Paid Clicks that contributes to the total revenue. Aggregate paid clicks, which are clicks relevant to an ad displayed on Google sites and the sites of Google’s AdSense partners, increased by almost 14% in the third quarter of the year 2008 and increased by over 4% in the second quarter of 2009. Average Cost Per Click went down by roughly 6% over the third quarter of 2008 and rose by over 5% in the second quarter of 2009.
Google’s other financial statements – the consolidated balance sheet, the income statement, the statement of cash flows and the break up of revenues (further information is in Appendix A).
Googleplex is nothing like an office anyone has seen before. It has a very relaxed environment where there are no cubicles, and where colorful circular rubber exercise balls are used to sit. It is known for its lava lamps. Google employees have the flexibility of bringing their pets to work, and they have a wide variety of on-campus recreation facilities including, according to Google itself, “gyms, first-class dining, massage rooms, laundry rooms, carwashes, haircuts, commuting buses and dry cleaning”. It is common to see bicycles in the hallway. In other words, the culture at Google is very informal and possibly friendly.
According to Google itself, it believes itself to be a company that is not severe in anything else except search. On that note, Google notes that it has a very unique corporate culture because Google puts their employees in terms of ease and working hour flexibility in the same way Google puts their users first when it comes to online services. “The goal is to strip away everything that gets in our employees’ way.
Google’s employees work hard to be innovative and distinctive in all services it gives to both its internal and external customers. Google management realizes that every employee is different and thus have different needs, and “that this diversity requires flexible and individually directed support” (Google, 2009). Google also encourages corporate venturing or intrapreneurship where the staff is expected to utilize about 20 percent of their work hours searching for or working on a new project. Intrapreneurship is when companies allow their employees to develop their own mini ventures within the umbrella of the company itself. Examples of companies who encourage intrapreneurship are 3M, HP or IBM. This makes it one day a week when employees do not carry out office work; instead they work on a project. This policy is known as the Twenty percent Time. Applications like Orkut, Gmail, and AdSense are all outcomes of this policy.
Also, Google offers a personalized entertainment course that can be designed by the employees to do things their own way, “whether they enjoy ice climbing in Alaska, want to retire by age 40, or plan to adopt 3 children.” (Google, 2009)
Google is also known for being ‘humorous’. For instance, every April Fools Day Google announces a ‘special’ launch.
- 2002 – Google announced that it was pigeons that were behind their immense growth.
- 2004 – they announced the launch of their research facility that will be located on the moon. The next year they announced that they will be launching a brain-booster, energy drink called Google Gulp.
- 2006 – they announced the launch of Google Romance, a hypothetical online dating service.
Owing to the company culture, Fortune recognized Google as one the best companies to work within 2007 (http://www.theoriginof.com/the-origin-of-internet-giant-google.html, 2009).
This section will give an overview of the business model that Google adopts. There are many opinions as to what Google’s business actually is. Where it gets its stream of revenues from, because consumers certainly do not pay for the services they make use of. First, this section will highlight the thorough point of view of Elgan (2009) as he writes in his famous article: “YOU are the product”. This is a rather extreme view of Google business model so it will be followed by counter view also.
Elgan (2009) starts off his article by talking about Google’s latest product – the Google Latitude. Latitude gives users the capability to tell their friends about their location, and let them share theirs with the user.
Then, he notices that, like all other applications, this one is also free of charge (Elgan, 2009). Google customers do not pay for the products and the services they use. In any business, a product is sold and a price is charged for it. But not at Google; many new products are sold and no price is charged for any of them. So where does Google earn its immense revenues and profits from? This business model of investing so much into products and services is confusing as Google does not charge from their users. In other words, Gelder (2003) agrees that Google’s business model revolves around providing the users a means to access Google’s proprietary technology while paying for its use.
Mclean (2008) agrees with this. He states, in his article, that Google’s business model is such that it does not earn money from selling hardware or software, rather it sells ads and makes money by keeping a track of user preferences through its applications. Elgan (2009) takes a harsh point of view here and says that to understand Google’s business model, we must understand that Google does not offer products rather it provides services. Google only has one product that is the users. Therefore, he is of the view that we are Google’s products. Google does not sell Google Translator or Gmail or Google Latitude, for that matter. It sells us. To who? To advertisers.
But then again, to counter this, this is true for many of the online service providers such as Facebook who makes a lot in revenues but charges its actual users nothing. This is the ideal business model for many online service providers, and they will agree that it is rightly so.
Gurley (2009) also talks about Google’s business model in respect to its smartphone, Android. He calls it the “less than free” business model because Google pays people to use the phone! However, on the other hand, Elgan (2009) further argues and makes the point that advertisers are Google’s actual customer. As mentioned earlier, he and many other feel that Google sells its users to them.
However, what Elgan does not realize here is that ultimately it is us who advertisers advertise to for their products that they have fabricated for us, and products we ultimately will be paying for. Elgan takes a very negative view of advertising here. But not all advertising is necessarily bad – especially the kind that advertisers do online. They provide us value added services and offers also. Many people would agree that if advertisers gather our information, they do so to serve us in the end, and of course make maximum profits. However, customers do benefit from better solutions and value added goods and services. Companies only identify this need and our requirements when they have the relevant information.
The point that is being here is that Google’s business model, selling us to advertisers, might not necessarily be bad for us at the end of the day. Many customers may actually benefit from this. It is just about customers knowing for sure what they want and what they do not. Advertising does not seem so bad anymore.
Coming back to Google’s business model as portrayed by Elgan (2009), he believes that initially the invasion of privacy shocks us but we later get used to its they provide us with better services. He says that Google’s privacy invading services are met with mild shock at first which is later accepted by the people. (Elgan, 2009)
Elgan (2009), unlike Gurley (2009), feels that the purpose of all these free Google services is to get users too involved in that so that they fail to notice how their privacy is being invaded. (Elgan, 2009)
Elgan (2009) gives the example of Google Latitude. He says that rather than it being a product, it is more of a tool. This means of constant tracking is free and allows the users to enjoy and keep track and remain in touch with family and friends. Once this tool will get a certain number of devoted users, Google will add advertising there too (Elgan, 2009). Then again, contextual advertising is not always bad. It might be useful for a lot of customers and a lot of customers might actually make use of all this contextual advertising. If companies are providing it to the, it is because there is a need for it, otherwise they would gain no profits from pushing all this information onto them.
He feels as a further development in the Google business model, Google one day will be in a position to add-up all user information into one tool that does everything for the customer and provides for the advertisements a means to access the customer at the right time and at the right place (Elgan, 2009). This is actually a convenient service for a lot of customers. So Google’s business model is not all that “evil” just like their motto for Google.
Strengths and Weaknesses
It is very important to discuss the strengths and weaknesses of the organization because this helps the management understand the organizations position in the market. It will help the organization understand how the One of the strengths of Google is identifying new challenges and the requirements of its diverse audience, and then trying to provide efficient solutions to them (Scott, 2009). It also has the ability to anticipate these needs before they actually identify it in the market.
Google has many other strengths including its brand, culture, its people, the technology that it makes use of to display the most relevant search results and advertisements, the large chunk of the market that it serves effectively, and many others. These strengths are discussed in the following sections.
Along with these strengths, it also has many weaknesses. These include its dependence on advertisements, a narrow focus, too lost in its own success, and “insane business strategy”.
The markets Google serves are huge and this is the reason why Google is so big in size. From the discussion on Google’s business model, it became quite apparent who Google serves. However, these markets would prove to be a strength for Google only when they are being served effectively.
Google basically serves two kinds of markets; users and advertisers. A user is anyone in the world who has computer access. Google will cater to anyone with a computer and provide them a free service. This is a huge global market that it serves. One of Google’s biggest strength is that Google offerings are popular, downloadable, and downloaded all over the world. Customers are quite happy with the services that Google provides them and they continue to use Google as their primary search engine. Therefore, Google is also the market leader in most countries, even the US. This is reflected in Google’s market share which is at 72.11 percent in the US, making it the market leader in the search engine optimization business and other online services.
Another segment of the market Google offers services to is that of advertisers. Google is not unfair to its advertisers. It clearly cuts off applicable ads and genuine query outcome by allowing a “Sponsored Links” label to display searches at the request of the user. What is more interesting is that these sponsored results are also ranked to show the applicable sponsored links on the top followed by less relevant ones.
However, advertisers thought that Google’s contextual advertising was less effective in earning revenues for them because in contrast to searchers, website visitors were less likely to see ads where web pages showed editorial content. Google’s CPC or cost per click charge from the companies to display their ads on websites is confusing. Firstly the algorithms that Google uses makes the ads appear on the most relevant websites and only once the ads appear, they can be clicked and charged for.
Google needs to stay ahead of other search engines that are emerging in the market. It does this by concentrating on various technologies that are used. These technologies give Google a competitive edge over others in the industry. The following part of the paper will discuss these technologies in detail.
To make Google more efficient, a combination of hi-tech software and hardware technologies are being used. Google accomplishes dominant computing in hardware part by connecting together thousands of cost efficient machines. For effective software, however, Google makes use of its PageRank logic to rank websites. It’s a way that is used to rank web pages every time a user types a keyword. “When a web page, say A, gives a link to another page, say B, it is interpreted as a vote by page A for page B. Along with taking into consideration of the number of votes received by a web page the page that casts the vote is also taken into consideration. It means that some when some important site provides link to another page it is sure to improve its ranking.”
Google also makes use of a simple interface gives complete search results ranked by relevance. This again is achieved by it technology/system called PageRank, as discussed above. Moreover, Google is said to have low cost in operations. Thus to index these millions of web pages, advanced UNIX servers are used. for indexing. This allows it to capitalize on cost as well as technology. Google also gives its users the ability to carry out a “search by location” through which the users can get results from around their area.
On the other hand, the technology is such that it may allow spam mailers to influence this technology by generating mock websites with many linking pages to those websites that they want to promote. Therefore, for a number of web site owners it becomes very easy to rank higher in the search results when a user types a keyword. According to an article, Google’s ‘search by location’ algorithms also sometimes end in an error state because of automated indexing.
Google offers search in eighty eight languages, making it increasingly convenient for who cannot read or write in English. This allows Google to have a simpler, more user-friendly interface. Google also offers a range of services such as searching images, making Google groups or providing news from around the globe. Google used this as tabs on its homepage. This allows convenient navigation for users and maintains simplicity in the interface.
Google’s ads are such that even with them on a page, the loading speed is high. It makes the user browse to the webpage quickly so it there is no delay to load the revenue advertisement.
Google, as ranked by Millward Brown (2009), is the biggest brand of 2009 with brand value of over a $100 billion. This is strength for Google as it allows Google to market itself less and focus more on the technology aspect. It gets word by mouth publicity and this is usually favorable. It has established its place as the market leader in the past so it is a brand that users have come to trust and recognize. It has become the premium search engine for its quick search results from its vast database.
Google stands by what it says. On its company website, Google states that (Gelder 2003):
- “Focus on the user and all else will follow.
- It’s best to do one thing really, really well.
- Fast is better than slow.
- You can make money without doing evil (referring to its non intrusive advertising solutions).
- The need for information crosses borders.
- Great just isn’t good enough.”
These are all the values that it states on its websites but were found in a book by Gelder (2003). A mega large organization such a Google, stands by its values. This is what makes it the giant we know. It is true that each one of the abovementioned values is demonstrated in Google’s business.
Quality of Personnel
The biggest advantage that Google has is that its employees are motivated. Having a motivated workforce is a blessing for organization as they cause less problems, are more productive, and happier. This happiness and content rubs off on customers also at customer contact points and help desks.
On the other hand, Google hires well qualified PhDs who continuously work hard to improve the algorithms involved in search and hence, making searching faster, efficient and even more relevant (http://www.soopertutorials.com/business/strategic-management/1369-google-swot-analysis.html, 2009). Google allows its employees to be innovative by stressing on the ‘twenty percent time’ policy whereby employees are expected to spend a day in the week on working on a project. This allows them to come up with great ideas. Orkut and Google Adsense are perfect examples of these.
One of Google’s biggest advantages for the longest time was a continual increase in search queries. Search queries started from 10,000 and increased to 6 billion (Scott, 2008). The more the search queries, the more the likelihood of clicking on ads. Therefore, this is where Google’s revenue stream comes from. If visitors are clicking more on ads, more advertisers would be attracted to use Google as a medium to advertise. On the other hand, Google doesn’t offer a personally customized search option for which it can charge the customers for the time the users remain the its members.
Opportunities and Threats
Opportunities and threats are external factors that benefit and cause problems for an organization, respectively. Google has several opportunities because of the number of strengths that it possesses. It can capitalize on the technologies that it uses, the cost, its personnel, its culture, and much more. According to an article on a web page called Sooper Tutorial (2009), the following opportunities have been described:
- “Google can raise switching cost by keeping a track of users’ search records with their permission and Google can also use this to give users updates in emails as per their personal interest.
- Google can change itself into a large market-oriented portal like Yahoo or MSN and can raise the costs of switching to these for its users.
- Google can include “sticky” by introducing messaging and email to draw users and make them stay. This will help them survive and grow in this tough competition
- Google can further improve searching by location and personalized search by adding local listings of advertisers and marketers in the area.
- Google can start providing a set of new services like multimedia, product search, private database, and print media.
- Google can also merge operations with a well known mass-market portal to draw in a big set of users and advertisers.
- Google can begin to provide complete services on hand held mobile devices to get hold of the market beyond just internet search”.
Other than the recommendations given above, Google can use its informal and friendly culture to motivate employees to come up with even more innovative solutions. Google has a brand value of more than a $100 billion. Google should use this to the best of its advantage. This allows it leverage in marketing but the competition is also very tough. Therefore, at a time like this, Google should capitalize on its brand to stay ahead of the game where players like Yahoo, Amazon and Microsoft are active. The competitive actions of these companies will be discussed in the following sections.
Google plans to have an OS before 2011. It is competing with Microsoft on these grounds. It is looking for the most simple and secure OS and to do this Google is meeting with hardware manufacturers. It is to be called the Google Chrome Operating System and Google’s Product Management VP says that this operating system will be their “attempt to re-think what operating systems should be” (Graham & Acohido, 2009). Therefore, Google plans to join in the race and trend of operating systems.
When Google started Gmail, with its 1 GB capacity, it was a threat to email services like hotmail and Yahoo. However, the competition is becoming tougher now. For instance, Google hasn’t yet offered “sticky”, a service that MSN and Yahoo! Use to keep users at their site for a longer period of time.
Portals provide a gateway for the user with more selections to delve into from that single page thus engaging the user to visit that site more often. There is a possibility that Google might lose market share to such simplicity in search results. Also, MSN is launching a new operating system by the name of Longhorn, which would provide users with an inbuilt query by searching blogging spots, hard drive files, sources of news, the web, mail attachments just from a single keyword in the window. Users will also have the capability to search straight from already developed and well known Microsoft applications like Microsoft word. These added features would oblige users to stick by MSN and which can eventually damage Google’s market. This is in direct competition with Google’s Chrome Operating System whose USP is not implicit query but is simplicity, security and speed.
Overture has been a long lived rival of Google. Even though Google ahs managed to attract more advertisers, its share is still behind by 20% and there is always the threat of competitors joining forces and working with companies like AOL, Yahoo and MSN. Another danger that Google might face is that it, to some extent, depends on portals like AOL. Canceling of such contracts with these might make Google lose considerable sales and hence, market share.
Another threat is that there are not any such barriers to entry in the search engine industry. Even though the technology is advanced and the competition tough, there is still room for entry for big players. This is especially true for new, emerging players like Bing who is taking away Google’s market share. Such engines with “cooler” names and better interfaces have considerable potential to be a big threat to even the search engine giant.
As mentioned earlier in the paper, Google has a very ambiguous way of charging and ranking Cost Per Click adverts. This causes confusion amongst these marketers about how they will be positioned and charged. This frustration may turn into something bigger and may cause Google to lose some of its largest advertisers.
Google is a huge company that celebrates success. Some have called it more of a ‘media company’ than a search engine one. Therefore, many are afraid that it’s own success may hinder it’s growth due to short sightedness. According to an article, “Google’s scale might also become a liability in order to cop up with new and enhanced search techniques if company’s ability to modify its algorithms and database architecture was constrained by its server infrastructure and the size of its index.”
Google has immense pressure from mass portals like Yahoo! However, if Google ends up adopting the same business model, it may lose its essence; minimalism and totality, with which it started off in the first place. This might drive away some users.
Steve Ballmer, the CEO of Microsoft, in 2007 said to students of Stanford University that the business model followed by Google was “insane”. However, I wouldn’t say it’s “insane”. It’s definitely vigorous but vigorous could be a good thing. Google comes up with many new products. Some become more popular than other ones. Some do well while some fail. But some do succeed. Out of these a number of them have been those that employees have worked on in their own time like Orkut, Adsense, and the biggest of all Gmail have been products of them. Gmail is a widely popular emailing service used admirably all over the world. This suggests that the efforts of the employees in their twenty percent time do add value. Maybe not all the time, but sometimes it does. It is extreme to say that Google is insane only because it hasn’t diversified much from Ad search and because it allows intrapreneurship. Intrapreneurship occurs when an organization promotes entrepreneur characteristics of the employees inside the organization. It was a pioneer in search engine optimization and result relevance. It offered many useful products to users and met the needs of advertisers and content holders.
Even though Google’s business model is criticized by some and many feel victimized by the constant display of adverts, this is what makes Google and Google is popular all across the globe.
“To organize the world’s information and make it universally accessible and useful” (http://www.google.com/corporate/index.html, 2009). Ever since Google came into being, it has lived up to its mission statement in more than one way. It organizes all the mountains of data and organizes it on the World Wide Web by relevance, using its system of Page Ranks. It makes it universally accessible by offering interfaces in more than 88 languages so people all over the world can make use of the information that Google uses. It has made information useful again by organizing it (by relevance). Data does not make much sense when it is random and haphazard. Once organized, it starts to make sense and becomes information. Once this information is organized, it becomes luxury for people, even if they do not realize it.
Over the years, as a part of its strategy, Google has acquired many companies that had the potential to create and innovate. Some of these companies include:
- Keyhole Inc. This small company was bought by Google in 2004 and it actually developed Google Earth. It was initially called the Earth Viewer by Keyhole. Google Earth proved to be on Google’s side because it is widely popular with users all across the globe. Many people have downloaded it as a fun and useful tool for directional purposes.
- Adaptive Path. This was bought by Google in February 2006. It provided Google with Measure Maps. However, this did not prove to be as fruitful as Google Earth. It has been closed since 2006. The potential of this service was overestimated.
- YouTube. This was bought in 2006 by Google and it proved to be a great investment. YouTube has a huge market share and a fan following. It has millions and millions of users who have millions of video views. The potential of YouTube is great because it keeps growing and no other video service, according to users, match up to it.
- Others. Other companies that it acquired throughout2006 to 2009 included Jotspot, DoubleClick, GrandCentral, Postini, and its first public company On2 Technologies.
Google has built on its competitive advantage by allowing employees to take time off for innovative projects. Gmail is an outcome of such a project and has turned to be one of the most fruitful Google applications. Therefore, this allows Google an upper hand over its competitors who have no such advantages of recruitment of highly skilled personnel who have the capability to introduce some of the most innovative projects in the search engine business.
In my opinion, Google’s company culture is also a great success factor. It allows the workforce to be motivated. Google has a happy workforce and this should reflect in their work and in the efforts that they carry out to take Google a long way. Google’s happy employees are what make Google what it is. It is these employees who carry out personal R&D and who take risks. This also nurtures the employees and gives them more control in the company. Since these employees are highly skilled, this policy blends in well with decentralization.
The company culture also allows employees to be at ease. This allows them to think better about their projects and increases the likelihood of producing more innovative outcomes on their time off from work and on their projects. The reason why these projects are so important is because these are the effort of one of Google’s most valuable resources; its employees.
Another thing what has brought Google where it is today is the support of its customers. The reason why Google is such a big brand today is because of the brand loyalty that its customers display. A user who uses Google is less likely to switch to another search engine but many users switched from earlier portals when Google was introduced. This owes to Google’s user friendly interfaces and simplicity. The consumer acceptance of Google all across the world has made Google the brand it is today. It is alive in the minds of its customers. It has gained the position of a simple, organized search engine. Its brand essence is clear to its customers and there is no confusion about what Google offers to its customers. Customers have a unified view of the brand which is why they are so loyal and accepting.
Google is a big brand and it has earned a name for itself in recognition for the organized and simple search it provides to its users. It has grown immensely since the time of its inception, and there was no looking back since then. It has offered numerous products and services to its target segments. It provides a localized search facility to its users also. However it is not a portal and neither should it be one. Google should not merge with mass-market portal. It should stick to its core business model. It might allow Google to gain a greater market share and more users but it might hinder its independent growth. Google has great key technologies and highly skilled personnel in the background. Rival portals like Bing are emerging with contingent strategic plans to hold users down, but ultimately users would select the one search engine that gives the most accurate search results. Google should remain committed to enhancing its technology and products with the same core concepts of simplicity and usability as it has been doing ever since its inception. At this point, Google is a market leader in a majority of the countries. Google should use its success factors to maintain this position and grow even more so that no new competition can touch.
Google must evaluate its strongest and weakest points, along with the opportunities in the market and the threats their competitors give to identify where the gaps remain. It needs to identify where it is weak and it must work on those areas. Google must have a balanced approach. It must not only be a media company and at the same time, it should not keep its focus so narrow as to only consider the technology aspect. There must be stability between the strategies that it adopts.
If there are any weaknesses, such as a confusing Cost Per Click charging and positioning system, Google must work to improve that. As mentioned in the paper, one of Google’s strongest ability is the ability to identify and predict need. It must continue to use this strength to the best of its advantage.
Finally, Google must understand its success factors and stress on those even more to maintain its status in the market. The reasons why Google is a giant today are its employees, its technologies, its culture and its simplicity. Google must understand the importance of these factors so that it can capitalize on them. Even if Google decides to change its business model, it must keep these things constant because these are the factors that will work for Google’s advantage, no matter what the strategy is.
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|CONSOLIDATED BALANCE SHEETS|
|December 31,||September 30,|
|Cash and cash equivalents||$ 8,656,672||$ 12,087,115|
|Accounts receivable, net of allowance||2,642,192||2,807,341|
|Deferred income taxes, net||286,105||663,446|
|Income taxes receivable, net||–||72,263|
|Prepaid revenue share, expenses and other assets||1,404,114||816,103|
|Total current assets||20,178,182||26,353,544|
|Prepaid revenue share, expenses and other assets, non-current||433,846||415,137|
|Deferred income taxes, net, non-current||–||233,836|
|Non-marketable equity securities||85,160||110,372|
|Property and equipment, net||5,233,843||4,917,491|
|Intangible assets, net||996,690||823,248|
|Total assets||$ 31,767,575||$ 37,702,845|
|Liabilities and Stockholders’ Equity|
|Accounts payable||$ 178,004||$ 192,743|
|Accrued compensation and benefits||811,643||831,205|
|Accrued expenses and other current liabilities||480,263||446,322|
|Accrued revenue share||532,547||599,283|
|Income taxes payable, net||81,549||–|
|Total current liabilities||2,302,090||2,321,774|
|Deferred revenue, non-current||29,818||35,846|
|Income taxes payable, net, non-current||890,115||1,318,315|
|Deferred income taxes, net, non-current||12,515||–|
|Other long-term liabilities||294,175||305,157|
|Additional paid-in capital||14,450,338||15,380,673|
|Accumulated other comprehensive income||226,579||232,785|
|Total stockholders’ equity||28,238,862||33,721,753|
|Total liabilities and stockholders’ equity||$ 31,767,575||$ 37,702,845|
* Derived from audited financial statements.
|CONSOLIDATED STATEMENTS OF INCOME|
|(In thousands, except per share amounts)|
|Three Months Ended||Nine Months Ended|
|September 30,||September 30,|
|Revenues||$ 5,541,391||$ 5,944,851||$ 16,094,646||$ 16,976,738|
|Costs and expenses:|
|Cost of revenues (including stock-based compensation |
expense of $10,729, $14,871, $29,240, $41,000)
|Research and development (including stock-based compensation |
expense of $169,263, $195,624, $550,343, $546,394)
|Sales and marketing (including stock-based compensation |
expense of $64,497, $62,260, $149,666, $178,580)
|General and administrative (including stock-based compensation |
expense of $35,550, $44,772, $104,345, $122,106)
|Total costs and expenses||3,893,826||3,871,133||11,322,882||11,145,535|
|Income from operations||1,647,565||2,073,718||4,771,764||5,831,203|
|Interest and other income (expense), net||21,217||(7,177)||246,485||(18,685)|
|Income before income taxes||1,668,782||2,066,541||5,018,249||5,812,518|
|Provision for income taxes||378,844||427,566||1,173,833||1,266,170|
|Net income||$ 1,289,938||$ 1,638,975||$ 3,844,416||$ 4,546,348|
|Net income per share – basic||$ 4.10||$ 5.18||$ 12.25||$ 14.39|
|Net income per share – diluted||$ 4.06||$ 5.13||$ 12.10||$ 14.27|
|Shares used in per share calculation – basic||314,241||316,497||313,729||315,883|
|Shares used in per share calculation – diluted||317,776||319,746||317,730||318,501|
|CONSOLIDATED STATEMENTS OF CASH FLOWS|
|Three Months Ended||Nine Months Ended|
|September 30,||September 30,|
|Net income||$ 1,289,938||$ 1,638,975||$ 3,844,416||$ 4,546,348|
|Depreciation and amortization of property and equipment||309,482||311,102||898,762||943,213|
|Amortization of intangibles and other||76,764||67,521||215,615||215,589|
|Stock-based compensation expense||280,039||317,527||833,594||888,080|
|Excess tax benefits from stock-based award activities||(19,791)||(28,034)||(114,770)||(64,393)|
|Deferred income taxes||(18,707)||(173,907)||(124,597)||(288,338)|
|Changes in assets and liabilities, net of effects of acquisitions:|
|Income taxes, net||24,314||160,621||552,673||97,103|
|Prepaid revenue share, expenses and other assets||12,844||225,663||(169,959)||313,458|
|Accrued expenses and other liabilities||310,133||266,892||162,882||(14,275)|
|Accrued revenue share||12,017||37,884||(4,433)||57,007|
|Net cash provided by operating activities||2,184,955||2,725,983||5,730,558||6,584,667|
|Purchases of property and equipment||(451,503)||(186,339)||(1,990,617)||(588,531)|
|Purchases of marketable securities||(2,892,983)||(8,951,434)||(7,814,293)||(19,587,001)|
|Maturities and sales of marketable securities||2,218,344||6,580,274||9,634,903||17,015,583|
|Investments in non-marketable equity securities||(35,377)||(17,510)||(44,869)||(45,941)|
|Acquisitions, net of cash acquired and proceeds received |
from divestiture, and purchases of intangible and other assets
|Net cash used in investing activities||(1,136,957)||(2,609,989)||(3,502,584)||(3,245,963)|
|Net (payments) proceeds related to stock-based award activities||(15,506)||463||(38,252)||10,458|
|Excess tax benefits from stock-based award activities||19,791||28,034||114,770||64,393|
|Net cash provided by financing activities||4,285||28,497||76,518||74,851|
|Effect of exchange rate changes on cash and cash equivalents||(45,350)||31,273||(15,616)||16,888|
|Net increase in cash and cash equivalents||1,006,933||175,764||2,288,876||3,430,443|
|Cash and cash equivalents at beginning of period||7,363,536||11,911,351||6,081,593||8,656,672|
|Cash and cash equivalents at end of period||$ 8,370,469||$ 12,087,115||$ 8,370,469||$ 12,087,115|
The following table presents our revenues by revenue source (in thousands, unaudited):
|Three Months Ended||Nine Months Ended|
|September 30,||September 30,|
|Google web sites||$ 3,672,111||$ 3,955,731||$ 10,602,660||$ 11,301,182|
|Google Network web sites||1,679,861||1,800,890||5,021,283||5,122,432|
|Total advertising revenues||5,351,972||5,756,621||15,623,943||16,423,614|
|Licensing and other revenues||189,419||188,230||470,703||553,124|
|Revenues||$ 5,541,391||$ 5,944,851||$ 16,094,646||$ 16,976,738|
The following table presents our revenues by revenue source, as a percentage of total revenues (unaudited):
|Three Months Ended||Nine Months Ended|
|September 30,||September 30,|
|Google web sites||67%||67%||66%||67%|
|Google Network web sites||30%||30%||31%||30%|
|Total advertising revenues||97%||97%||97%||97%|
|Licensing and other revenues||3%||3%||3%||3%|