A Strategic Analysis of
Google Inc.
By: Fahad Imtiaz Muhammad Awais Numan Ali
Strategic Management– Semester Project
Page 0
Tale of !ontents COMPANY PROFILE...................................................................................................2 TOOLS................................................................................................................ ..... 2 P"#T$#%S & '"#!$S A(A)*SIS....................................................................................................+ Supplier Power – LOW............................................................................................................. 2 Buyer Power – STRONG.......................................................................................................... 3 Competitive Rivalry – MODR!T........................................................................................... 3 T"reat o# Su$%titutio& – LOW.................................................................................................. 3 T"reat o# New &try – MODR!T........................................................................................... 3 S,"T A(A)*SIS............................................................................................................................ ISS$S/!A))$(G$S........................................................................................................................ & ECOSYSTEM.............................................................................................................6 #$!"MM$(1ATI"(S......................................................................................................................... 2 AMBIDEXTERITY.......................................................................................................8 3.3 #$!"MM$(1ATI"(S................................................................................................................. 4
Strategic Management– Semester Project
Page 3
!"MPA(* P#"'I)$ Google5s founders6 )arry Page and Sergey 7rin6 met y chance on a Stanford ni8ersity tour in the summer of 399&. Page6 at the time6 was wor:ing on a Ph1 research ;roject in8ol8ing the mathematical ;ro;erties of the lin: structure on the internet. The research ;roject6 <7ac:#u<6 used an algorithm to follow the lin:s in a we;age and analyze all the connections. The Page#an: algorithm generated a ;o;ularity inde= for each we ;age ased on the >uantity and >uality of incoming lin:s. 7y 3994 Google%s we crawler had inde=ed 20 million #)s and the com;any had een formally incor;orated. ?Google is not just a com;any@ it is an entirely new way of thin:ing aout understanding who we are and what we want. ar8is has done something really im;ortantB e=tend that a;;roach to usiness and culture6 re8ealing just how re8olutionary it is.C D !hris Anderson6 Author of the )ong Tail In the ne=t few years Google ecame the gateway to the internet for the masses6 as well as a traffic director that could ma:e or rea: a com;any with its search ran:ings. Google 1ocs6 Gmail6 and Google $arth demonstrated the com;any%s as;iration to mo8e eyond sim;le we >ueries6 and its aility to merge ;layfulness with un;aralleled functionality. 'undamentally6 Google%s usiness model is aout selling ad8ertising. To ma=imize ;roEts6 it is in Google%s interest to learn as much as it can aout its users. ,ith more information6 it can sell more accurately targeted ads6 and therefore more e=;ensi8e ones.
Tools To identify the current ;osition and issues/challenges faced y Google we used two tools iDe Porter - 'orces and S,"T. In coming te=t we will discuss them rieFy.
PORTER’S 5 FORCES ANALYSIS Porter%s & 'orces analysis is a framewor: for industry analysis and usiness strategy de8elo;ment relati8e to the com;etitors of the firm Huic:M7A6 +00J.
Supplie P!"e # LO$
Strategic Management– Semester Project
Page +
Su;;lier argaining ;ower is currently low and should remain low as long as Google maintains strong mar:et dominance. 7ecause of the ad system they use to generate income6 oth the ad8ertiser and the recei8er are Google clients. The Android ;hone system has een selling with great success for all moile ;hone com;anies6 so su;;liers of these items want to maintain a good relationshi; with Google as well6 ;utting them in a somewhat ;owerless ;osition.
Buye P!"e # STRON% 7uyer ;ower is strong in oth the Internet and !om;uter Software industries. There are many com;etitors that host alternati8es to Google%s oKerings. ,hile many of Google%s ser8ices are free6 they rely on ad8ertising to generate a moderate ;ercentage of their re8enue. If ;eo;le choose not to use their ser8ices6 this could cause a dro; in ad8ertising clients6 aKecting Google%s ottom line. There are also many com;anies that create moile ;hone o;erating systems6 allowing consumers the choice not to uy Google ased ;hones. 7ecause of this6 uyers could ;otentially control ;ricing if there is a general consensus that ;rices are too high.
C!&pe'i'i(e Ri()ly # MODERATE ,hile Google does ha8e current com;etitors in the search engine game the two largest eing *ahoo and MS(J it still commands a large majority of internet ser8ices. Its search engine is y far the most used year after year6 and inno8ations li:e Google $arth and Street Liew lea8e com;etitors ;laying catch u;. *ahoo and MS( oth constantly u;date their ser8ices ut they ha8e yet to ca;ture the success Google has.
T*e)' !+ Su,-'i'u'i! # LO$ The internet has ecome the ;rimary source for information gathering and >ueries6 and the ac:one of this is uilt oK search engines and other ser8ices that return the results needed. ,ith such a commanding ;resence6 Google Inc. has itself ;ositioned for long term success on the internet. As of now6 there is no foreseeale sustitution for the internet.
T*e)' !+ Ne" E'y # MODERATE Google Inc. has a low ris: of new entry threat ecause of the high le8el of entry arriers. It would ta:e a massi8e starting ca;ital to uild a startu; networ: infrastructure to com;ete with all Google%s online ser8ices and ;roducts6 and would e a considerale feat to maintain and u;grade ser8ices and ;roducts at a rate that would usur; their current control of the industry.
Strategic Management– Semester Project
Page
S$OT A)ly-i-
S'e/'*
Google runs the gamut with its renowned search engine technology and is second to none in the search engine mar:et;lace as it stands.
$e)0e--e
Google set itself a;art from the rest y dis;laying more uni>ue information that did not readily come u; elsewhere.
(early all Google ;roducts are integrated with each other forming an ecosystem that enriches customers e=;erience and encourages using more of com;any%s ;roducts and ser8ices. Google has an access to 9N of the world des:to; search mar:et users. Google has O-&.+ illion in cash and only O illion in long term de.
More than 90N of Google%s re8enue comes from online ad8ertising. "nline ad8ertising is e=;ected to grow in doule digits in +03 and will grow Google%s income in the short term. 7ut in the long run6 Google may e=;erience slow income growth or e8en the decline. Google has many ;roducts and ser8ices that add little 8alue for the com;any and ma:e only losses6 thus decreasing Erm%s ;roEts. Google is often in8ol8ed in litigation o8er the reached ;atents and other intellectual ;ro;erty. This litigation is costly and time consuming and distract the com;any from inno8ating rather than litigating.
Last a;; ecosystem with tons of a;;s and de8elo;ers. In +03+6 Google added 363&3 ;atents and was the +3st com;any worldwide in terms of numer of ;atents.
Opp!'ui'ie-
Strategic Management– Semester Project
T*e)'-
Page -
Google Plus is in a great s;ot to comine all of Google%s ser8ices and ecome the est social networ:ing and internet search tool a8ailale.
Google is ma:ing a lot of headway into the talet mar:et. The smart;hone mar:et in the S isn5t saturated yet and millions still need smart;hones6 many of which will come with Android5s "S. Google TL is relati8ely new ser8ice that oKers TL ;rogramming6 mo8ies6 mo8ies and more6 across a home internet connection. If Google is ale to e=;and this ser8ice to oKer local stations6 ;remium channels and ;ayD;erD8iew ser8ices6 many consumers may e willing to re;lace their current cale or satellite TL ser8ices. Google Lentures is relati8ely new ca;ital 8enture grou; within Google. Their main focus is in8estments in com;anies that are de8elo;ing new and ;otentially worldDchanging technologies. At ;resent6 Google Lentures only considers in8esting in startDu; Erms within (orth America.
)ea:ing of conEdential com;any information can ;ut the future of new Google ;roducts and ser8ices at ris:. The more data com;etitors ha8e aout Google5s ;lans and future ;roduct lines6 the more li:ely they are to gain a com;etiti8e ad8antage in the mar:et;lace. Huite ;ossily the iggest threat to Google is the considerale amount of money it must s;end in defending itself in court. In +0306 Google s;ent almost two illion dollars almost ;ercent of re8enues on legal related ser8ices. $conomic downturn ;articularly aKects Google due to highly discretionary sources of re8enue. Google%s largest source of re8enue and its fastest growing source of re8enue would e negati8ely aKected y a decrease in consumer s;ending. The aility to grow and ;ro8ide an inno8ati8e ser8ice de;ends directly on the aility to hire and retain em;loyees with the aility creates these ser8ices. The loss of :ey ;ersonnel could hinder the management of Google%s technology6 culture6 or strategic direction.
I--ue-1C*)lle/e'rom Porter%s & forces analysis and S,"T analysis6 we e=tracted issues/challenges that Google is currently facing or can face in future.
following
3. More than 90N of Google%s re8enue is generated from ads. Thus there is only one major source of re8enue. As an in8estor6 it%s always nice to ha8e a di8ersity of re8enue streams coming to you.
Strategic Management– Semester Project
Page &
+. 'rom the Porter & forces analysis and S,"T analysis one thing is 8ery cleat that ;erha;s Google%s iggest challenge is to continuously come u; with the inno8ati8e ideas that attract more users and retain the e=isting ones. ,e will e using following lenses to discuss the issues/challenges. 3. $cosystem +. Amide=terity
$cosystem Google had a glorious Erst ten years6 ut how aout the future ow can it maintain its com;etiti8e ad8antages li:e ;age ran:ing6 accurate searching result while new ;layers trying to gra mar:et shares6 some of the com;etitors are hea8yweight6 for e=am;le6 Microsoft Google has de8elo;ed a strong networ: or ecosystem of ;roducts through its inno8ati8e wor:;lace culture and also through its strategy of mergers and ac>uisitions. Se8eral of Google%s ;roducts are deri8ed from ac>uisitions including 1ocs6 $arth6 and *ouTue. These ;roducts ha8e e=;anded Google%s rand and rought the ;re8ious users of these ser8ices to Google. The :ey feature of all these ac>uisition is that they all are rele8ant to Google%s usiness and ser8e as com;lementars to other ;roducts. $Dg Google ac>uired Picasa which is an online image organizer in +00-. And in +002 it ought *outue6 and hence com;leted its ;ortfolio with oth image and 8ideo managers. Google saw an o;;ortunity in moile software industry >uite early and ac>uired Android in +00& which turned out to e the est deal till now in Google%s life cycle. 7y ac>uiring such ;roducts Google :ee; on e=;anding its user ase and hence attracts more customers. Google understands that the only way to maintain the only re8enue stream is to :ee; largest ase of the customers. 'igure 3 hel;s in understanding that how Google use this ecosystem to ha8e a com;etiti8e edge. Also this strategy of ac>uisition ensures that Google :ee; on coming u; with inno8ati8e ;roducts e8en if it%s not de8elo;ing them on its own. This ecosystem of uni>ue yet com;lementary ;roducts is the 8ery reason of Google%s success so far and in order to sur8i8e in this highly com;etiti8e world Google understands that it needs to maintain and grow this ecosystem.
Re!&&e3)'i!-
Strategic Management– Semester Project
Page 2
3. 'aceoo: has een seen as an emerging com;etitor of Google. 'aceoo: has grown with unelie8ale s;eed and has now larger ase of users among all social networ:ing wesites. More users mean more customers for ad8ertisements. Google%s ;re8ious attem;t to manage a social networ:ing wesites ha8e failed. As mentioned in S,"T analysis there is still an o;;ortunity in growing GoogleQ as a com;etiti8e social networ:ing wesite. Google has co8ered almost all the as;ects of an online user lifecycle. The only remaining as;ect is a wellDmanaged and attracti8e social networ:ing wesite. If Google need to maintain it%s only re8enue stream6 iDe we ad8ertisement they need to ma:e sure that they remain on the to; regarding users% ase. +. Google needs to ma:e sure that it only ac>uires or ma:es alliances with the com;anies that Et well with its own cor;orate strategy and to identify the :ey ;roducts and ;ut more focus on them. $Dg Google at the moment is maintaining two social networ:ing wesites iDe "r:ut and GoogleQ. ,hile I am writing this6 Google has announced to shut down the "r:ut. This seems to e a good mo8e as there is no sense in maintaining two similar ;roducts and waste the com;any%s resources.
Strategic Management– Semester Project
Page
Fi/ue 4 %!!/le’- I!()'i! E!-y-'e&
Amide=terity Amide=terity is the aility of eing e>ually ade;t with each hand or6 to a limited degree6 feetJ. The word
Strategic Management– Semester Project
Page 4
<oth6< and de=t6 meaning ually well.< In sim;le terms6 a Erm is good at today5s o;erations and is ;oised to do well in the future as well. Google is a contem;orary e=am;le of amide=terity as it e=;lores new a8enues loo: at Google )as while e=;loiting its su;erior functionality through adwords and adsense. )oo:ing through the lens of Google5s 0D+0D30 the way Google em;loyees allocate their scarce resources6 timeJ6 0N of Google5s eKorts is directed at e=;loitation of their current oKerings while 0N are s;ent on e=;loring new a8enues or 8istas. Google is e=;loring and e=;loiting its inno8ations oth inside the Erm as well as through a set of networ: ;artners. 7ased on recent data from Google6 we :now that adwords and adsense contriute roughly e>ual to Google5s to;line. owe8er Google is yet to come u; with the ;roduct or set of ;roduct that could earn the signiEcant amount of re8enue for them. As already mentioned Google%s iggest worry is to e=;lore the new a8enues of growth and re8enue. The mere source of we ad8ertisement will not suRce to sur8i8e in future.
3.3
Re!&&e3)'i!-
3. Google%s other com;etitor6 Microsoft6 is >uite good in de8elo;ing di8ersiEed set of ;roducts to maintain se8eral streams of re8enue. Microsoft%s ,indows "S still holds the largest share among P! users so does there "Rce Suite. Although Google has de8elo;ed !hrome "S for P! users ut they ha8e een oser8ed a it lazy in ;romoting it. A more focus in mar:eting and ;romoting the !hrome "S will hel; in gaining more shares and will earn more re8enues. +. Microsoft also has ac>uired (o:ia%s moile de8ices usiness to add another set of ;roducts into their ;ortfolio. Similarly6 Google ac>uired Motorola%s moile de8ices usiness ut they failed to manage it and sold e8entually. They must understand the need of multi;le re8enue streams as soon as ;ossile. As Google already owned Android6 moile o;erating system software6 a rather focused de8ices% strategy will earn immediate gains.
Strategic Management– Semester Project
Page 9
