Google began in 1996 as a project by Larry Page and Sergey Brin. Page and Brin were both studying at Stanford University California. They came up with a plan to make a search engine that ranked websites according to the number of other websites that linked to that site (and ultimately came up with the Google we have today). Before Google, search engines had ranked sites simply by the number of times the term being searched for appeared on the web page, consequently the duo set out to make a more “aware” search engine.
They named the search engine Back-Rub due to engine’s ability to use back links to a site to determine its relevancy. Later on, the site was renamed to Google. This word is derived from the word ‘googol’ which stands for the number 1 followed by 100 zeros. Sergey Brin and Larry Page chose this because they thought it was appropriate for a search engine which would seek out information from the astronomical number of possible sources contained on the Internet. Page and Brin found their first investor in Andy Bechtolsheim, who was among those that founded the giant Sun Microsystems.
He was so impressed by their idea that he was immediately convinced that the endeavor would be a success and he wrote them a check for $100,000. The duo went on to raise an additional $1 million in venture capital by the end of September 1998. Thus, on September 7th, 1998, Google was born in a sublet garage in Menlo Park, California. Still in beta stage, the search engine was nonetheless dealing with more than 10,000 searches every day. Google was rapidly attracting both notice and praise from the general media and specialist publications.
PC Magazine even included Google in its 1998 list of the Top 100 Web Sites and Search Engines. In just six months time, their service had mushroomed by fifty fold with over 500,000 searches being done daily. Page and Brin were also able to acquire an additional $25 million in funding from 2 other venture capital firms to support future growth. This funding made it possible for Google to provide additional features on its site, including multi-language support and a Google Toolbar. But it did not stop here; there was no easing off on the accelerator pedal just because the accounts were improving.
As 2001 began, the per day search number had hit 100 million, and this year would see still more partnerships with both commercial and educational clients. The latter receiving increased search abilities for free, wherever they were in the world. The founders of Google clearly remember where they came from and here sought to help others accordingly. Google also started to buy a few things itself, like the enormous web archives of Deja. com, which was the largest Usenet archive on the Internet. They started to sort, compile, and merge Deja into their gigantic index which would grow to 3 billion web documents and pages by the end of the year.
All this meant that Google was actually starting to make a profit, which was very unusual for most of the dot com bubble companies. This profit was rewarding the hard work of founders Sergey Brin and Larry Page, as well as the investors that had believed in their ideas coming to fruition. On April 29, 2004, Google made an S-1 form SEC filing for an IPO to raise as much as $2,718,281,828. This alludes to Google’s corporate culture with a touch of mathematical humor as e ? 2. 718281828. This move would spur the launchings of Google Earth, Google Maps, Google Talk and Gmail (an email client) in 2005.
In 2006, Google opened a philanthropic franchise called Google. org and announced plans to work with the National Archives in Washington D. C. to digitize years of historical footage; this included WWII newsreels, motion picture films, and NASA productions. Google also released Google calendar and created an advertising partnership with eBay and a toolbar distribution with Adobe. In a significant move, Google also acquired the extremely popular YouTube. By the end of 2006, Google stock soared to over $500 per share. Through 2009, Google continued to expand its sphere of functionality and saw its popularity increase dramatically.
The company is still seen as quirky, innovative, and surprising, which has served as an effective competitive strategy. II. Analysis (Discussion) A. Porter’s Five Forces Analysis i. Threat of New Entrants The barriers to entry in the Internet search market are high. The current competitors have thousands of servers deployed in locations all over the world, and have accumulated many years worth of data about user habits. A new entrant would need to provide better search results at very fast speeds to compete in this highly competitive market.
With that in mind, it must be recognized that when Google was founded in 1998, Yahoo, Excite, and AltaVista dominated the search market and Google has since eclipsed them all. The market now; however, is more mature, containing a necessary path dependency to gather data on both the content of web pages and the search history of users. Therefore, the threat of new entrants in the Internet search market is relatively low. ii. Bargaining Power of Suppliers The force of suppliers plays a rather insignificant role when it comes to Google and its market. Google is in the business of ideas and information.
Of course Google still interacts with suppliers to obtain hard drives, servers, the electricity to power these, overhead expenses for its facilities, etc… but none of these add up to the presence of significant power on the supplier side. iii. Bargaining Power of Customers The idea of a customer is of considerable interest for a search engine because it is very two-dimensional. On one hand there are millions of people worldwide who use the search engines on a day-to-day basis and directly benefit from the services that the search engine has to offer.
On the other hand, there are customers that actually generate the cash flow for the search engine. 99% of Google’s revenue is generated by advertising companies who pay to be featured in Google’s search results. These two sets of customers are very different, but they have one thing in common: they are both very powerful in this market. It is very easy for a user to access another search engine if they are not happy with their product, and where the user goes, the advertiser will eventually follow. iv. Threat of Substitute Products
The Internet has become the preferred mode to request and retrieve information by people all over the world. In light of this fact, there really is no suitable substitute for the search engine. Information can be organized in different ways including categories and sorting by date. Google provides tools to complete these tasks as well as conducting searches. v. Competitive Rivalry within the Industry Google’s main competitors, Yahoo! and Microsoft, posted revenues of $7. 0 billion and $51. 1 billion respectively. There is an immense amount of money made in this industry.
Presently, Google commands 57% of Internet searches in the United States. This large market share enables them to improve the quality of their search results and target ads more quickly than their competitors; this creates a sort of self-perpetuating draw for customers as the search results constantly improve. Yahoo and Microsoft lag behind with 23% and 11% respective market shares. The competitive rivalry is strong and ongoing in this industry because large amounts of advertising dollars flow to the website that has captured the largest volume of searches. Google is well positioned in the industry.
Google’s ability to please its stakeholders will continue to define the success of the venture and the future of the company. B. Strategic Objectives Google has two primary objectives. Google’s first objective is to dominate Internet advertising. This objective has been the primary focus of Google’s research and development department since the company’s initial public offering in 2004. Google has worked towards achieving this objective by maintaining their status as the most popular search engine in the world, acquiring various tech companies, and launching the Android operating system.
As of June 2009, Google Sites were used for Internet searches by 65% of the world, followed by Yahoo! Sites at a mere 19. 6% (please see chart 1). In 2006, Google purchased YouTube for $1. 65 billion. Despite YouTube’s enormous popularity as a video site, the company has yet to meaningfully contribute to Google’s revenues. In 2008, Google acquired the company Double Click for $3. 1 billion to expand its advertisement capabilities to include banner ads; at the time, Internet banner ads were becoming an increasingly popular method of advertising.
Android is a mobile phone operating system launched by Google in 2008. The operating system allows wireless phone providers to manufacture Internet-enabled phones. Android was launched to allow Google to increase its mobile search market share of 63% and to correspondingly increase advertisement revenues from banner and video ads. Google’s second objective is to control the desktop. Google’s management believes that the business community will soon begin to migrate away from using computer software programs stored on local hard drives, to using computer software programs stored on the Internet.
Analysts predict that cloud based computing platforms will grow to a $95 billion market by 2013. The cloud based computing platforms offers businesses a number of advantages including lower costs and easier collaboration. For these reasons, Google launched a beta version of Google Apps in 2006. The beta version included file storage space, presentation software, spreadsheets, word processing, instant messaging, a calendar and Gmail. Google also launched the Chrome Internet browser and the Chrome operating system to accommodate the aforementioned applications.
Google’s objectives to dominate Internet advertising and control the desktop both seem feasible in light of the company’s historic success and current position in the market. C. SWOT Analysis i. Strengths Performing a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis on Google will prove useful in developing some strategic recommendations. One of Google’s strengths is the company’s position as the worldwide leader in Internet and mobile search advertisement. Google’s success is grounded in their Internet search engine that utilized text-matching techniques and PageRank technology to deliver remarkably accurate results.
Other strengths include the availability of Android to multiple wireless phone manufactures, Google’s advances in cloud computing software, and the availability of Google’s search technology to small and large businesses. Finally, Google is in a strong financial position as evidenced by the company’s continued growth in revenues, profitability, vast cash reserves, and well-leveraged position. ii. Weaknesses Some of Google’s weaknesses include several historic acquisitions that have not yet proven useful to the company.
As previously mentioned Google’s acquisition of YouTube has not yet resulted in a meaningful financial contribution towards revenues. Google’s internally developed social network (orkut) has not been nearly as successful as many of the company’s rivals including myspace. com and facebook. com. iii. Opportunities There are a number of opportunities available to Google. Emerging markets present a huge opportunity for Google to increase the share of search-based ads. Approximately 74. 4% of North America’s population uses the Internet; this amounts to roughly 251 million users.
In Asia, only 17. 4% of the country’s population uses the Internet. However, this amounts to roughly 657 million users. Another opportunity exists in the growing market for cloud based computing. Some analysts predict that this market has the potential to increase to $95 billion by 2013. Google has aggressively forged ahead in this market, but still has many more avenues to explore. Google’s release of Android operating system for mobile devices presents another promising opportunity for the company. The market for smart phones has rapidly grown over the last several years.
Google’s creative and data processing abilities my enable it to enter new specialized markets. Also by opening up Google’s Android market the company may see new revenue stream from the selling of digital goods (movies, music and games). iv. Threats Finally, the external threats to Google’s continued success include the company’s competitors and the ongoing recession. Google’s primary competitors are Yahoo! and Microsoft. In 2008, Yahoo! was the second most visited site worldwide; approximately 142 million unique visitors accessed the site every month. Yahoo! ffers consumers many of the same features as Google does including: an Internet search engine, email, a personal calendar, news, etc. Yahoo! also offers website hosting for small businesses and has partnered with twenty mobile phone providers to offer mobile and display advertisements. Currently, Yahoo! is used by mobile consumers to perform a search 35% of the time. Setting itself apart from Google, Yahoo! recently entered an alliance with Intel to offer consumers a set-top television box to provide an interactive viewing experience grounded in the Internet. However Yahoo! s financial position appears to be deteriorating. From 2005 to 2008, Yahoo’s sales increased every year, yet net income trended downward. Yahoo! ’s balance sheet position remains relatively strong as evidenced by the company’s fairly substantial liquidity and well-leveraged position.
Microsoft is significantly larger than Google. In 2008, Microsoft had revenues of $60 billion as compared to Google’s revenues of $22 billion. Microsoft offers consumers a wide variety of products and services including: computer software, consulting services, video game hardware, and nline services. Of these products and services, the most substantial threat to Google’s performance lies in Microsoft’s semantic search engine technology and cloud-based technology. Semantic search technology provides Microsoft the opportunity to surpass Google’s search engine in accuracy and relevancy. The semantic search analyzes the meaning of a word or phrase as well as its context. Currently, the technology is only partially incorporated into Microsoft’s search engine (Bing) because the search processing time takes several seconds longer than a Google search.
Microsoft has also made some substantial strides in cloud computing technology. In 2008, the company launched Windows Live, which allowed users to store files online. Microsoft also offers businesses the ability to host operating programs and data files online (Azure) to reduce capital expenditures. Microsoft’s financial position is strong as evidenced by the company’s profitability and strong balance sheet position. Finally, the ongoing economic recession presents a significant threat to Google’s performance.
It is likely that companies will cut back on more discretionary expenditures, such as advertising, to remain profitable during this period. This will negatively impact Google, as online advertising composes a significant portion of revenues. D. Financial Review Google’s current financial position is strong. The company’s revenues and net income have trended sharply upward since 2001. In 2008, Google had revenues of $21. 8 billion and a net profit of $4. 2 billion. Google’s net profit margin of 19% is primary attributable to the company’s highly scaleable business model.
Google’s business model adds little additional fixed cost for additional customer; as a result, Google has a vast cash reserve as evidenced by cash, cash equivalents, and marketable securities of $15. 8 billion and a corresponding current ratio of 8. 77x. This allows Google to internally finance their continued expansion. Google’s profitability has also placed the company in a well-leveraged position as evidenced by the company debt / worth ratio of approximately 12. 5%. Please see attached charts that detail Google’s profitability, liquidity and leverage position as compared to their major competitors. III.
Alternatives (with evaluation) i. Do nothing Continue on the path to dominating the realm of Internet advertising. Stay focused on expanding core business objectives and correspondingly focus advertising on all Internet enabled devices. This is a good option considering how much of the world has yet to come into constant contact with the Internet. This market alone, the market that Google currently controls overall globally, still has vast potential and definitely should not be ignored. ii. Expand Android’s offering The success of Android on the mobile market (cell phones) seems unstoppable at this point.
Google is continuing to take market share from other cell phone operating systems, primarily Apple. A Senior Analyst at Strategy Analytics recently said “We forecast global Android smart phone shipments to grow an impressive 900 percent annually during 2009”. His report credited Android’s success to the relatively low cost pricing structure, the software’s semi-open source structure, and Google’s support for cloud-based services within the operating system. As of 2009, Microsoft, one of Google’s traditional competitors, was still missing from this market.
Android’s growth in this market is coupled with a change in Internet consumption trends. Consumers are beginning to spend more time interacting with the Internet on mobile devices and less time accessing the Internet through personal computers. This means that the average consumer who uses the Android operating system is training himself on it. They are becoming comfortable doing more and more things on Android every day. These tasks traditionally could only be accomplished on a PC running Microsoft or Apple software.
The point to take away from all of this is that Android is not hard wired to mobile devices, it is software that can be made to run on many different types of platforms, personal computers included. Once consumers have used Google’s operating system for several years, they may be more willing to use a desktop version of the software. This could potentially give Google entrance into a market that has been dominated by the same two players since that market’s creation. iii. Increase market penetration of Chrome Internet Browser Google fundamentally understands how the Internet works.
The companies’ two most popular websites are the first and third most visited on earth. However up until last year they required you to use someone else’s software in order to access their offerings. They have taken the first step out of the cloud and onto the desktop with their new Chrome Browser. The new web browser is already faster than its established rivals. This project’s success is paramount because in the past other software companies have taken steps to limit the functionality of Google’s products. They have done this by tinkering with the way the browser interacts with Google’s servers.
Thus, expanding the market share of Google’s browser can help ensure that all consumers have a reliable and consistent experience with all of Google’s services on the net. iv. Expand into other technology markets Google’s ability to deliver relevant ads for consumers on the Internet, is what has made the company almost all of its revenue. The company does not however get people to go to their site by promoting how effectively they will be advertised. They get Internet users to frequent their site by offering them a range of products that enable them to find and use information faster than any of their competitors.
This focus on fast, accurate, and reliable information presentation and processing, would be very useful in many markets outside of consumer Internet searches. Google could develop a team that actively searches for smaller markets which could be easily served by reconfiguring existing software offerings. Many industries such as law enforcement, traffic control, and health care all require aggregating tremendous amounts of information to a searchable and useable database, something Google has accomplished with great success on the Internet. v. Become the premium open market for digital goods
One of the inherent advantages to Google having a strong mobile presence, is its ability to take its product catalogue out of the home or work office to wherever you have to be. By owning the operating system that powers mobile devices they can offer a seamless integration of multimedia collection beyond almost all other companies. A purchase of a music album a customer makes on their phone while waiting in line at the doctor’s office could be later replayed through their computer’s sound system without any work or conversion on the consumer’s behalf.
A video that a customer purchased through their set top box the night before could be finished on a lunch break the next day with the use of a mobile device. Many companies dream of having such a complete multimedia ecosystem but only Google is currently situated with the hardware and software to make the dream a reality. Some of the Android handsets announced for 2010 already feature HDMI to connect the device to a television set. These handsets could easily lose the high cost screens in favor of an inexpensive permanent connection to a customer’s television set. This would conclude the hardware requirements for the ecosystem.
The only remaining steps needed to take would be to expand Android’s market to include full-length songs, albums, and feature film titles. vi. Increase search dominance in developing markets. The majority of the world is still not connected to the Internet, thus the majority of the world is not yet a Google product user. This presents both a problem and an opportunity. Google’s offerings are delivered to consumers almost exclusively though the internet, so having that much of the world lack access to the product is a natural limit to the market size and growth potential in the short run.
On the other hand the developing world is rapidly adopting information technology and represents a substantial growth opportunity to a company like Google. IV. Recommendations * Become the premium open market for digital goods, movies, music, and games by allowing seamless integration and access between PC, mobile, cloud, and possibly television. * Focus on expanding Android’s offering to other devices, not just cell phones. Expand into the personal computer operating system market with Android branded operating system. * Aggressively pursue Internet search dominance in new and developing foreign markets.
V. Implementation The three recommendations are not mutually exclusive. They will work the best if performed together in order to build synergy between the recommendations. First, Google must realize the opportunity that they have in opening up their Android’s Market for digital goods of all types, not just the cell phone applications that are currently offered. Google already reaches more customers per day on the Internet than any other company on earth; they have a unique opportunity to promote their products and services at little to no expense.
They can communicate directly with their consumers at many and varied points throughout the day. The biggest hurdle that they will have to overcome is the education of their customers on the possible benefits of being in a completely Google operated ecosystem. Typically when Google launches an entirely new product or service or makes large changes to an existing product they create a short web film explaining the changes and how to use the new and improved features. A new film could be made demonstrating just how convenient it would be to have Google manage digital content such as music, videos, and e-books.
This video could be promoted through Google’s email service Gmail, the YouTube video sharing website, and many other popular services that Google operates. If you have a computer with a web browser and an Android smart phone, all you need is a set top box to have a fully integrated digital library. In order to do the work needed to offer these services the company must first begin making deals with content providers to acquire the licenses needed to sell and distribute their intellectual property.
They can take aspects of the purchase model from Apple’s iTunes store and aspects of Netflix’s flat rate fee to create a couple flexible pricing schemes. Second, Google’s programmers need to focus on changing how the market works to allow the selling of these types of products and services. This will require hiring new programmers and learning how to advertise and organize new types of goods. Thirdly, Google must ensure that the purchases made in the market stay with the consumer’s account not the consumer’s device.
This will require hosting the majority of those multimedia files on servers instead of the consumer’s devices. This may call for the construction of new data centers and even more employees depending on consumer adoption rates. Hosting all of a consumer’s multimedia files however, would give Google new valuable marketing data. This data could be included into its advertising algorithms by giving the company access to a particular user’s media consumption preferences, and how that might affect their purchase patterns.
The key to selling this service to customers is to provide a seamless, effortless, and comfortable environment for customers to enjoy all of their digital multimedia. This fully integrated approach will raise the incentive for consumers to use all of Google’s services. The services offered by this expansion in a cloud-based multimedia should be functional through a traditional personal computer but expanded greatly through the use of an Android running personal computer. This would create a high incentive for customers to consider making the switch from either Apple or Windows.
There is a very low cost in developing such a desktop orientated Android operating system, as Android has Linux: a desktop native operating system, at its core. Another strong advantage that Android will have in the personal computer market is that it is capable of running on much lower priced hardware than Microsoft or Apple’s software. This price differential is based on the fact that Android was born on the cell phone platform, which uses the much cheaper ARM processors as opposed to the more expensive X86 processors found in traditional personal computers.
There are numerous manufactures throughout the world that can already produce the hardware requirements for a desktop capable Android System. Google should continue to allow manufacturers to use the Android Operating system free of charge as long as Google can control the media markets on the devices. Google should stick to this low cost platform not only to tempt domestic customers away from their higher priced options, but also to bring the age of information within the grasp of more individuals in the developing markets. The Internet is huge, but it’s going to grow much larger in the years to come.
Only around 30% of the world is using the Internet on a regular basis. These new Internet users are not going to be able to afford much in the terms of hardware. A low cost, low power Internet ready solution powered by Google could give the company a dominating advantage compared to Microsoft. Google could partner with the governments of developing nations to distribute Android-running systems to low income or educational markets. This could be a powerful public relations move, and a way to make a solid impression on the governments of developing nations.
Google should target countries that are experiencing a rise in purchase power and those that are high in population density such as India, Taiwan, and the Philippines. In these markets wireless Internet technology would have the largest impact at the lowest per person prices. These relatively weak economies may become much larger players in the global economy in the future.