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4/6/2015
STRATEGIC MANAGEMENT REX W. SITTI
INSTRUCTOR: DR. ROBERT WIGGINS
GOOGLE INC. CASE STUDY
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Table of Contents I. Current Situation ................................................................................................................................... 3
A. Current Performance ......................................................................................................................... 3
B. Strategic Posture ............................................................................................................................... 5
1. Mission .......................................................................................................................................... 5
2. Objectives ..................................................................................................................................... 5
3. Strategies ....................................................................................................................................... 6
II. Strategic Managers ................................................................................................................................ 6
A. Board of Directors ............................................................................................................................. 6
B. Top Management .............................................................................................................................. 6
III. External Environment (include EFAS) ............................................................................................. 8
A. General Environment ........................................................................................................................ 8
1. Political/ Legal Segment ............................................................................................................... 8
2. Economic Segment ....................................................................................................................... 9
3. Technology Segment .................................................................................................................... 9
4. Socio-cultural factors .................................................................................................................. 11
5. Demographics ............................................................................................................................. 12
6. Global Segment ........................................................................................................................... 12
B. Industry Environment (IFAS) ......................................................................................................... 12
1. Porters Five (Six) Forces: ............................................................................................................... 13
C. Competitive Environment ................................................................................................................... 18
1. Competitor Analysis ....................................................................................................................... 18
D. Hypercompetitive Environment...................................................................................................... 19
Four Arenas Analysis ........................................................................................................................... 19
IV. Internal Environment (include IFAS) ............................................................................................... 22
A. Corporate Structure ........................................................................................................................ 22
B. Corporate Culture ........................................................................................................................... 22
C. Corporate Resources ....................................................................................................................... 23
1. Tangible Resources ..................................................................................................................... 23
2. Intangible Resources ....................................................................................................................... 27
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3. Capabilities ...................................................................................................................................... 28
4. Core Competencies ..................................................................................................................... 29
D. Value Chain Analysis ........................................................................................................................... 29
1. Primary Activities ............................................................................................................................ 30
2. Secondary Activities ........................................................................................................................ 32
E. Strategic Analysis ............................................................................................................................ 34
V. Strategic Factors (include SFAS) .......................................................................................................... 38
a. Situation Analysis (SWOT) ............................................................................................................... 40
i. Strengths ..................................................................................................................................... 40
ii. Weaknesses ................................................................................................................................ 40
iii. Opportunities .............................................................................................................................. 40
iv. Threats ........................................................................................................................................ 41
b. Review of Current Mission and Objectives ..................................................................................... 41
VI. Strategic Alternatives (include TOWS) ............................................................................................ 41
a. Strategic Alternatives ...................................................................................................................... 42
b. Recommended Strategy .................................................................................................................. 43
VI. Implementation Issues .......................................................................................................................... 43
VII. International Strategy ..................................................................................................................... 43
Recommendations ...................................................................................................................................... 44
Bibliography ................................................................................................................................................ 45
Appendix ..................................................................................................................................................... 46
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I. Current Situation
A. Current Performance
Google is in the search engine industry. It started out with a focus on search engine and has
grown to other technologies. Each year they add something new that blends well with their
mission and vision. In 2004, they brought in Gmail, in 2005 Google Maps and Earth, and in 2006
YouTube. They have grown the market of each of these products with millions of users globally
and are now the benchmark against other industry players (Thakur, 2015). In 2007 Google turned
its eye on operating systems by acquiring Android and consequently released Chrome, an open
source browser in 2008.
There is a pattern portraying Google’s rate of advancement, releasing a major new product every
year for five consecutive years. It was a pioneer in google maps and earth and YouTube but as a
second in Gmail and Search, beating Yahoo at market share and using Android to compete other
operating systems such as IOS and Microsoft windows. Chrome still has some miles to go to
beat Mozilla Firefox but has substantial market share from explorer. In 2011 they focused on
social networks with Google Plus and still experience failed attempts to capture Facebook and
other social site’s market share (Singer, 2012). In 2012, their Google Fiber model was ready and
they also came up with Google drive. They now plan on entering the car industry.
They have ventured increasingly into communication hardware and partnered with major
electronics manufacturers such as Lenovo, with their Motorola mobility. Google positions itself
as a global leader in technology with a focus on improving people’s interaction with information.
The 2012 Annual Report showcases its business in search, advertising, enterprise, operating
systems and platforms and hardware products. The report also articulates the company’s focus in
the mobile domain. The acquisition of Motorola in 2011 might have been misunderstood for
Google’s aspirations in the mobile industry. However, Google converge everything it does under
the advertising umbrella. It offers many free products in order to have a high market share for
advertising revenues. In some instances it might receive revenue from other sources such as
mobile wireless devices but still goes back to its core business.
Businesses rely on AdWords for target marketing while third parties on Google network use
AdSense program to deliver ads. In 2011 Google launched Play, a cloud-based digital destination
for entertainment that has more than 700,000 games and apps, music, movies and books. This is
an example of how Google develops converging business entities to work together towards its
main goal of information building and delivery. Google Play was directly integrated in mobile
devices, and was the to-go-to destination for android mobile users. It still has a pale profitability
compared to the ad marketing, until users turning into mobile and tablets outweigh overall web
users. Google is relatively young having gone public in August 2004. During its IPO shares sold for a
paltry $85. By late 2007, the company’s stock was at a high of approximately $750, a whopping
882% return in only 3 years. The shares dropped to the $300 range as a result of the 2007
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financial crisis. Currently the stock price stands at approximately 550. Standard & poor’s rated
AA on Google’s outlook while Moody’s rated them Aa2.
F. Figure 1: Quarterly Stock Price 2007
Figure 1: Quarterly Stock Prices 2007
Source: Bloomberg financials: Bloomberg terminals
Figure 2: Current market price (Google)
Figure 2: Current Market Price (Google)
Source: Bloomberg financials: Bloomberg terminals
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B. Strategic Posture
1. Mission
Google’s Mission is “to organize the world’s information and make it universally accessible and
useful”.
Their mission resonates with their goals, but is far from the way they generate profits. The
statement works well to direct the company towards its future, because despite the progress in
incorporating accessible information online, they still have more to do to make all of the world’s
information at a hands reach. This statement showcases Google as a resource for research and
miscellaneous activities. There is no timeline but an end result. Its broadness offers a lot of
flexibility in how Google organizes information. That explains the different approaches and
channels in conveying information. Despite the mission centered on information gathering and
delivery, all of Google’s invention centers there advertisements business which is the core of
their revenue generation.
Given that the mission statement doesn’t specify the definite goal with a focus of direction, it
offers a sense of flexibility that doesn’t affix a means of approaching this mission which has
given it an avenue for innovation and creativity. The reason the mission statement becomes
perpetual is that the world’s information cannot be all searchable for many reasons including that
some data is private while some may not be defined in a computer readable format. However,
even though it doesn’t offer feasibility, this mission is useful, desirable, motivational, and
durable. Its originality resonates well with its enormous projects scope and post lives many other
companies’ missions. It also has a sense of completeness for not only aspiring to organize
information, but also to avail it as accessible and useful.
The mission statement will also remain relevant for an unforeseeable future and is unlikely to be
influenced by competitors’ actions, or dynamic external environments. Information retrieval is
most likely remaining relevant which sets Google apart with a long-term vision through this
mission statement. The statements’ projected prosperity neglects inclusion of the company’s
stakeholders and specifics of the monetary value creation.
2. Objectives
Google’s objectives can be best listed as follows:
● To push existing technology’s limits to offer an accurate, fast, and user friendly service
for information accessibility. ● To push the ad system ● To push the communities and content ● To make sure tools run everywhere. ● To have the world’s top Artificial intelligence research laboratory ● To have a universal search engine ● To have ads accessible on the mobile platform among other hardware appliances
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3. Strategies
Google’s strategy is to focus on innovation and offer free services to the public and in return use
their data and online presence to serve businesses that want to advertise. Google’s shares many
free services and open source software and products in the market.
II. Strategic Managers
A. Board of Directors
It has a total of 11 board members with 7 being non-employee board members. There is no CEO
duality with the CEO (Larry Page) being separate from the chair. A total of 10 board members
are also currently serving in the board of other companies. The average tenure of board members
is 11.5 years with an average age of 57.3 compared to peers companies’ average tenure of 5.3
and average age of 53.8. The board has five main Committees; Acquisition, Audit, Executive,
Leadership development & Compensation, Nominating & Corporate governance. It also has 12
main executives that are higher compared to the average of its peers which has a total of 9.
Executives have an average reported age of 50.3 which is higher compared to the average of its
peer’s 46. The average tenure of executives is 10.3 compared to the average of its peer’s tenure
of 5.6. Overall, they offer a longer tenure for board members and executives than what most
companies do. The board is as follows:
● L. John Doerr is member since 1999, has an MBA from Harvard University, a masters
in electrical engineering and computer science and a bachelor of electrical engineering. ● Diane B. Greene is a member since 2012, has a master’s of science degree in naval
architecture from MIT and a Bachelors in mechanical engineering from University of
Vermont. ● John L. Hennessy is a member since 2004, has a doctoral degree and a master’s of
science degree in university of New York and a Bachelors in Science degree in electrical
engineering from Villanova University. ● Ann Mather is a member since 2005, has a masters of Arts degree from Cambridge
University and is a chartered accountant. ● Alan R. Mulally is a member since 2014, has a masters and bachelors of Science degree
in aeronautical and astronautical engineering from the University of Kansas and Master’s
degree in Management from MIT. ● Paul S. Otellini is a member since 2014, has an MBA from the University of California,
and a Bachelor of Arts degree in economics from the University of San Francisco. ● K. Ram Shriram is a member since 1998, has a Bachelor of Science degree in
mathematics from the University of Madras, India. ● Shirley M. Tilghman is a member since 2005, has a Bachelor of Science degree with
honors in chemistry from Queen’s University and a doctoral degree in biochemistry from
Temple University.
B. Top Management
The top management is commonly known to include Larry Page, Sergey Brin and Eric Schmidt.
When they went public in 2004, they had a dual class equity structure of class B and A equity
with class A having 1 votes while class B having 10 vote. Therefore, top management would
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control 80% of votes with 1/3 of shares. This allows for stability in the long run. The
organizational design emphasizes on innovation. According to the previous CEO Eric Schmidt,
all strategic/ product initiatives come from the two founders or a small technical team. They do
not use strategy and planning processes that one would find in a typical technical company.
Larry Page: He dropped out of Stanford University alongside his counterpart/ co-founder to
start Backrub later known as Google. He was the CEO until 2001 where he transferred this
position to Eric Schmidt until 2011 when he took up this position again. He has an engineering
degree and a masters in computer science from Stanford University.
Eric Schmidt is the executive chairman and joined Google in 2001 as CEO and helped the
company grow as a startup to a global leader. He led Google scaling its infrastructure and
diversifying its products while maintaining its strong culture. He holds a PhD in computer
science. He has published two bestselling books.
Sergey Brin is the co-founder of Google and is in charge of special projects. He has been
significant in the strategic roles and decision making alongside the CEO and the executive chair.
He is currently on leave from PhD program in computer science at Stanford university, where he
got his masters. He has published more than a dozen academic papers.
Other Executive officers include:
● David C. Drummond - Senior Vice president, corporate development and Chief legal
Officer ● Patrick Pichette - Senior Vice President and Chief Financial Officer ● Senior leadership include ● Alan Eustace = Senior Vice President, Knowledge ● Amit Singhal - Senior Vice President, Search and Google Fellow ● Craig Barratt - Senior Vice President, Access and Energy ● Jeff Dean, Senior Fellow ● Kent Walker - Senior Vice President and General Counsel ● Laszlo Bock - Senior Vice President, People Operations ● Lorraine Twohill - Senior Vice President, Global Marketing ● Omid Kordestani - Chief Business Officer, Special advisor to the CEO ● Rachel Whetstone - Senior Vice President, Communications and policy ● Salar Kamangar - Senior Vice President, Products ● Sanjay Ghemawat - Senior Fellow ● Sridhar Ramaswamy - Senior Vice President, Ads & Commerce ● Sundar Pichai - Senior Vice President, Products ● Susan Wojcicki - Senior Vice President, YouTube ● Urs Holzle - Senior Vice President, Technical Infrastructure, and Google Fellow
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III. External Environment (include EFAS)
A. General Environment
1. Political/ Legal Segment
Multiple country effect: Since Google operates in multiple countries; the stability of these
countries affects Google’s performance. A stable government enables businesses to operate
under low risk. These businesses will continue to advertise because they are less likely to cut
spending. The internet is still a new concept in some countries and often faces few laws from
respective countries which allow Google to set its own laws. China is the outlier having set
restrictive laws that turned out to be a barrier of market entry. Golden shield is a surveillance
system installed by the Chinese government to monitor civilian internet use. Therefore, the
Government and its legal restrictions have affected Google in a positive and negative way. Some
countries with issues on monopoly could also give Google legal problems. Generally most crises
exist because of the underdeveloped nature of cyber law. One law that affects Google is
competition law. This is restrictive in what the company can or cannot do in different
jurisdictions.
Legal Issues: Privacy concerns have been the most common negative issues affecting Google. It
also faced increased regulatory scrutiny especially from the EU region over the past couple of
years. Other arising criticism has been with regards to issues related to net neutrality, censorship,
and copyright. Some allegations levied against Google suggest that it misuses and manipulates
search results and allows the usage of other people’s intellectual property. Another example of
manipulation of search is the ‘click fraud’ where sites fraudulently use automated technology to
manipulate clicks on their site and pay per clicks. Individual cases of these issues may not be a
big deal for Google but with time, failure to control them could make them substantial and affect
its growth.
Net neutrality: Congress recently passed the net neutrality bill into law which means that Google
has to change its business model to correspond with these changes. Internet providers will no
longer manipulate the speed of the internet to benefit premium consumers and treat all of them
equally. Therefore, since Google is the most searched website, it should anticipate increased
traffic and provide safe nets for technical failures and other resource needs. Either way, this
move could be positive or negative for the company’s efficiency.
Environmental issues that pose legal threats include high energy consumption of servers. There
has been a vast global shift towards eco industries and a consciousness on the impact to
environment by big companies, bringing additional risks for legislation. Other positive ways that
Google enjoys from political factors include taxation policies, Employment policies, and
environmental protection laws.
Right to be forgotten: Recently in the EU region legislation was passed with the right to be
forgotten. This law gives the right for any person to decide what is to be done with all of their
online information once they pass away. Google could face litigation if they fail to remove all
traces of individuals who instruct the removal of their data. It is interesting to observe whether
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such kind of laws will trickle into North America in which case could hugely affect the way
Google treats its data.
Patents & Lawsuit: Google purchased Motorola for 12.6 Billion to use its patents to ward off
Apple and Microsoft lawsuits which aimed at Google's lack of patents to allow legal functioning
of some of its services. When they decided to sell Motorola cable box business to Lenovo for 2.3
Billion they kept Motorola mobility which Lenovo needs to license patents from them.
2. Economic Segment
GDP Growth: Google’s growth is dependent on economic growth whose metric is the growth
domestic product (GDP). Many countries experience positive GDP since the 70’s. Economic
growth indicates increased trade, increased businesses, increased online activity and therefore
increased online searches. Google benefits from advertisements placed on its search engine and
the continued reliance on this search engine by the general public. When user’s search more (or
perceived to search more), more advertisements are placed online. This in turn enables Google to
establish better services and more products. In the 2007 financial crisis, the decline in Google’s
profitability was as a result of the shrinking in economic transactions. As businesses collapsed,
the need to advertise declined.
Interest rates: Since Google benefits from increasing investments, an increase in interest rates is
likely to have a negative impact on the company because it causes people to save more and
borrow less. A high interest rate is a way the FED uses to control the amount of money in supply
and typically makes borrowing money more expensive and saving more profitable. When
businesses do not borrow money they may cut down their expenditure which may include
advertising. Therefore, Google may have different levels of advantages in different country
because of each country’s distinct interest rate. Foreign exchange also affects Google because of
volatility and constant changes in value of different currencies where buyers pay in their local
currency.
Inflation rates: Although Google’s revenue stream isn’t directly highly affected by inflation
rates because of the nature of its products; it still gets ripple effects which cause a price increase
of advertisements. Generally, inflation is buyer’s problem which makes it a benefit for
organizations. Google benefits from increasing inflation rates because of increased revenue
without having a high impact of inflation relative to other equally sizeable companies. The
growth in the stock market is equally important as a factor that could affect Google as a public
company, has a high number of investors who can sale the shares if they suspect the stock market
will crush. This will lower the market share and could lead to the company to distress.
3. Technology Segment
When analyzing technological factors likely to affect Google four main areas seem to be most
relevant; rate of technological change, technology incentive and legislation, level of basic
infrastructure and access to new technology as demanded.
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Internet and accessible devices: Google is dependent on internet usage and accessibility to a
technological device; smartphone PC, IPad or similar. Therefore, the growth or decline of its
growth is positively correlated to the growth or decline of such devices. This looks more positive
with increasing innovation in the number of devices that access the internet. However, the
increased pace at which new technology in the industry increase the risk of Google’s products
becoming obsolete especially with the dynamic taste and preferences of today’s consumers. On
devices, an increase in the number of PCs in the market or internet accessible computers
increases the profitability of the company. Therefore google highly depends on networks and
infrastructure. An increased shift into cell phones could influence the way people interact with
Google’s services and is likely to change market trends. Increased Wi-Fi accessibility in
restaurants and in public transport systems especially busses; airplanes and trains also improved
Google’s accessibility positively (etherington, 2014).
Product innovations: In 2015, more companies are looking into wearable devices which can
access the internet including smart watches and clothes. Google is currently working on the
Google glass wearable device which will increase access to Google services. This year (2015),
the company anticipates entering into the car industry with the intent of introducing consumer
friendly internet access in the car. Google is pro-technology and places itself in a state of
continuous innovation.
Figure 25: Transience and Innovation Map
Figure 25: Transience and Innovation Map
Architectural innovation
Google glass: it departs from existing systems of production
Self-driving cars: They set up the foundation in the industry
Artificial intelligence: no company has mastered this area
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Revolutionary
Project loon: having balloons that float thousands of feet in the air to offer internet to
marginalized regions
Google Mars, moon and earth enable viewing from space
Glucose detecting eye contact
Regular:
Google drive: improvements that are meant to support Gmail users
Google Docs: The new version of office that is more superior in that it makes sharing of
documents easy and appears to compete with Microsoft
Google voice builds up on the core competencies and functionality for Google and Android
Niche:
Project Loon can also follow in this category because it opens up new markets for Google
R&D investment: With over 450,000 servers spread in over 25 locations, google has managed to
utilize this advantage to further research, create advanced discoveries and remain relevant by
offering free products to the public. Google operates a customized version of Linux operating
systems. It continuously develops new concepts such as Google docs, Google map, Google earth,
Picasa, AdSense program and many more. By offering such services for free, it gains increased
loyalty while gaining access to research data.
Technology has a great impact on two main dynamics; reducing unit costs of supplying products
and improving their functionality. In order to further this advantage, Google decided to acquire
several companies including Android, in order to benefit from their dynamism and creativity.
Google clearly benefits from the advancement in technology especially in the fields of security,
advertising, video, file sharing, shopping, mobile technology and many more. Trends in the
search, portable applications and internet direct advertising are technological aspects that are
positively correlated to the success of Google. Quality innovative web applications are also
technological elements that affect Google’s perception in the market.
4. Socio-cultural factors
Google’s sociocultural factors include traditions, values, society expectations of business and
societal trends. Google keeps up with changing lifestyles and social trends with the purpose of
entertaining and capturing their attention towards services and tools with the intent to promote
advertising. The infrastructure is built to identify user’s trends, use of information, and habits
using customized search experience (Malik, 2007). Google stores critical data from consumers
for approximately two years and sells these to advertising companies. Globalization of this
information has caused Google a lot of criticism from privacy international association for
harmful acts towards individual’s privacy.
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User dynamics: Many people go everywhere with their smartphones. They even sleep holding it
in their hands. The lifestyle of current consumers especially below 50 years are connected every
day at work, restaurants, at home, in government buildings, hospitals, malls and schools. This
motivates companies to transition from traditional to non-traditional advertising. They typically
follow consumers wherever they go. At the mall before a purchase, over 60% of consumers will
check online for other comparisons of the product or for more details before making a purchase.
5. Demographics
Since Google is globalized with free global services for global users as long as they are
connected to the internet, it isn’t limited to a particular demographic population as long as users
afford internet and devices and their culture allows the use of technology.
Age structure: The demographic is mostly of young people especially affluent and college
students and educated individuals. With increasing smartphone usage, these numbers are
expected to rise. According to Alexa, the highest number of users reach it at school followed by
work and finally at homes. The relatively young user base places this company at a better
position compared to other companies which depend on and are likely to feel the effect of baby
boomers.
Level of education: The most important category is literacy levels. This characteristic avails it
with a high market advantage. Anyone can advertise on Google. The education demographics is
mostly composed of those with college education which is above average followed by those with
graduate level then some college and finally those with no college education. Those with no
college education are almost equal to those with graduate level, and some college level
education.
Geography and gender: Demographics by gender show that more women than men use google
search engine. Demographics by country show that the United States tops the list at 35.9% of
visitors followed by India at 10.2%, then Brazil 3.1%, Japan 3.0% and Iran 2.8%. In India,
Google’s search engine is ranked 2nd, 3rd in Brazil, 5th in Japan and 1st in Iran.
6. Global Segment
The most benefit of a globalized internet access enables Google’s products and services to be
applicable worldwide. Google lacks geographic dependence. As it gears continuous innovation
especially in language support it will grow into more countries and gain a higher market share.
Its global focus towards developing countries that have a higher potential and growth in internet
access and increased affordability of computers, mobile devices and other gadgets, Google
expects to harness additional regions with this growth rate.
B. Industry Environment (IFAS)
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1. Porters Five (Six) Forces:
Google isn’t as restricted by demographics and geographies as companies in many other
industries. However, it still needs to be concerned with them because of their impacts. Porter’s
five forces model portrays major forces that influence the success of a business (Michael,
2008). Google has expanded into many markets and therefore faces increased environmental
challenges.
Bargaining Power of Suppliers
The supplier’s bargaining power is low. Google is locally dominant. Supplier’s low bargaining
power is mainly because of high supplier competition and their being many suppliers. Moreover,
Google has strong market dominance and can always find alternatives. This could change if
more dominant search engines enter the market and suppliers have more variety (Siohong, Sean
and June, 2008). However, Microsoft is one of Google’s suppliers because Google’s tools
operate on its systems. If for any reason Microsoft and Apple decide to change operating
systems, they may have a huge impact on Google since its tools will no longer work leading to a
problem of forward integration. Regardless, given that most of the stuff in there is free, there will
be no meaningful impact on Google’s profitability should Microsoft move in that way. This
restates the low supplier’s bargaining power.
Competitive Rivalry in Existing Firms
There is low rivalry on price. Other search engines including Yahoo and Microsoft are
increasingly doing catch up with google leading the way. They might reach competitive levels
through commitment and innovation. This will guide them towards better price rivalry. Until
then, there is clearly no price competition in the search engine because the products are
differentiated and the industry grows at a high pace. In 2007 the then CEO Eric Schmidt refuted
claim that Google was in the portal business. He explained that Yahoo and others were clients
who pay for many of their services and competing with them would have ulterior effects. Yahoo
is not only a vigorous competitor but also an investor and partner.
Figure 3: U.S. Search Share – (2014)
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Figure 3: U.S. Search Share - 2004
Direct Google competitors would be Overture, Inktomi, Teoma and AlltheWeb. Yahoo acquired
Inktomi and Overture acquired AltaVista and AlltheWeb’s parent company which seemed
intentionally aimed at fighting Google because they were portfolios of a portal and search.
Figure 4: Mapping Strategic Groups
Source: http://searchengineland.com/report-yahoo-search-share-firefox-deal-google-212288
E-commerce business law is still not fully developed which gives room for some foul play
among rivals. The only significant rivals are Microsoft and Yahoo which makes the degree of
rivalry monopolistic and likely to attract constraint of trade restrictions in some countries.
Figure 4: Mapping Strategic Groups
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Brand identity plays a bigger role than price in the industry competition. They are not
compelled to compete on price but on building a brand that will attract a significant market
share. Yahoo and Microsoft may choose to compete on price in order to capture a market niche
of price sensitive consumers but Google and Facebook depend solely on a different angle
because of their brand (Singer, 2012).
Threat of Substitutes
There is Low threat of substitution. Some substitutes include traditional advertising including
magazines, billboards, flyers and signage. Non-traditional advertising such as TV advertisements
is more closely relevant for the digital marketing arena. The threat from such substitutes will
depend on the usage rate and volume, speed and accuracy of their searching tools. The relevance
and attraction/ engagement level of these substitutes also increase this threat.
Since Ad revenues are related to usage, even a little loss of Google’s users on its search engine, it
will result in a huge loss to generated revenues. Web analytics technology enables buyers of ads
to know which search engine has the highest usage. Currently Google tops the list and seems to
stay at the top based on the bounce rate statistics, daily page views per visitor, and a daily time
view of 18.4 which has been increasing continually.
Bargaining Power of Buyer
There is low buyer negotiating power Google’s global reach and unique attributes, offers a
higher return on investment than other search engine companies and providers of online
advertising. The only reason buyers would go elsewhere is to get a lower price or for niche
market preferences. Google’s Ad system avails them advertisers as well as users as clients.
Advertisers may have other avenues to place ads but with the Google’s high global reach, buyers
have a low level negotiating power. It would benefit buyers if they had power to influence search
ranking of visitors on the sites they pay to advertise. Some sites are using pay per click
advertising to boost their ads and increase view ability and ranking. A site like google that has
the highest rankings is most attractive and provides buyers a bigger avenue to showcase their
products and services. Other portals and large suppliers like Yahoo, AOL and Microsoft have a
mutual relationship with Google and It can find their replacement.
Threats of New Market Entrants
The threat of new market entrants is low to medium. Google generates the highest portion of
revenue from non-traditional advertising using the search engine. Therefore, the threat of new
market entrants exists as this field has been gaining interest across the market. Google has
determined this and is delving into other markets including wireless and software systems with
elements of continuous improvement.
Google has marketed and differentiated itself in customers’ minds which make it difficult for
new entrants to affect the customer loyalty without a cost. Switching costs (apart from some
exceptions) are often hardware related which are characterized by high accuracy standards and
would require high system efficiency levels for new entrants.
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Economies of Scale
Google has high Economies of scale. These are cost advantages that google enjoys as a result of
its size, scale of operations and output. The cost per unit of output Google generally decreases
upon increasing scale with fixed spread across more units of output. This also increases
operational efficiency, causing low variable costs. A new firm entering this market should expect
to spend a lot of funds and may remain might not be competitive when competitors have a cost
advantage due to economies of scale. The high network of business consumers currently using
Google’s programs and the mass number of free users of its products makes the threat of entry
even lower. It will take time for new entrants to appease the market and attract part of the market
share in which Google will have evolved even further and captured higher usage with new
products. The economies of scale allows Google to offer many interesting free services such as
‘packman on google maps’ which makes it difficult for new entrants to imitate or attempt to beat.
Product Differentiation
There is a medium threat of new entrance in the operating system software because Android has
been imitated by several people with the technical knowledge. Despite this, their global market
share is humongous (400 million users) with over 1 million new subscribers daily. Therefore,
Google focusses on search. The search engine has a low threat of new entrants because of the
standards that they have to meet in order to get acceptance by both the buyer’s and the buyer’s
customer. These are some ways in which Google has been able to differentiate its products:
Value: In any business customers look for value first. Companies that place advertisements
online want to know which area they will get the highest return on investment. Google does this
by providing relevant websites in an efficient way. Most of Google’s products are rare. Be it
common or uncommon searches, Google will have an answer for you. Using AdSense, Google
has been able to differentiate itself and successfully fulfilled the buyer’s wishes of generated
profits by creating value (traffic).
Rare services: Another way Google is able to differentiate itself is by offering what Yahoo and
Microsoft or AOL can’t, this is rarity. They offer links that turn out to be more useful than what
competitors are able to generate. This is rare because it creates an attribute that only Google can
fulfil. Their homepage website uses a unique minimalistic design by having very few words.
Yahoo and Microsoft on the other hand have too much on their homepage.
Imitability: Business secrets have availed Google with the ability to develop products that take
very long for anyone else to imitate if they ever do. They have servers all over the world that are
synced and run on a large quantity of fast computer memory RAM. This is hard to imitate
especially for a startup competitor that just came into the market. It enables Google to serve
relevant pages quickly and as per individual preferences. Another more important aspect with
have such an enormous infrastructure and with the highest market share, Google enjoys the
ability to outlearn competitors and evolve before new entrants in it market (Malik, 2007). Data
from users is continuously studied and incorporated in future processes and services. Other
market entrants cannot reach Google’s accurate conclusions on what to do next because they
cannot imitate the analytical process of refining user’s data.
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Capital Requirements
In order to have an edge in this market with big players such as Google and Microsoft, new
players require a substantial amount of capital. This is difficult to do when your competitors have
over 100 billion capitalization. This decreases the threat of new entrants.
Switching Costs
Unlike the hardware industry, the search engine business seems not to have significant switching
costs. Users have the ability to switch from one company to another without any fees. However,
in the operating software business android, switching comes at a price. You have to get a new
phone in order to switch from android to IOS. Moreover, android is open source and has many
more free applications compared to Apple’s OS. This is a threat of new entrants for new
companies since they have to offer better options than the android which is very difficult to do.
Another service that has high switching costs is Gmail. Switching costs are in form of having to
inform everyone on your contact list of your change of email address and risk missing
reconnection with people who maintain your old email.
Access to Distribution Channels
Google has leveraged the internet to reach out to many countries globally. In the U.S., despite
operating only 20 locations, they have managed to reach every household and office. They aspire
to get countries without internet connected using a new technology using balloons, referred to as
project loon.
Government Policy
Government policies are not highly restrictive because of the need for competition and growth
and because of the appeal of Google and other companies in this business. However, when going
global, many governments will impose strict restrictions on companies in this industry like what
happened in China. The main reason is to allow their local companies room for growth and to
avoid issues that do not meet the countries standards such privacy. This could give leeway to
other companies to have some competitive edge.
Threat of Complements
Google has a 5% stock in AOL and has Yahoo as a client despite being rivals. They also operate
on Microsoft’s systems, therefore Microsoft is their supplier. There is high threat of
complements because other rivals can influence the performance of Google in the competitive
environment. In case of PC failures Google’s search will be inaccessible. This also applies with
the browsers. However, with Google’s chrome, the threat of browsers decreases significantly.
There is however not a threat of complement on mobile because of Android’s dominance in
market share.
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C. Competitive Environment
1. Competitor Analysis
Main Competitor: Yahoo’s competitive advantage is leading fully fledged internet portal. They
focus on steering searchers to the Yahoo browser and services.
Product popularity: Google’s competitive advantage is the capability of attracting the highest
user base mainly through free online products. According to analysis as at December 2015, the
user preferences on its products were as follows; the search engine that led to most visitors was
Google’s Gmail at 10.44% followed by Google + at 4.1%, translate at 3.95%, google translate
2.87% and AdSense at 2.33%. This shows what drives users towards Google.
Google Complements: In order to understand what complements Google an analysis of what
sites visitors go to before Google places Facebook at the top with 3.5% followed by YouTube
2.8&, amazon 1.6%, Wikipedia, 1.4% and Yahoo 1.2%. A total of 3.8 million sites are linked to
Google including reedit, eBay and yahoo. 71.82% of visitors go to google.com, 55.72 to
mail.google.com, 24.9% to accounts.google.com, 15.46% to docs.google.com and 10.91% to
plus.google.com.
Competitor Categories: In order to clearly cover the competitor analysis, competitors are
categorized into three. First is for the whole firm and its industry, second is for the software
application industry and lastly for the internet media. In the software application industry, big
players include Microsoft and Apple and in the search engine big players include Facebook and
Yahoo (Figure7, 8, & 9). Google has the highest market capitalization at 378 billion followed by
Yahoo at 42 billion and Facebook at 234 billion in the internet media. In the software
application, Apple has the highest market capitalization at 719 Billion, followed by Google at
378 Billion and Microsoft at 326 Billion. The average market capitalization is 75 Billion overall,
223 Billion in the application software and 64 Billion in the internet media.
Yahoo Strategy: Yahoo’s strategy is to power and delight users, advertisers and publishers. They are the
second most preferred company after Google. The company started as a web directory and build
in products along the way without a clear strategy. They were later on envisioned as a global
media company, connecting everyone with anything. They combined content, ad-space, email,
useful web services and e-commerce. They stood out as a professionally managed, organized,
web portal encompassing both free and paid services. They diversified their base at this point.
Their focus was mainly futuristic. They started with branding, innovation and flexible work
culture. They had a major focus on collaboration.
Services: The main services that take Yahoo’s center stage include; search services, personalized
content, branded programing, and unlimited access to rich resources, communication tools, and
shopping services. They also focus on news. Yahoo’s model includes personalization,
community, content, search and marketplace.
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Main distinctions: Unlike Google’s shares which went up to 700 in 2007, was split and is
currently at 560, Yahoo declined from $40 in 2005 to $11 in 2008 before gaining ground to $51
in 2014. Yahoo has a much smaller market capitalization of 41 Billion compared to Google’s
364 Billion, 12,500 employees compared to Google’s 53,600,
Search and mobile: Google’s annual report lists a comprehensive competitor domains. In the
General search engine there is Yahoo and Bing. Other competitors include vertical search
engines as well as e-commerce websites like Kakao (a travel agency), WebMD (health), Monster
(jobs), Amazon and eBay (also in e-commerce). In the social networks there is Facebook and
twitter (Singer, 2012). This is the case because users will utilize these sites for product and
services referrals. The mobile can be a substitute to online searches when they bypass the search
and go directly to a publisher, which makes iPhone competitor on Android as well as a substitute
on search.
Online products and services: Google products and services such as YouTube, Google Docs and
Gmail compete with many other start up and established companies that provide communication,
entertainment and information (Thakur, 2015). Some examples include Yahoo mail, One Drive,
Box, Microsoft office etc. (Basulto, 2012).
Other substitutes: this are not entirely competitors but offer substitutes to Google’s products and
include advertisements on television, newspaper, billboards, radio, yellow pages, magazines and
so on. Advertisers often chose multiple media channels to advertise and may find a niche and
target customers before selecting the most preferable medium.
D. Hypercompetitive Environment
Four Arenas Analysis
I. Cost/Quality Arena
Google have an advantage in the industry when it comes to cost and quality. Their ability to stay
ahead of technological innovations has enabled them to launch high quality products and boost
perception. They have also hired the best in the market and acquired potential companies that
offered them substantial synergies. In order to illustrate the perception and price in the industry
we will use the storage industry. There were price wars between Amazon, Google and Dropbox
in 2014. Google slashed down its monthly prices for Google drive to $1.99 from $4.99 for 100
gigabytes of data and from $49.99 to $9.99 for 1,000 gigabytes of storage (Fottrell,
2014).Microsoft charges $25 a year for 50 gigabytes while Dropbox charges $9.99 a month for
each 100 gigabytes.
Table 1: Cost/ Quality Arena in the storage application
Table 1: Cost/ Quality Arena Storage devices
Company Monthl Perceived
20
y Price
(50GB)
Quality
Google Drive $48 27 Points
Microsoft’s OneDrive $50 17 Points
Dropbox $99 19 Points
SugarSync $99 21 Points
Box $60 19 Points
Source: (Jefferies, 2014)
Figure 23: Cost/Quality Arena Chart
Figure 23: Cost/ Quality Arena
Google drive already has a high perceived quality of 27 points but still lowered its price with the
intention of acquiring more users on its services. Microsoft also lowered the price on OneDrive
making it slightly below Box and therefore more preferably for those who would compromise a
little quality for price. The highest number of buyers would go for Google because it has a higher
perceived quality than One Drive even though they are at the same price level. SugarSync has a
higher perceived quality than Drop Box but is not as popular as Drop Box (Mitroff, 2014). Users
might be indifferent with the two sharing the same price, but those with interest in quality would
prefer SugarSync.
$0
$20
$40
$60
$80
$100
$120
0 10 20 30
C/Q
Y-Values
Box
DropBox SugarSync
One Drive
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II. Timing and Knowhow Arena
Yahoo was a first mover in portals and in 2005 Google came in with iGoogle which they ended
in 2013 dubbing it no longer necessary. Google was a second mover after Yahoo in e-search
(Blankenhorn, 2011). They started the search engine as a licensee of third party sites such as
Yahoo. This presented them with cost cutting advantages with regards to algorithms
development for search results. In 1999, they implemented the paid listings model where
sponsored links appear adjacent or interspersed alongside web search results on specific
keywords. Google’s CTR model is an improvement of the overture’s CTC model. They launched
the contextual paid listings in 2003. When they developed the contextual based advertising they
positioned themselves and became first movers with many numerous products such as the
Froogle. Google was a follower and winner in many Apps including Google drive, play, Android
OS among others (Blankenhorn, 2011). It was a follower and loser in Google +, and iGoogle. It
was a first mover and loser in Google glass because of the low rating (figure 24) (Basulto,
2012).
Figure 24: Timing/ Knowhow Arena
First Mover – Innovator Follower - Imitator
W
I
N
▪ Facebook – Social site
❖ iTune Store – Storage
App
➢ Dropbox
● Google – Search engine
➢ Google – Storage
❖ Google play – Storage App
➢ Apple iCloud
Android – Mobile Application
L
O
S
E
● Yahoo – Search engine/
Web Directory/ Portal
o Google glass
▪ Google + - Social site
● iGoogle – Web Portal
1.
Figure 24 Timing/ Knowhow
III. Strongholds Arena
Google has the strongholds in this industry because of their presence in more countries, the
number of users on their services and the frequency that these users access their services.
IV. Deep Pockets Arena
In the operating software industry Apple has deeper pockets than Google or Yahoo. However
Google has the deeper pockets in the Search engine. If Apple comes into the search engine
(hypothetically), they will have deep pockets advantage and might give Google a run for its
money.
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IV. Internal Environment (include IFAS)
A. Corporate Structure
Google has a corporate structure that aims at encouraging innovation, creativity, and loyalty.
Their employee turnover rate is close to zero. It is not entirely different with only few included
positions that differ from an ordinary structure such as Chief culture officer, and chief evangelist.
They use a hybrid functional/ multidivisional operation structure. The board of directors passes
down instructions through the executive group. The groups oversee the normal departments in an
ordinary organization such Finance, engineering products, legal and sales. They however place a
lot of focus on hiring employees with engineering backgrounds. Each department is divided
further into smaller units. The sales department is divided geographically into Asia Pacific,
America, Europe, the Middle East and Africa as shown in Figure 16.
Figure 16: Operational structure
Figure 16: Operational structure
B. Corporate Culture
The most popular corporate values for Google is not to be evil, technology matters, make own
rules, managing innovation part of culture and to never settle for the best. This allows them to
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have strategic alliances such as partnerships with AOL. They acquired over 5% of shares in
AOL. Many activities base on this motto of not being evil (Thompson).
The 70/20/10 corporate culture has gained Google a lot of innovative strides where each
employee is allowed 10% of their time to work on own projects distinct from the core business,
20% on projects that extend the core and 70% on the job description and core business. The
luxury of this system is the consistent revenue expected from the search engine business.
Initially, Google did not have the best pay perks but compensated this with great attractive
benefits such as free professionally cooked food, bus rides to work, company daycare facilities,
exercise gyms and many other great amenities (100 best companies to work for 2015, 2015).
Currently, they have upgraded to offering stock plans, higher wages, and revised compensation
packages that are more attractive than many industry players.
C. Corporate Resources
1. Tangible Resources
Google’s high revenue enables them a lot of finances to invest in numerous projects. Their
financial analysis will portray their financial stamina.
Financial Analysis
Source of revenue: Google’s revenue source comes from two main areas; internet media and
Application software. As at 2014, 71.62% of revenue comes from its internet search engine
advertising while 17.36% is from licensing and other revenue. It generated 17.02% of its revenue
from the U.S., 16.91% from the UK and 24.43% from other parts of the world. Most of its online
products are open source and often supported by text ads which are displayed within the
interface.
Current performance: Google is performing well financially having had a constantly increasing
net income for the past 5 years from 8 to 16.9 Billion (Table 3). Moreover, 2015’s net income is
projected to increase from 16.9 Billion to 19.8 Billion in 2016. The previous net income was
13.9 Billion which indicates a 21% Margin (FY 2014). Considering the projected growth to 19.8
Billion, the margin will be 32.5%. Higher cash from Operations compared to Net income for the
past 5 years indicates that the company is not in any financial distress. The company also had
previous revenue of 66 Billion, 18.9% growth from FY 2014. However, there is a predicted
7.89% decline in growth to 60.8 Billion in 2015.
Table 3: Analysis of Net Income
Table 3 Analysis of Net Income
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Market capitalization: Google’s current market capitalization as at 2015 is 376.262 Billion and
leads the industry followed by Facebook and Yahoo as a distant third. In the application software
business it has some big players like Apple and Microsoft with market capitalizations of 719
Billion and 336 Billion respectively.
Common Size Income Statement
In the common size income statement as shown in figure 6 in the appendix, cost of goods and
services is only 38.9% of revenue which gives the company a high gross profit of 61.1%. The
percentage of operating expenses and cost of goods and services has been fluctuating in the past
five year around 29-26% and 34.8 – 41.1 respectively. General and administrative expenses have
continuously increased from 6.7 – 8.9%. It is odd that research and development has not
increased consistently given the nature of Google’s operations and innovative culture. It
increased to 13.6% in 2011, decreased to 12.9 in 2013 before increasing to 14.9% in 2014. The
percentage of net income to sales has decreased from 29% in 2011 to 21.1% in 2014. This
indicates that the company has been spending more and reinvesting every year since 2011.
Ratio Analysis
In order to clearly cover the ratio analysis, ratios are categorized into three. First is for the whole
firm and its industry, second is for the software application industry and lastly for the search
engine. In the software application industry, big players include Microsoft and Apple and in the
search engine big players include Facebook and Yahoo (Figure 7, 8, & 9).
Liquidity Ratios
The liquidity levels are looking good having a current ratio of 4.8 and quick ratio of 4.4 in the
previous filing 2014. In the Application software business they had a current ratio of 4.8 which
was above the average of 2.272 and above all other players including Microsoft’s 2.45 and
Apple’s 1.133. In the internet media, there are more liquid companies such as Facebook which
had a 9.6 current ratio. The company is generally capable to cover all of its short term liabilities
(Figure 7, 8, & 9).
Profitability Ratios
Google has a 26.27 profit margin as at 2014. This is slightly below the industry average of 30%.
However, the high industry profit margin is skewed due to Daum Kakao’s high profit margin of
157%. Yahoo’s US subsidiary is lagging behind at 13% but has a higher profit margin of 31% in
its Japan subsidiary. Facebook is also below Google at 18% profitability. Many other players in
the industry beat Google in generating profits from each dollar sale.
Leverage Ratios
They have a debt to assets ratio of 4%, below the average’s 10% which is great but higher than
their main competitor, Yahoo which is at 1.9% and Facebook’s 0.58%. Baidu leads the list at
25% leverage.
Other Ratios
The company’s return on equity (ROE) is at 15.1% which is below the industry’s 16% and also
below major players like Yahoo 29% and Baidu 25% in the internet media and Apple 35% in the
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software business. The company’s ROE has decreased from 20% in 2011 to 16% in 2014 while
the industry’s (S&P 100) ROE remained stable at 24%. This might be excused and attributed to
the share split that increased the number of shares in the market. This indicates that the industry
has attractive alternative options for investment that might compete with Google. The company’s
return on Capital has also been on the decline from 20% to 14% with S&P’s ROC only
decreasing 3%. This shows that Google is not getting the value of its investments as it used to.
The return of assets (ROA) is at 11.9% which is above the industry’s 10.8% and considerably
equal to Facebook10.07%, but quite lower than Yahoo which is at 19.1%. This implies that
Google has to improve the level of efficiency in utilizing assets and refer to Yahoo as a
benchmark.
Price equity ratio (P/E) is at 27.5 below the industry’s average of 34.7. Overall, the P/E ratio
shows how much an investor is willing to pay for each dollar of earnings. It indicates that
investors are willing to pay more for other companies compared to Google. However, in the
application software business, Google appears to have a considerably higher P/E than Microsoft
17.6 and Apple 15.
Ratio analysis S&P 500 Vs Google: The performance of the S&P 500 of the information
technology sector is often the benchmark and offers some underlying insights that are not
available from the overall industry analysis. The return on common equity of the S&P 500
appears to be stabilizing back to the 2010 level. Google’s ROCE on the other hand is still quite
low as seen in Figure 15. Similarly, the S&P 500 operation margin has been on a recovery mode
and is above the 2010 level (20.74) at (21.95). Google’s operation margin is still declining since
2010 (Figure 15 - Appendix). This implies that Google’s revenue levels are still insatiable at the
current number of shareholders. Shareholders worth for their money is deteriorating compared to
the industry. The declining operation margins could be as a result of increased spending and
investments. This makes a good argument for investors to expect higher ROCE in coming years.
However, the lower revenue projection does not support this hypothesis.
Income statement: In 2014, Google had the highest total revenue in its history of 66 Billion.
However, they anticipate a decline in the next financial year as discussed earlier. It is interesting
that Google has a lower cost of revenue and use a lot of funds on selling and administration
expenses almost equal to their cost of revenue. When discussing the economic factors affecting
Google, we mentioned that foreign exchange could have a positive or negative effect. The
income statement shows that last year it had a positive effect on the company gaining them over
402 million. Figure 11 shows the trend in their figures since 2005. Something to note is that
interest expense and cost of revenue has been increasing tremendously as revenue increase. The
highest incline in price was in year 2012-20013 as shown on the graph with a steep slope.
Figure 11: Income Statement (2014) Figure 11 Income Statement 2014
26
Balance Sheet: In 2014, Google had 53% in current assets and 47% in total assets. This explains
the high liquidity as discussed under ratios. The highest investment is in short-term investments.
This has been increasing as seen in Figure 12. It was interesting that Google does not report what
amount of inventory is currently available presumably because the nature of their business does
not have physical inventory to report and is more in the form of services. Google is owed almost
six times what it owes others. What stands out in the balance sheet is that only 10% is in current
liabilities and 90% is in long term liabilities. This is however not odd because most companies
especially Going concerns have long term debt and do not finance from short sources term. This
might however explain the increasing interest expenses as discussed in the income statement.
Total shareholder’s equity is at 104.5 billion.
Figure 12: Balance Sheet (2014)
Figure 12 Balance Sheet 2014
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Physical resources
Plant and Equipment: Google had acquired over 178 companies as at February 2015. This
availed them with a substantial amount of physical resources to foster their mission. Their main
physical resources include 85 offices in over 40 countries. They have a main office in California
called the Googleplex a place which fosters their corporate culture (100 best companies to work
for 2015, 2015). Google has mobile products, wearable products, productivity tools, and cloud
based products and is entering robotics industry with their acquisition of an artificial intelligence
company (deep mind) in 2014.
Raw materials: They require a substantial amount of energy to power their systems and research
centers. They also rely on users for their advertisements to be paid for by advertisers. Other raw
materials include components used to build servers and storage capacity.
2. Intangible Resources
Technical employees: One of the greatest intangible assets is the capability, qualifications and
intellectual knowledge of Google’s employees. The company skirts the market to find those with
high level of education to spearhead their projects. The high pool of knowledgeable employees is
continually innovative. They put in place mechanisms to allow these employees to not only grow
their innovative capabilities but also to utilize them. This has allowed them to have many other
intangible resources such as patents (Moran, 2013), (Google.com, 2015).
During Larry page’s reign as CEO before Schmidt took over, he put engineers in charge of all
strategic initiatives as well as managerial roles just to emphasize the need for highly skilled
employees. Everyday Google gets thousands of applications and has a close to zero employee
turnover rates. The quality of products at Google is as a result of such minds.
Intellectual property: Google’s biggest key resources are its intellectual property. They list 187
patents owned with several patents under each category. Some of the main intellectual property
is as follows:
● Design patents ● Duplicate content patents ● Advertising patents ● Game patents ● Email and Messaging patents ● Hardware patents ● Event modelling patents ● Radio patents ● Medical patents ● Large file space indexing patents ● Image video patents ● Phrase based indexing patents ● Multiple database indexing patents
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● Wireless and mobile patents ● Vehicles ● Voting patents ● Voice search patents ● Social networking patents ● Software patents ● Search indexing
Google Brand: Google finally ousted Apple from the top of the most valuable brand in the world.
Apple took this spot from Google in 2011. Google took it back with an estimated brand value of
158 Billion in 2014. This was a 40% increase from 2013 as opposed to Apple’s 20% decline.
They have a strong brand in the suppliers, customers and users minds.
Customer loyalty: Google services and unique services avail a sense of loyalty in customers not
only because of the impact but that most services are free of charge to users. It is a social
responsibility act that gains favor in most customers which is difficult to imitate.
Advanced technologies: Google has intangible assets inform of top notch technology that is not
available anywhere else. That builds up their brand but is also an intangible asset because they
can use it to accelerate innovations.
Trademarks, copyrights, and trade secrets: Google is known for its many copyrights, trademarks
and trade secrets especially algorithms as discussed earlier. Their trademarks are known globally.
The functionality of their products such as the PageRank algorithms is kept secret. They also
keep many of the algorithm criteria a secret for obvious reasons. According to one of the
executive employees, one of the reasons Google points out PageRank as one of the reasons of
their competitive advantage is that it is a ‘tool unlikely to be tampered with’.
Research facilities: Their research facilities have received continuous funding and investment
and have grown to a point where they are a valuable intangible asset. In a technology industry,
without highly efficient resources such as a research facility, many challenges may affect
growth.
3. Capabilities
Google’s main Capabilities are as follows:
Integrated resources: The Company has a generic diversification strategy and is able to provide
many services to many distinct users and still be able to integrate them and not dilute its brand.
Companies are often striving to prevent their name becoming synonymous with what they do.
For instance FedEx place emphasis to avoid FedEx from being a verb. However, Google does
not mind. The risk of having your name as the verb of what you do is the loss of your
differentiated brand because consumers can use the rival company services whilst calling it your
name. Google has so much of service to leverage the risk of switching to Bing or ask because
they get profit from advertisers and having their name in the dictionary offers free publicity.
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Skills and knowledge of employees: They have the most knowledgeable individuals in the field
of technology and specifically computer science.
Search: They have capability in search because it’s the most visible in all of their endeavors.
Software engineering: They are second to none in content indexing and also in maintaining
scalable hardware infrastructure in the engineering processes.
Quality of services: All products are uniquely developed to encompass a lot of quality attributes.
Some examples include Gmail and Google earth.
4. Core Competencies
Culture of innovation: Google has core competency in software engineering, maintaining
scalable hardware infrastructure and content indexing. Google considers search, brand equity and
Google ‘people’ environment and culture as its core competencies. This is true because people
need to have high intelligence in order to maintain its stature and progress in quality. Most
people working for Google have doctorates and come in the company as forward thinkers who
think outside the box and are innovative. Their search engine is accurate and very popular with
an overwhelming awareness about the company. Its functionality and usability is without
reproach. The brand equity has earned google a place in the Webster dictionary as a verb. It
emerged as the most recognized brand in 2014. However, nothing beats their ability to develop
the wide range of products in the frequency and quality that they do.
D. Value Chain Analysis Google has a different value chain from the traditional model. To demonstrate how raw materials
move to finished goods for sale as it gains value in transit we will make some assumptions. It has
a nuanced value chain because most of its products aren’t physical.
Figure 19: Value chain description
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Source: (Nancy Blachman, 2007) Figure 19 Value Chain Description
According to Larry Page, a perfect search engine is one that gets exactly what you mean and
provides the exact information so that you do not need to type it again after rephrasing.
1. Primary Activities
I. Inbound logistics
In the software application android, inbound logistic begins with cell phone apps created by
developers. They have a sufficient number of Apps with more free Apps than competitors. This
places their inbound logistic at a favorable spot. Let us make an assumption that Google users
are raw materials. The company gathers its website users (raw materials) by encouraging the use
of its stellar search services. They are the first step in the success of this model, when they place
a search on their computer.
II. Operations
The operations logistics begin with the algorithms of functioning queries in the web server
shown in figure 19. This is where the query comes from when it goes to the index server. The
query moves further to the doc server to retrieve the document. At the doc server, snippets
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describe each search result. For Android, value chain operating activities include the continuous
development and maintenance of cell phone Apps. They also update the Android operating
system at a regular basis. They are very efficient in this respect. However, they lose control in
the imitation of their OS and many people are able to hack and recreate software from their OS.
They can improve in this area by decrypting it further.
Figure 20: Value chain description 2
Figure 20 Value Chain Description 2
III. Outbound Logistics
In their outbound logistics, using assorted signs “text advertising,” the search directs users to
Google’s advertising partners as traffic. Advertisers transform them to conversions and sales
which (as an assumption) are referred to as finished goods. Therefore, Google wants us many
raw materials as possible in order to please as many advertisers as possible by them enjoying
finished goods. The value chain would then be inferred as Google adding value by directing high
quantity of web users to specific sites and sorting pre-qualified visitors for these sites using
search history and keywords.
IV. Marketing
Google is a well-known brand and has products that self-advertise whenever someone logs in to
their device and to the internet. They focus on making their products and services so good that
they need not plan on marketing activities. This perpetual marketing is evidenced by the
frequency in their product launch of exciting products and services. They do not need to
advertise to advertisers who are their buyers but to users because that is what advertiser’s would
want to reach and know about. Every time they make a minor adjustment on their services or
product and announce the new version that is their form of advertising. Therefore, all funds that
would initially go to marketing go to research and development instead (Gunelius, 2014).
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V. Service After the Sale
Service after the sale in this case is above average because there is continuous collaboration
between the user and the online platform and Google has a lot of instructional services to the
public with access to Google support such as Google help desk. The value chain’s most vital
aspects are the technology, sales and marketing and system development. Google’s service is
price competitive because of the quality and return on investment of online advertisements.
Furthermore, being free enables free information and user guide from user generated content.
2. Secondary Activities
I. Firm Infrastructure
Its primary activities in the value chain depend heavily on human resource and administration.
To pull this off, they rely on unparalleled infrastructure and systems including servers and
internal software. This enables them to conduct distribution related activities, sales and service.
With locations all over the world, Google is able to localize distribution, marketing and its
service.
Hardware: Google’s infrastructure is invested in the web and broadband. The supply chain is
composed of data centers, switches, storage centers/ devices and fiber networks. This
infrastructure is designed to offer relevancy, speed and reduce the cost of executing search
queries (Malik, 2007). Any search would yield results in 0.05 to 0.1 seconds. This requires
specialized hardware and oodles of bandwidth. This explains why they build their own servers,
internet switches, and storage systems. This is expected to offer them more competitive
advantage in the future by increased connections to servers and storage systems at high speed for
instance through the fiber optic cable in cities. This would take many companies a lot of costs to
pull off but Google leverages its high market capitalization, high revenue and a large user base to
make it happen.
Expenditure on plant and equipment: Google spent over $2.35 Billion on infrastructure in the
first quarter of 2014. Most of this went to building and filing data centers. This was higher than
$2.26 and $1.2 in the previous two years respectively (Figure 10) (Harris, 2014). Just thinking
about the free services Google has to offer such as Gmail, Maps, Drive, Google +, Picasa and so
on, it requires an enormous amount of data storage and servers to run and scale them. Google
runs on over 450,000 servers racked in thousands of data centers in Dublin, Ireland, Virginia,
and California and across the world.
Figure 10: Spending on Infrastructure
33
Source: (Harris, 2014) Figure 10 Expenditure on Infrastructure
II. Human Resource Management
Diverse human resource: Google emerged as the best company to work for in 2015 as per fortune
ranking (100 best companies to work for 2015, 2015). Most of Google’s products are innovations
from user generated feedback. The company has a cultural awareness especially with its global
strategy; it requires social competence, having operations globally. Google plans to take
advantage of diversity by outsourcing copyrights to Indian firms in 2015. They intend to use
human resources perspective to spearhead their value chain endeavors. Emphasis on quality as
discussed under capabilities explains the focus that Google places on hiring the best. They also
have superior training of employees with work training programs as incentives.
III. Technological Development
Supply chain efficiency: Google’s advanced analytics is instrumental in measuring the efficiency
of its supply chain, which is primarily comprised of search engine users. This is the main source
of continuous improvement in its search engine. The value that concerns them most is the
efficiency, speed and innovative nature of the search. This explains the high level of investments
as shown in figure10.
34
IV. Procurement
The data: Google’s main engine of success is the algorithms for its search and advertisement
interface. Since our assumption is that users are Google’s raw materials, procurement would in
turn imply acquiring a higher percentage of users who advertisers can convert to sales.
Procurement would then imply customizing data further. This is in line with Google’s striving in
their horizontal integration. They are moving forward with expansions into more avenues to
acquire user data and geographical presence. This explains the wireless investment in San
Francisco, Atlanta and Nashville among others.
E. Strategic Analysis
1. Business-Level Strategy
I. Differentiation
They pursue the generic business level strategy of differentiation. They offer many unique
products and services to many different types of customers (broad market) as shown in figure 16.
PageRank is software patented by Google that enables search inquiries to appear in the order of
weighted sum of the page links. The algorithm behind PageRank lists what is of interest to users
first instead of based on the number of times a search engine has occurred on a web page. This
allows it to serve a large proportion of users but meet their customized needs. They claim that
PageRank is part of the search engine’s competitive advantage dubbing it ‘a champion of
democracy’ and ‘the search engine’s cornerstone’.
Figure 16: Business-Level strategy
Figure 16 Business level strategy
AdWords: Another aspect that Google exploits in their generic strategy of differentiation is
AdWords. This is an online advertising service created by Google in which the advertiser’s
35
information is displayed below, above or on the side of search results on a particular search
query. It is specialized to enable the advertiser to reach their specific audience efficiently.
Advertisers are also able to target customers geographically. This builds customer loyalty.
Google currently has the highest percentage of global internet searches.
Corporate Culture and innovation: Google pulls off the differentiation strategy as a result of their
corporate structure which enables quick decisions and encourages innovative minds unlike its
competitors. They have a specific focus on innovative and have positioned themselves to acquire
the best talent and incorporate innovative centered policies (100 best companies to work for
2015, 2015). This explains continuous improvement with products such as google news. Their
model allows them to offer free services as investments in order to gain increased revenue. They
offered free software to some marketers in order to acquire optimization in investments on
Google. The innovation capability facilitates the high quality and performance with enhanced
features like language flexibility, search history and tailor-made information on each search
result.
Free services/ Open source: Google doesn’t influence revenue directly by improving algorithms
and negotiating higher fees but indirectly by improving free services in order to give buyers the
value for their money. Competitors would often work the other way round with commercial
agendas.
Comparison to rivals: A comparison to Microsoft and Yahoo’s strategy shows that as Google
uses CTR Model and assist marketers, Microsoft and Yahoo use a CTC model and offer lesser
assistance to marketers. It is also differentiated by higher quality search engines compared to its
peers. Microsoft’s search engine is of poor quality compared to Google’s. Yahoo has a high
quality search but not as great as Google’s. The reason for Google’s high quality may be because
of its focus on the search engine which is also a differentiation strategy compared to Microsoft
which focusses on a portal and operating system alongside many business lines and Yahoo which
also focusses on a portal and numerous other business lines. Although all of these companies are
owned by many shareholder’s Google is distinguished by the common reference to three
shareholders; Page, Brin and Schmidt because of their history and influence on the company.
They are the face of the company.
II. Focus
Their revenue generation source is focused on search and tools aiding users to sift through bulky
information on the web. Yahoo, AOL and MSN started with search but transitioned into portal
strategy. Their continued growth results from their maintained focus on preeminent search. Larry
page emphasized that their goal remains to make it easy to access the exact information and get
the things you need done, done. This was despite the fact that Google had entered into many
other technologies. They still hold on to the main focus stated in the mission statement which is
centered on providing information to the world.
36
2. Corporate-Level Strategy
I. Directional Strategy
I. Growth
Google is a market leader in the search and mobile phone software application industries and are
expected to continue in the growth phase especially at the rate of their innovation and financial
resources. They are stars in the BCG Growth matrix as shown in Figure 17.
Figure 17: BCG Growth –Share Matrix
Figure 17 BCG Growth Share Matrix
BCG-Growth Matrix: Although the search engine is a cash cow on its own, if you introduce
Google’s proactive nature as an innovator with its strong hold on existing and new users, it
appears to be a star with so much potential. This is also the case with advertising. It appears to be
a cash cow but with the possibility of new technology and penetration into non connected
markets it becomes a star. The fully fledged stars are YouTube, Android, Gmail and Google
drive. Google + was a star but currently appears to be a question mark. Other question marks
include Google shopping and Google Docs.
Horizontal Growth: The Company has a project of flying balloons over areas that cannot access
their services due to the lack off or poor internet services. These balloons will act as satellite
gadgets and provide internet access. This leads to horizontal integration by entering more
geographical locations and more products. They haven’t done a lot of vertical integration but one
that was most significant was the purchase of Motorola which as we later found out was for their
patents and to stay clear of legal suits.
Concentric diversification: In 2014, the company acquired Revolv, a home automation company
in 2014, deep mind, an artificial intelligence company, Drop Cam, a home monitoring company,
Nest another home automation company and robotic companies such as Boston dynamics,
37
Redwood robotics, Meka robotics, and Industrial perception. This indicates that Google might be
diversifying and moving into robotics and hardware which has synergy.
Market penetration: The number of internet users has been increasing daily over the past couple
of years. Google entered the USA market with the search engine using the market penetration
strategy (figure 21). They moved to market development strategy and expanded in other counties
across the world. They simultaneously applied product development to improve their technology
exponentially. Around 2000, they moved to the diversification strategy with the launch of
AdWords. AdWords is pivotal in Google’s growth strategy.
Figure 21: Ansoff’s Matrix
Figure 21 Ansoff's Matrix
II. Diversification Strategy
I. Dominant Business
Figure 22 Dominant business
38
Google’s strategy started with search but has grown as they identify small innovative startup
companies and acquire them even when they are in unrelated areas. They have grown the number
of acquisitions from 26 in 2001 to over 178 in 2015. This aids the company in entering new
markets as well as with synergy. However, with all this effort, they only intend to boost revenue
from one source; the search engine. Therefore, they are a dominant business. 95% of revenue
comes from the search engine. Other Google’s main products and services are as follows:
● Google search – Web search, scholar, earth, Finance, image search etc. ● Google Apps – Gmail, Google Docs, Google Talk, Google voice, Translate and so on ● Enterprise – Google search appliance, Sketch up, Earth for enterprise and so on ● Google Ads – AdSense, Analytics and AdWords among others ● Google Android and Chrome operating systems
V. Strategic Factors (include SFAS)
The following table shows the external factor analysis summary of Google in order to understand
what areas they emphasize, what areas need more focus and what impact each opportunity and
threats has in order to get a weighted score.
Table 4: External Factor Analysis Summary
External Factors Weight Rating Weighted
Score comment
Opportunities
O1 A high increase of mobile users 0.1 4 0.4 Only using Android
O2 Google fiber geographical growth
potential 0.2 5 1
Atlanta, Nashville
etc.
O3 A high number of patents 0.15 5 0.75 Innovative culture
O4 Increasing advertising avenues for profit
making 0.15 4 0.6
Wireless, google
glass
O5 Opportunity in low internet accessibility
areas (Africa and Middle East) 0.1 4.8 0.48 The Balloon project
Threats
T1 EU Antitrust Laws 0.1 4 0.4 Not much they can
do
T2 A high increase of mobile users 0.05 3.5 0.175 Only using Android
T4 Many unprofitable products 0.05 1.5 0.075 Not sensitive to issue
T5 Competition from big rivals 0.1 4 0.4 Compete by
innovation
T6 China’s growing market and market
players 0.1 2.5 0.25
All players are locked
out
Total scores 1 4.53 Table 4 External factor analysis
39
The following table shows the internal factor analysis summary of Google in order to understand what areas they emphasize, what areas need more focus and what impact each strength and weakness has in order to get a weighted score.
Table 5: Internal Factor Analysis Summary
Internal Factors Weight Rating Weighted
Score comment
Strengths
S1 Many open source products and
services 0.15 4 0.6 Product integration
S2 Brand Equity 0.15 5 0.75 Core business driver
S3 Product integration 0.05 5 0.25 All are identifiable as
Google's
S4 Culture of innovation 0.15 4.5 0.675 Continuous improvement
S5 Strong patent portfolio 0.15 4.5 0.675 Acquiring more through
M&A
S7 Access to a wide audience of
internet users 0.15 4 Center of business, does not
exploit outside US
Weaknesses
W1 Low awareness in most products
(too many varieties) 0.1 2.5 0.25
Google docs and Google
checkout, wave etc.
W2 95% of revenue comes from
advertisements 0.05 2.5 0.125 Only diversify in free
services not revenue source
W3 Center of litigation 0.03 3.5 0.105 Depend on legal personnel
W4 Failing to include customer ‘the
community’ as part of their core
competencies 0.02 1.5 0.03
No mention of the
community or community
focused projects
Total scores 1 3.46 Table 5 Internal Factor Analysis
Table 6: Strategic Factor Analysis Summary Matrix (SFAS)
Weight Rating
Weighted
Score
S I L
comment
S2 Brand Equity 0.15 5 0.75 X
Core business driver
O3 A high number of
patents 0.10 5 0.5 X X
Innovative culture
40
S4 Culture of
innovation 0.15 4.5 0.675 X
Continuous improvement
O4 Increasing
advertising avenues for
profit making 0.10 4 0.4
X X
Wireless, google glass
S7 Access to a wide
audience of internet
users 0.15 4 0.6
X X
Center of business, does not
exploit outside US
W1 Low awareness in
most products (too
many varieties) 0.10 2.5 0.25
X
Google docs and Google
checkout, wave etc.
W2 95% of revenue
comes from
advertisements 0.05 2.5 0.125
X
Only diversify in free services
not revenue source
T1 EU Antitrust Laws 0.10 4 0.4 X
Not much they can do
T2 A high increase of
mobile users 0.10 3.5 0.35 X
Only using Android
Total scores 1 4.05 Table 6: Strategic Factor Analysis
a. Situation Analysis (SWOT)
i. Strengths
● Many open source products and services ● Brand Equity ● Product integration ● Culture of innovation ● Strong patent portfolio ● Customer experience ● Access to a wide audience of internet users
ii. Weaknesses
● Low awareness in most products ● 95% of revenue comes from advertisements ● Center of litigation ● Failing to include customer ‘the community’ as part of their core competencies
iii. Opportunities
● A high increase of mobile users ● Google fiber geographical growth ● A high number of patents
41
● Increasing advertising avenues for profit making ● Opportunity in low internet accessibility areas
iv. Threats
● EU Antitrust Laws ● A high increase of mobile users ● Many unprofitable products ● Competition from big rivals ● China’s growing market and market players
b. Review of Current Mission and Objectives
Larry Page when interviewed admitted that although the mission statement pinpoints their
strategy, it is a little old and they will discuss whether to change it (Ritson, 2015). Their mission
statement is over a decade old, which for a technology company is a long time. Although the
focus is still on information, Google’s scope has widened to operate as a media agency, digital
TV, cartographer, wireless car industry, providing fiber optic cable services, mobile phone
application software, artificial intelligence, space exploration firm to mention only but a few.
Google’s diversified products support its core business but the peripheral projects needs to factor
in this statement.
VI. Strategic Alternatives (include TOWS)
The following table shows the external and factors in the TOWS of Google in order to understand what strategic alternatives emanate for decision making.
Table 7: TOWS
Internal Factors
IFAS External Factors
EFAS
Strengths (S)
S1 Many open source
products and services
S2 Brand Equity S3 Product integration S4 Culture of innovation S5 Strong patent portfolio
S6 Customer experience S7 Access to a wide audience
of internet users
Weaknesses (W)
W1 Low awareness in most
products (too many varieties)
W2 95% of revenue comes
from advertisements W3 Center of litigation W4 Failing to include
customer ‘the community’ as
part of their core
competencies
Opportunities (O) O1 A high increase of mobile
SO Strategies ● Create a mobile phone
WO Strategies
42
users
O2 Google fiber geographical
growth potential O3 A high number of patents O4 Increasing advertising
avenues for profit making O5 Opportunity in low internet
accessibility areas (Africa and
Middle East)
technology that enables
easy display of Ads.
● Expand the google fiber
technology
● Invest in internet
accessibility and penetrate
in Africa and Middle East
● Create a medium for
advertising products and
services
● Implement increased
revenue sources from fiber
and other patents
● Use Google fiber to include
the community as a core
competency
Threats (T) T1 EU Antitrust Laws
T2 A high increase of mobile
users
T4 Many unprofitable products
T5 Competition from big rivals T6 China’s growing market
and market players
ST Strategies
● Invest in innovative open
source products that
substitute the mobile.
● Find innovative ways of
commercializing products
● Leverage its wide user
audience to counter China
by investing in India
WT Strategies
● Conduct a product audit to
identify which to endorse
and which to dispose
● Fight competitors by
including the community a
part of its differentiation
strategy
Table 7: TOWS
a. Strategic Alternatives From TOWS:
● Create a mobile phone technology that enables easy display of Ads.
● Expand the google fiber technology
● Invest in internet accessibility and penetrate in Africa and Middle East
● Invest in innovative open source products that substitute the mobile.
● Find innovative ways of commercializing products
● Leverage its wide user audience to counter China by investing in India
● Create a medium for advertising products and services
● Implement increased revenue sources from fiber and other patents
● Use Google fiber to include the community as a core competency
● Conduct a product audit to identify which to endorse and which to dispose
● Fight competitors by including the community a part of its differentiation strategy
43
Other alternatives:
Continue with their core competency Enter the Portal business Invest in creating switching costs Monetize other products and services to diversify income
Conglomerate horizontal integration
Expand their mission and enter into technology related industries
b. Recommended Strategy Pivot Google+
Invest in mobile ads through Android
Commercialize Fiber optic and grow it geographically to a global status
Create a product awareness program
Expand PROJECT Loon and invest in India and Africa
Diversify into artificial intelligence technology
VI. Implementation Issues
Being proactive in commercializing products might appear to compete with advertisers. It might
also yield poor results as a result of low user acceptance since many users react more to open
source and will find alternatives.
Google+ has a substantial number of users with Gmail accounts who will be affected once the
pivot happens. Android might lose credibility with advertisements introduced. Having Google+
mobile will receive intense competition from Facebook.
Getting in the artificial intelligence sector may dilute the core competencies of Google and
increase complexities. There are also environmental hazards and legal restrictions that will pose
implementation issues.
VII. International Strategy Google uses a business level international strategy of differentiation. They also use a Global
international corporate strategy because there is low need for local responsiveness with a high
need for Global integration. Many countries around the world would love to have more Google
services in their markets most importantly because of their free and open source nature.
Moreover, Google’s services are online making it easy to coordinate centrally and exploiting
their economies of scale. Google products and services are standardized and can easily replicate
to many different users in various markets. This supports the Global strategy further. Their entry
should mimic an export strategy because they need not set foot in the foreign country to infiltrate
its market with their services. The internet acts as a substantial export portal. This will be a
different kind of export because the foreign market will not take control of its products but the
44
level of investment at risk is very low. International environment risks will include political risks
and economic risks.
Recommendations Substitute advertisement channels: Incase advertisers cancel their services with Google; it will
lose a major portion of the 95% of its business that comes from advertisements. Although one
can argue that its mirage of products and services act as a backup and may be monetized if that
were to happen it’s still a gamble. One thing that can lead to this eventuality is when advertisers
fail to have conversion rates from their investments. Although return on investment on online
advertisements is difficult to measure, a continuous lack of revenue growth may signify the
inefficiency of the ads. In order to minimize losses from such an eventuality, it’s proper to pay
close attention to the products that have the most advertising channels which may compete for
Google’s clients.
Word of mouth: The company has benefited immensely from word of mouth; it’s high time that
they create an incentive program to reward users who spread the word about their products.
Google usage dynamics may shift based on changes as discussed under external factors. They
already anticipate a slight decline in next year’s net income. Therefore, increasing word of mouth
marketing not only increases market share but also minimizes any catastrophic shift in future.
Some factors that were discussed that could explain a shift include high competition, increase in
mobile search queries and a decline in desktop queries as a result of the transition to mobile age.
Additional Advertisements platforms: Despite suspected challenges Google has a strong position
to foster growth in the long run especially based on their recent acquisitions. Given that they
have a strong model in advertising, and is one thing that they do really, really well, they need to
introduce additional advertising venues.
Reduce Spamming: The increasing number of spam has been countered by the use of gravatars,
CAPTCHA and other anti-spam techniques but the internet is still crawling with many spams
that affect user’s interaction with products. Google should invest more in anti-spam software.
Other legal considerations to focus on include click fraud and the need for more private searches.
Google’s potential is still in the making, they are in a position to bring to life many more
innovations some recommendations would include personalized features, desktop search and
higher accuracy.
Superior search solutions: Google should continue to focus on comparative advantage. They
can do this by developing superior search solutions and monetizing more/new products and
through targeted advertising. They need to offer competitive prices in order to increase the threat
to market entrance even further and grow their quality even further to increase switching cost
and still retain usage and buyers.
Portal: Another avenue is in portal building. They have the opportunity to consolidate content
further. There is also still room for bringing real time and up to date information. They can
classify it by relevance. I recommend transforming their google plus avenue into a google portal.
45
Ecommerce: There is also a lot of opportunities in e commerce that mirror Google’s line of
business including online payment business, extending services to enabling the purchase of
copyright, journals and other intellectual items through their channels. Google should continue
focusing on its core competencies
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http://fortune.com/best-companies/
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mover-advantage/2012/04/26/gIQAEFjBjT_blog.html
Blankenhorn, D. (2011, December 10). Apple, Google and Second Mover Advantage. Retrieved from
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advantage
etherington, D. (2014, May 9). Techcrunch. Retrieved from Google plans low-cost high qualty Wi-Fi plans
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Retrieved from Gigaom: https://gigaom.com/2014/04/17/the-price-of-being-webscale-google-
spent-2-34b-on-infrastructure-in-q1/
Malik, O. (2007, December 4). Google's Infrastructure is it's strategic Advantage. Retrieved from
Gigaom: https://gigaom.com/2007/12/04/google-infrastructure/
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http://www.nytimes.com/2013/03/16/business/at-google-a-place-to-work-and-play.html?_r=0
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http://www.googleguide.com/google_works.html
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and Facebook?: http://www.forbes.com/sites/halsinger/2012/09/18/who-competes-with-
google-in-search-just-amazon-apple-and-facebook/
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Appendix Figure 5: Net income per quarter 2011-2016
In Millions of USD except
Per Share FY 2010 FY 2011 FY 2012 FY 2013 FY 2014
12 Months Ending 2010-12-
31 2011-12-
31 2012-12-
31 2013-12-
31 2014-12-
31
Revenue 29,321.0 37,905.0 50,175.0 55,519.0 66,001.0
+ Sales & Services
Revenue
100.0 100.0 100.0 91.0 89.5
+ Other Revenue -- -- -- 9.0 10.5
- Cost of Revenue 35.5 34.8 41.1 39.6 38.9
+ Cost of Goods &
Services
35.5 34.8 41.1 39.6 38.9
Gross Profit 64.5 65.2 58.9 60.4 61.1
+ Other Operating
Income
0.0 0.0 0.0 0.0 0.0
- Operating Expenses 29.1 34.2 33.4 32.6 36.1
+ Selling, General &
Admin
16.2 19.3 19.9 19.8 21.2
+ Selling & Marketing 9.5 12.1 12.2 11.8 12.3
+ General &
Administrative
6.7 7.2 7.7 8.0 8.9
+ Research &
Development
12.8 13.6 13.5 12.9 14.9
+ Other Operating
Expense
0.0 1.3 0.0 0.0 0.0
Operating Income (Loss) 35.4 31.0 25.4 27.7 25.0
- Non-Operating
(Income) Loss
-1.4 -1.5 -1.2 -0.9 -1.2
+ Interest Expense, Net -2.0 -2.0 -1.3 -1.2 -1.0
47
+ Interest Expense 0.0 0.2 0.2 0.1 0.2
- Interest Income 2.0 2.1 1.4 1.4 1.1
+ Foreign Exch (Gain)
Loss
1.2 1.0 1.1 0.7 0.6
+ Other Non-Op
(Income) Loss
-0.7 -0.6 -1.1 -0.3 -0.8
Pretax Income 36.8 32.5 26.7 28.6 26.1
- Income Tax Expense
(Benefit)
7.8 6.8 5.2 4.6 5.0
+ Current Income Tax 7.8 5.9 5.7 5.5 5.1
+ Deferred Income Tax 0.0 0.9 -0.5 -0.9 0.0
+ Tax
Allowance/Credit
0.0 0.0 0.0 0.0 0.0
Income (Loss) from Cont
Ops 29.0 25.7 21.5 24.0 21.1
- Net Extraordinary
Losses (Gains)
0.0 0.0 0.1 0.8 -0.8
+ Discontinued
Operations
0.0 0.0 0.1 0.8 -0.8
+ XO & Accounting
Changes
0.0 0.0 0.0 0.0 0.0
Income (Loss) Incl. MI 29.0 25.7 21.4 23.3 21.9
- Minority Interest 0.0 0.0 0.0 0.0 0.0
Net Income, GAAP 29.0 25.7 21.4 23.3 21.9
- Preferred Dividends 0.0 0.0 0.0 0.0 0.0
- Other Adjustments 0.0 0.0 0.0 0.0 0.0
Net Income Avail to
Common, GAAP 29.0 25.7 21.4 23.3 21.9
Net Abnormal Losses
(Gains)
-0.4 0.6 0.1 0.0 -0.1
Net Extraordinary
Losses (Gains)
0.0 0.0 0.1 0.8 -0.8
Basic Weighted Avg
Shares
2.2 1.7 1.3 1.2 1.0
Basic EPS, GAAP 0.0 0.0 0.0 0.0 0.0
Basic EPS from Cont
Ops 0.0 0.0 0.0 0.0 0.0
Basic EPS from Cont
Ops, Adjusted 0.0 0.0 0.0 0.0 0.0
48
Diluted Weighted Avg
Shares
2.2 1.7 1.3 1.2 1.0
Diluted EPS, GAAP 0.0 0.0 0.0 0.0 0.0
Diluted EPS from Cont
Ops
0.0 0.0 0.0 0.0 0.0
Diluted EPS from Cont
Ops, Adjusted 0.0 0.0 0.0 0.0 0.0
Reference Items
Accounting Standard US GAAP US GAAP US GAAP US GAAP US GAAP
EBITDA 40.2 35.9 31.3 34.8 32.5
EBITDA Margin (T12M) 0.1 0.1 0.1 0.1 0.0
Gross Margin 0.2 0.2 0.1 0.1 0.1
Operating Margin 0.1 0.1 0.1 0.0 0.0
Profit Margin 0.1 0.1 0.0 0.0 0.0
Sales per Employee 4,098.4 3,080.1 1,856.6 2,094.0 1,865.7
Dividends per Share 0.0 0.0 0.0 0.0 0.0
Total Cash Common
Dividends
0.0 0.0 0.0 0.0 0.0
Tot cash pref. dvd 0.0 0.0 0.0 0.0 0.0
Capitalized Interest
Expense
-- -- -- -- --
Depreciation Expense -- -- -- 5.0 5.3
Rental Expense 1.1 1.0 0.9 0.8 0.9 Figure 5 Financial Analysis (Net income per quarter and GAAP)
Figure 7: Ratio Analysis
Name Mkt Cap
(USD) P/E LF ROE LF Curr
Ratio
LF
Debt/A
ssets
LF
ROA
LF PM
LF
Average 75667.842 34.723 16.040 3.684 9.953 10.764 30.309
GOOGLE INC-
CL A
378196.854 26.238 15.061 4.801 3.994 11.935 26.277
YAHOO! INC 42379.132 41.169 29.032 2.142 1.889 19.099 13.275
INC-A 234196.313 70.927 11.345 9.600 0.580 10.072 18.073
IAC/INTERACT 5655.878 27.853 22.555 2.306 25.264 9.751 8.447
49
IVECORP
BAIDU INC -
SPON ADR 71788.563 37.774 29.321 3.248 25.963 15.455 22.982
NETEASE INC-
ADR 13503.164 16.918 21.551 4.105 6.753 17.175 36.710
DAUM KAKAO
CORP 6063.429 23.462 10.028 3.509 0.011 8.763 157.61
4
CORP - A
31942.657 -0.529 4.669 19.928 -0.359 0.465
GROUPON INC 5159.774 -9.901 1.057 1.718 -3.424 0.950
NAVER CORP 20050.073 49.414 27.820 1.800 13.428 14.919 17.490
YAHOO JAPAN
CORP 23410.420 18.750 20.158 3.282 15.013 31.120
Figure 7: Ratio Analysis
Figure 8: Application Software Industry Ratio Analysis
Name Mkt Cap
(USD)
P/E LF ROE
LF
Curr
Ratio
LF
Debt/Asse
ts LF
PM
LF
ROA
LF
Average 223607.4559 44.7068 13.228 2.272 14.066 7.9532 8.060
GOOGLE INC-
CL A 378196.8541 26.238 15.061 4.801 3.994 26.277 11.935
APPLE INC 719297.548 15.363 35.146 1.1330 13.900 24.161 18.257
MICROSOFT
CORP
336383.9122 17.634 23.364 2.454 16.190 22.150 12.592
SALESFORCE.
COM INC 43089.238 -7.462 0.809 12.819 -4.552 -2.647
INTUIT INC 26731.73904 32.565 34.648 1.222 9.514 -8.168 15.959
ADOBE
SYSTEMS INC
36444.60394 133.465 4.415 2.221 17.274 7.653 2.742
CONCUR
TECHNOLOGI
ES INC
#N/A N/A -14.955 1.833 35.961 -
19.863 -6.53
CERNER
CORP 25108.29614 42.976 15.606 3.703 2.877 15.968 12.178
Figure 8 Application Software Ratio Analyses
Figure 9: Internet Media industry Ratio Analysis
Name Mkt Cap
(USD) P/E
LF ROE
LF Curr
Ratio
LF
Debt/Ass
ets LF ROA
LF
PM
LF
Average 64085.960 61.89 9.161 3.633 10.957 5.861 19.77
50
4 2
GOOGLE INC-CL
A 378196.854 26.23
8 15.06
1 4.801 3.994 11.935 26.27
7
YAHOO! INC 42379.132 41.16
9 29.03
2 2.142 1.889 19.099 13.27
5
FACEBOOK INC-
A 234196.313 70.92
7 11.34
5 9.600 0.580 10.072 18.07
3
IAC/INTERACTI
VECORP
5655.878 27.85
3
22.55
5
2.306 25.264 9.751 8.447
BLUCORA INC 573.796 306.4
36 -7.159 5.040 31.961 -3.841 -
62.92
8
BAIDU INC -
SPON ADR
71788.563 37.77
4
29.32
1
3.248 25.963 15.455 22.98
2
NETEASE INC-
ADR 13503.164 16.91
8 21.55
1 4.105 6.753 17.175 36.71
0
DAUM KAKAO
CORP 6063.429 23.46
2 10.02
8 3.509 0.011 8.763 157.6
14
LINKEDIN CORP
- A 31942.657 -0.529 4.669 19.928 -0.359 0.465
GROUPON INC 5159.774 -9.901 1.057 1.718 -3.424 0.950
MILLENNIAL
MEDIA INC 197.426 -
50.18
9
1.668 0.000 -
38.363 -
13.44
0
YAHOO JAPAN
CORP
23410.420 18.75
0
20.15
8
3.282 15.013 31.12
0
NAVER CORP 20050.073 49.41
4
27.82
0
1.800 13.428 14.919 17.49
0 Figure 9 Internet Media Industry Ratio Analysis
Figure 15: Ratio Analysis S&P 500 IT Vs Google
In Millions of
USD except
Per Share
CY
2010
CY
2011
CY
2012
CY
2013
CY
2014
Current CY
2015
Est
CY
2016
Est
12 Months
Ending
2010-
12-31
2011-
12-30
2012-
12-31
2013-
12-31
2014-
12-31
2015-03-
27
2015-
12-31
2016-
12-31
Return on
Common
Equity
20.68 18.66 16.54 16.25 15.06 15.06 16.05 16.10
S&P 500
Information
Technology
Sector Index
24.27 24.15 19.64 21.91 22.33 22.34 26.22 24.33
51
GICS Level 1
Return on
Capital 19.85 17.46 15.48 15.30 14.36 14.36
S&P 500
Information
Technology
Sector Index
GICS Level 1
20.07 19.87 16.02 17.51 17.16 17.02
Operating
Margin
35.40 30.98 25.43 27.74 24.99 24.30
S&P 500
Information
Technology
Sector Index
GICS Level 1
20.74 21.01 20.57 21.08 21.85 21.95
Price/EPS 22.92 21.22 21.68 28.42 26.25 27.64 19.54 17.02
S&P 500
Information
Technology
Sector Index
GICS Level 1
15.69 13.36 14.44 17.93 18.82 18.77 16.35 14.73
Price/Book 4.13 3.61 3.26 4.32 3.45 3.64 3.04 2.62
S&P 500
Information
Technology
Sector Index
GICS Level 1
3.50 3.11 3.16 3.70 4.09 4.07 3.77 3.34
EV/T12M
EBITDA 13.50 12.42 12.05 16.59 13.91 14.67 10.67 9.18
S&P 500
Information
Technology
Sector Index
GICS Level 1
8.68 7.44 7.59 9.86 10.66 10.57 9.19 8.46
Net
Debt/EBITD
A
-2.72 -3.03 -2.80 -2.87 -2.90 -2.90
S&P 500
Information
Technology
Sector Index
GICS Level 1
-0.99 -0.97 -1.13 -1.27 -1.15 -1.14
52
Figure 15 Ratio Analyses S&P 500 IT Vs Google
Figure 6: Search Engine Market Share Figure 6 Search Engine Market Share
Figure 1: Quarterly Stock Prices 2007 ........................................................................................................... 4
Figure 25: Transience and Innovation Map ................................................................................................ 10
Figure 3: U.S. Search Share - 2004
Table 1: Cost/ Quality Arena Storage devices ............................................................................................. 19
Figure 23: Cost/ Quality Arena .................................................................................................................... 20
Table 3 Analysis of Net Income ................................................................................................................... 23
Table 4 External factor analysis .................................................................................................................. 38
Table 5 Internal Factor Analysis .................................................................................................................. 39
Table 6: Strategic Factor Analysis ............................................................................................................... 40
Table 7: TOWS ............................................................................................................................................. 42
.................................................................................................................................................................... 14
Figure 4: Mapping Strategic Groups ........................................................................................................... 14
Figure 5 Financial Analysis (Net income per quarter and GAAP) ................................................................ 48
Figure 6: Search Engine Market Share Figure 6 Search Engine Market Share ............................................ 52
53
