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Everything You Always Wanted To Know About Google But Were Afraid To Ask
Everything You Always Wanted To Know About Google But Were Afraid To Ask
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Ability to easily grow at marginal costs Applied to infrastructures : ability to adapt its size to high load & volumes Applied to business models : ability to monetize millions of users
The utility of a good or a service varies with the number of users The reach of a critical mass of users constitutes a significant barrier to the entry
The web offers the opportunity to exploit and analyze a very large amount of data Users behavior can be analyzed to create monetizing value
Openness
Cocreation
Business model
The traditional walled garden1 media strategy becomes irrelevant Content and services must be open and interoperable to favor audience circulation
Non-traditional actors become part of the value chain Users, content creators and external developers are given the tools to create new markets and enrich services
Advertising is not a market but a business model Any market that attract advertising is a target for Google
1 Network or portal which offers only its own content or services to users December 2008 Everything you always wanted to know about Google
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1 2 3 4 5 6 7 8 9 10 11 12 13 14
Why wont Google be affected by the crisis ? Why is Google trying to change the mobile world ? Why isnt YouTube a content portal ? Why does Microsoft fear Google ? How Google wants to compete with Facebook ? Why is Google buying satellites ? How does Google buy traffic ? Why did Google acquire DoubleClick ? Why doesnt Google monetize all its services ? How does Google capitalize on Open Source developers work ? How did Google capture the offline advertising market ? Why is Google stealing our voices ? Is PageRank a really competitive advantage ? How does Google turn advertising into information and performance ?
Bn$ 35 1
Bn$ 201
Revenues 2008
Revenues 2012
Google is in a situation in which it can resist the economic crisis and find new revenue sources, both advertising and non-advertising
: faberNovel estimates
1
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Examples:
Entry barriers stop Google from applying its models to the mobile industry:
Access restricted to services/contents and to their improvement
Operator portals favored over other portals Services offered by terminal manufacturers favored over other services Closed operating systems
The mobile industry is not suited for the Google development model based on openness, interoperability and network effects.
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Lobbying
Google candidacy for mobile
license attribution aims to force the FCC2 to impose an openness clause to the winner
Telco partnerships
Pressure from Google to force
operators to offer its applications as default options
Open
Handset Alliance: Common initiative of 34 mobile phone industry players (manufacturers, suppliers and distributors) aiming at spreading Android
Sharing
Cab4me FreeFamilywatch
Golfplay
JOYit
Wertago
Jaiku 3
Google breaks open the mobile industry value chain to create an environment that will be fit to the distribution of its products and monetization model.
1 Operating System 2 Federal Communications Commission 3 Acquisitions
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Organise information
A new information silo: video
search
May 2008
May 2007 16% 9% 4%8% 2% 3% 1% 1%
Market shares of 5 leading video websites, United States (may 2008 vs.may 2007) [%]2 1 NewYork Times 2 Hitwise 2008
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Broadcasting videos on YouTube website and other Google sites (ex : Google.com, GoogleNews) Exporting videos (blogs, social networks) and developing API1 for advanced broadcasting on third party websites Broadcasting on all video devices : television, mobiles, multimedia players, video consoles
Traditional advertising: AdSense and banners In-video advertising : Pre-roll, post-roll, overlay2
Brand advertising: broadcasting video ads within an environment coherent with the brands image
E-Commerce: Affiliation of partner websites (Amazon, Itunes, video games)
YouTube acts as the platform of a two sided3 market composed of content providers and video seeking users.
1 Application Programming Interface. Standardized programming protocol allowing applications to communicate 2 Clickable text advertising displayed on a video 3 See Annex
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Acquisition of SketchUp, a 3D
modeling software with a free version made available
Google partly destroys Microsofts market when shifting value from offline to online
December 2008 Everything you always wanted to know about Google
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Network effects
Network effects
Network effects
Google wants to become the social data search engine and to monetize this data, leveraging network effects.
Facebooks platform is limited, Googles is the whole Web
December 2008 Everything you always wanted to know about Google
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Satellite
Wimax
Baloon Wifi Backbone1
Partnership A mobile high-speed internet access technology A 100 M users market by the end of 2008
Partnership announcement Internet access technology superior to satellites for isolated areas
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Google has three objectives when investing in the upstream part of its value chain:
Strengthen and secure existing infrastructure
Strengthening and securing existing infrastructure lightens Googles dependancy on its providers
Favouring high-speed Internet access means more time spent and usage volumes, thus increases Google services usage Future web users are Google services next users
Through infrastructures investments, Google reinforces its traffic providers and increases access to its services.
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Browsers
Manufacturers
Toolbar
Portals
In 2006, partnership deal with Dell to have the Google search engine appear by default on Dell computers In 2008, partnership deal with Apple to have the Google search engine appear by default on Iphones (13 million devices sold by october 2008) Partnerships with manufacturers allow the search engine to be guaranteed to in a prime position.
The Google Toolbar is part of the web navigator, which makes Google the default search engine Adobe installs it as part of a package with Shockwave(2006) Sun has been installing it as part of a package with Java since 2005 (20 million uploads/month)
In 2005, Google bought a 5% stake in AOL for 1 billion$ (20 million subscribers at time of deal) Google became AOLs white label search engine Google expands its advertising network reach
Google has the financial power to buy traffic from partners, accessing to massive audiences.
December 2008 Everything you always wanted to know about Google
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To reach for highly popular websites Market shares of main online advertisers in relation to website traffic 1
Advertising houses Adbrite < 100k UV2 4,1% 1,9% 100k1M UV2 4,9% 6,5% >1Mon UV2 0,5% 5,7%
Text ad market
AOL
DoubleClick
Traditional advertising market Google MSN Yahoo Number of advertisers
9,1%
71,4% 6,6% 4,7%
29,9%
41,6% 6,3% 7,3%
48,0%
15,8% 12,8% 16,5%
Google acquired DoubleClick to gain an expertise (display) and global market shares (highly popular websites)
1 www.attributor.com/blog/2008/03/ 2 Unique Visitors
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Some Google services are free of charge and monetized through advertising :
Blogger: blog creating tool Google Health: service for managing and storing personal medical information GoogleNews: personalized mash-up of news articles and summary Picasa: photo sharing service Google SketchUp: 3D model creating tool Goog-411: phone information service
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10
Google code: platform designed for Open Source developers Google Search Code: code search engine
Automatic referencing of all code sections that can be found on the Internet
Google supports the Open Source community in a spirit of collaborative creation, one of Googles strategic pillars
1 See Annex
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11
Most offline media (television, radio, press,) begin to be IPready with online versions
Googles entry on this market anticipates new uses and broadens its offer. Not specifically successful for now
1 TNS Media Intelligence, US advertising market
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12
Externalizing tasks onto users ( crowdsourcing 3) is a commonly used process by Google to improve its products.
1 Converting oral information into text 2 First experiments with political videos posted during the presidential campaign of 2008. 3 Neologism created in 2006 by Jeff Howe and Mark Robinson, Wired magazine editors
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13
Google1 claims that PageRank is one of its search engines main competitive advantage :
A champion of democracy
1 http://www.google.fr/why_use.html
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13
An outdated technology?
Launch of search engines that dont use tools such as PageRank (Cuil, Powerset)
Capacity of increasing/ growing according to the volume of indexed pages and number of queries 2 millions servers by 2008
PageRank is only one of many Googles search competitive advantages. It is certainly not the main entry barrier to competitors on the search market.
1 Set of techniques aiming at improving a sites referencing on a search engine.
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14
Influence results by
making paid for clients appear first Example: Opentext/Kelkoo Little or non-existent targeting
Impossible to reward
efficient advertising Example : television ads No direct measure of real performance Example : invoicing according to the number of displays (CPM)
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14
Relevance
For the user
Quality Score
Direct impact on advertising value
Performance
For the advertiser
Most relevant ad Qualityscore measures the relevance of the ad and is determined by the click throug rate on the ad. It impacts the display rank and Cost per Click:
Googles advertising model benefits the user (improved relevance) as well as the publisher (performance based billing & rebates)
December 2008 Everything you always wanted to know about Google
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Gmail
Apps $
Customer products $
Business Products $
Search engine $ $ $
Partners
The global value of the company relies on independent lines of products/business units
The global value of the company relies on traffic between network parts (proprietary or partners)
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Annex
Definition : network effects Definition : two-sided market Pricing of a two-sided market Glossary Financial datas Acknowledgement Contacts
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According to Metcalfes law, the utility(U) of a network is proportional to the square of the number (n) of its users
U k*n2
Network effects creates critical masses of users. They represent significant barriers to entry for competitors.
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Price A
Price B
Side A Developers
Side B Consumers
Utility to a new developer increases as the community of developers grows (shared knowledge) Utility to a new consumer increases as the community of consumers grows (secondhand market)
Crossed effects
A potential market for a developer gets bigger as more consumers enter the said market The number of games available to the consumer increases with the number of developers working on the platform
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Side A
Platform1
Face A
Platform1
or subsidize a side
Example 3 : Google Android finances
developers through a contest Example 4 : Youtube finances video content providers
The platform must subsidize the groupe that is most price-sensitive and charge the group that is most sensitive to the other groups size.
1 Provided the sum of price A + price B is a fixed figure, a platform financing a group automatically charges the other group and vice versa
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10,6
100
2002
106
2003 2004
399
1465
2005
65%
2006
2007
CA 2007
78% 79%
2005 2006
85%
2007
30
R&D investments
16,4 10,5
6139
10604
16594
34,9%
2,1
6,1
31,5%
3,3
30,1%
4,9
599 9,0%
1229 11,0%
2120 12,0%
2005
2006
2007
2005
2006
2007
+ 26%
1,9
2,4
2005
2006
...
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Glossary
API : application programming interface. Standardized programming protocol
allowing applications to communicate Internet Backbone : main trunk connections of the Internet, made up of a large collection of interconnected high-capacity data routes and core routers that carry data across the countries and continents Crowd sourcing : act of outsourcing a task to users Data center : facility used to house computer systems and associated components O.S. : operating system Overlay ad : clickable text advertising displayed on a video Scalability: property of a process, which indicates its ability to handle growing amounts of work easily Search Engine Optimization : process of improving the volume and quality of traffic to a web site from search engines via natural search results (as opposed to paid search results) Speech To Text : technology converting spoken words to machine-readable input such as text Walled Garden : closed or exclusive set of information services provided for users by a network or portal
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Acknowledgements
To faberNovel contributors :
Amaury de Buchet, VP Consulting Cyril Vart, VP Strategy & Development Alexis Arqui, Junior Project Analyst Mounir Fassouane, Junior Project Analyst
To the bloggers :
Olivier Ertzscheid from affordance.typepad.com/ Google Operating System : googlesystem.blogspot.com/ Richard MacManus from readwriteweb.com/ Techcrunch.com & Mobilecrunch.com/ Frdric Cavazza from fredcavazza.net/
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Stphane Distinguin Founder and CEO stephane.distinguin@fabernovel.com Cyril Vart VP Strategy & Development cyril.vart@fabernovel.com Pierre Fremaux Project Analyst pierre.fremaux@fabernovel.com Matthieu Lecomte Junior Project Analyst matthieu.lecomte@fabernovel.com Tl. : +33142722004
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