Google14qen Last Version 1228241181867301 9

Everything you always wanted to know
about GoogleBut were afraid to ask

Paris, December 2008
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...
December 2008 Everything you always wanted to know about Google
Google key success factors : Web specific ?

Network effects
Scalability
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 traditional walled

garden1 media strategy
becomes irrelevant
Content and services must
be open and interoperable
to favor audience
circulation
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
Cocreation
Openness
Data mining
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
The web offers the

opportunity to exploit and
analyze a very large
amount of data
Users behavior can be
analyzed to create
monetizing value
Business model
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
...
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 ?
Annex: Network effect, two-sided market, glossary, financial , contact

...
Why wont Google be affected by the crisis ?

4 levers will allow Google to increase its revenues amidst the economic crisis
Performance
advertising
Licenses and
other
revenues
Internet
Mobile
On line
video
YouTube
monetization
increases
Bn$ 201
Monetisation of
the Internet
Mobile audience
Explosion of the
non advertising
revenues
Bn$ 35 1
During a crisis,
performance
advertising gains
market shares
+ 3% 2007-2008 1
+450% 2007-2008
260 millions mobile

subscribers
worlwide oct 2008 1
Estimates 2008 :
Revenues = 200 M $
1
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
...
Why is Google trying to change the

mobile world ? (1/2)
Mobile industry is based on a traditional locked values chain.
Terminal
Operating
System
Portal
Operator
Web Contents
Examples:
Entry barriers stop Google from applying its models to the mobile industry:
Limited Network Access
Terminals assigned to a unique operator

Difficulty of interconnecting networks
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.
...
Why is Google trying to change the

mobile world ? (1/2)
In order to duplicate its open model, Google designed a three fold strategy :
Android : Open Source
O.S.1
Lobbying
Telco partnerships
Android Developer Challenge:
Google candidacy for mobile
Pressure from Google to force
Contest for developers to create

new applications for Android
license attribution aims to force the

FCC2 to impose an openness
clause to the winner
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
A success : clause partially

imposed on the winning bidder,
Verizon.
Sharing
of
advertising
revenues between Google and
operators
In addition, Google developed and acquired mobile devices applications :

Location-based
services
Cab4me FreeFamilywatch
Social
Networks
Games
Golfplay
JOYit
Wertago
Jaiku 3
Collaborative
Tools
ShareYour Grand central 3

Board
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
...
Why isnt YouTube a content portal ? (1/2)

YouTube acquisition is part of a strategy to monitor key content and audience hubs.
Monetise contents
through various
sources of audience
Give access to
information
Organise information
A new information silo: video
YouTube bandwidth
Broadcasting of contents
search
spending estimated to reach

1M$/day1
through Google websites as

well as other sites
Next : Speech to text
Revenue sharing logic
technology : information
searches within video
contents
YouTube has already won the audience battle
75%
60%
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
...
Why isnt YouTube a content portal ? (2/2)

Unlike its competition, YouTube follows an open logic and focuses primarily on
developing content distribution tools :
Encourage content
providers to use the service
YouTube Program Partner :

Payed providers of semiprofessional content
Broadcasting contracts
with major content providers
Attract as many viewers as

possible
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
Monetize through relevant

advertising tools
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
Why does Microsoft fear Google ?

Googles ambition isnt limited to in browser Web services, but extends to
any online or offline application market.
Google sets out to enter the online application market, MSFTs cash cow :
Disruption of offline application
market segments
Consolidation of the online

environment
Launching of the Office Google
Launching of Google Gears:
software pack: a word-processor,

a spreadsheet program, a
presentation tool and a calendar
Free alternative to Microsoft
Office pack
Open Source project allowing an

offline use of online applications
Claimed ambition of becoming

a standard and encouraging
online languages as opposed to
offline programming languages
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
...
10
How Google wants to compete with Facebook ?

In 2007, Google launched Opensocial : a series of multi platform API allowing
developers to create compatible applications with partnering social networks,
Ex : Slideshare application available on Linkedin and hi5
OpenSocial is not a Facebook competitor but a meta-social network .
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
...
11
Why is Google buying satellites ? (1/2)

Since 2005, Google has been multiplying investments in all kinds of
infrastructures:
Free Wifi in Mountain View

Investment in Fon: shared Wifi
access
Wifi
Gratuit
Satellite
Wimax
60 M$ Investment
Internet access in
developing countries
Baloon
Wifi
Partnership
announcement
Internet access
technology superior to
satellites for isolated
areas
Backbone1
Partnership
A mobile high-speed
internet access
technology
A 100 M users
market by the end of
2008
100 M$ investment
Expansion of highspeed networks
...
1 Long distance high-speed networks, core of the Internet network
12
Why is Google buying satellites ? (2/2)

Internet infrastructures is actually Googles business
infrastructure:
Traffic on Google websites depends on internet infrastructure development and
availability (Backbone, Wifi, Satellite,)
Google has three objectives when investing in the upstream part of its value
chain:
Strengthen and secure existing
infrastructure
Favor high-speed Internet access
Prioritize Internet access for

unconnected countries or populations
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.
...
13
How does Google buy traffic ?

Google asserts its ability to attract users on the sole basis of its services quality and without
turning to advertising Truth is Google largely buys traffic from providers
Browsers
Manufacturers
Firefox: 60 million daily

users in 2008
Google finances 85% of
Firefox in exchange for
having its search engine
embedded in the browser
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.
Toolbar
Portals
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.
...
14
Why did Google acquire DoubleClick ?

In 2007, Google acquired DoubleClick, one of the world leaders in display
advertising :
To position itself on the banner
market
Google moves up the long tail
of advertisers
Ad budget per
advertiser
Banner Market
Traditional
advertising
market
Text ad market
To reach for highly popular

websites
Market shares of main online
advertisers in relation to website
traffic 1
Advertising
houses
< 100k
UV2
100k1M UV2
>1Mon
UV2
Adbrite
4,1%
4,9%
0,5%
AOL
1,9%
6,5%
5,7%
DoubleClick
9,1%
29,9%
48,0%
Google
71,4%
41,6%
15,8%
MSN
6,6%
6,3%
12,8%
Yahoo
4,7%
7,3%
16,5%
Number of advertisers
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
15
Why doesnt Google monetize all of its

services?
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
These services are actually indirectly monetized :

Tools designed to
generate audience are
made available
Monetization of blogs created on
Blogger through AdSense or
FeedBurner
Products specifically
developed to improve
other Google products
Attract new customers

through loss leaders
Google 411 created to better the

video indexing on YouTube
Picasa devised as a loss leader

towards other Google products
Google global strategy allows strong indirect monetization of its products

...
16
10
How does Google capitalize on Open

Source developers work ?
Google encourages development of open source applications:
Google code: platform designed for Open Source developers

Supplied with guides, tutorials, code extracts of Google products
Google Search Code: code search engine

Automatic referencing of all code sections that can be found on the Internet
Events created for the Open Source community:

Google Summer of Code: grants awarded to Open Source student projects
Google Developer Days: seminars dedicated to Google products
Through support of Open Source community, Google pursues 4 objectives:

Increase of total
Internet traffic
New applications
create new uses,
leading to increased
total traffic
Promotion of a more
open Web
Increasing the
interoperability
multiplies network
effects1
Opensource is
becoming an
advantage to attack
proprietary code
strategies
Assembling a free
public relations team
Developers chats are
a very effective public
relation tool
Development of Open
Source langages used
by Google
The number of
available Open Source
codes encourages the
emerging of new
products
Feedback of Open
Source developers
helps creating new
products
Google supports the Open Source community in a spirit of collaborative

creation, one of Googles strategic pillars
...
1 See Annex
17
How did Google capture the offline

advertising market ?
11
Online advertising market accounts for only 8% of the US market1:

3%
7% 8%
44%
17%
Billboards
Radio
Internet
Daily Press
News Press
Television
Most offline media (television,

radio, press,) begin to be IPready with online versions
21%
Google is exploring the offline ad market!
Ad transfer from online to offline
(YouTube on television)
Entry on traditional offline markets
(radio, billboards,)
Integration of offline techniques
(traditional fixed pricing)
Partial adaptation of AdWords onto
radio and television
Googles entry on this market anticipates new uses and broadens its offer.
Not specifically successful for now
...
1 TNS Media Intelligence, US advertising market
18
12
Why is Google stealing our voices?

In 2007, Google launched Google Voice Local Search in the United States, a
free and automated phone directory service :
What is the business model of this
free and ad-free service ?
Google is creating a database of phonemes, recorded during calls in order to
better its speech to text1 technologies:
Creation of a
phoneme
database
Development
of speech to
text
technologies
Indexing of
YouTube
audio tracks
Indexing of all
audio/voice
sources
2
Bla bla
bla
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
...
19
13
Is PageRank a really competitive

advantage ? (1/2)
PageRank is Googles link analysis algorithm that measures the probability
that a page will be relevant to users query :
Based on the correlation between the amount of links towards a page and their
relevance
It accounts for the notoriety of the sites that link to the page in question
PageRanks simplified formula is :
(A pages (u) PR is the sum of all PRs of pages linking to u (v), divided by the respective number of
outbound links contained in pages v)
Google1 claims that PageRank is one of its search engines main competitive
advantage :
A champion of
democracy
The search engines

cornerstone
A tool unlikely to be
tampered with
1 http://www.google.fr/why_use.html
...
20
13
Is PageRank a really competitive advantage ?

(2/2)
A tool that cant be tampered with?
An outdated technology?
Sale or exchange of famous website links

(webringing)
Search Engine Optimization1 techniques
Launch of search engines that

dont use tools such as
PageRank (Cuil, Powerset)
Googles search engine success relies on other factors :

Scalable architecture
Capacity of increasing/
growing according to the
volume of indexed pages
and number of queries
2 millions servers by 2008
Relevance guaranteed
by 200 other criteria
Quick/simple queries
Clear query interface

Simple and quick
presentation of results
The search engines

algorithm was subjected to
450 modifications in 2007
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.
...
21
14
How does Google turn advertising into

information and performance?(1/2)
Advertising income often provides an incentive to deliver poor quality search results
Sergey Brin & Larry Page
Most advertising models present strong weaknesses
Strong intrusion
Large size adverts

Slows down results
display from a search
engine query
Undefined
performance
Weak relevance
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)
...
22
14
How does Google turn advertising into

information and performance?(2/2)
Displays advertising
defines
Relevance
Quality Score
Performance
For the user
Direct impact on advertising value
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:
Rank: relevant ads are pushed up,

non relevant ads do not appear
Cost per click of the ad : performant
ads are charged less
Less relevant ad
Total cost of the advertising

campaign is determined by the
number of clicks on the ads and
not by the number of displays.
Googles advertising model benefits the user (improved relevance) as well as

the publisher (performance based billing & rebates)
...
23
Google : the network circulation value

creation model
Network value creation
Eg : Google
Traditional value creation

Eg : Microsoft
$
$
Server
Products
$
Gmail
Apps
Apps
$
Customer
products
$
Business
Products
$
Search
engine
$
$
$
Entertain
ment
$
Partners
Youtube
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)
...
24
Going further : are Googles key success

factors limited to Google
Our conviction : Every company innovating in the digital industry must
address and capitalize on the 6 identified key success factors to perform
on digital markets.
Our proposition : faberNovel proposes to align companies strategy,

development projects and existing products with these factors to ensure
success optimization and market performance.
Download our comprehensive White Paper
Googles key success factors

http://www.fabernovel.com
...
25
Annex
Definition : network effects

Definition : two-sided market
Pricing of a two-sided market
Glossary
Financial datas
Acknowledgement
Contacts
...
26
What is a network effect?

A network effect describes how a service becomes more valuable to its
users as more people use that same service
Phones utility is limited if

the network is composed
of 2 users
The utility for a user

raises if the network
broadens
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.
...
27
What is a two-sided market?

A two sided market consists of a platform allowing 2 groups of
clients/providers to interact and which optimizes the revenue distribution
among these groups with the objective of maximizing market sizes.
Exemple of the video game market
Crossed network effects
Price A
Internal
network
effects
Price B
Side A
Developers
Side B
Consumers
Network effects in action

Internal effects
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
...
28
Pricing of a two-sided market

Price A > 0
Side A
Price A < 0
Platform1
The platform may charge a side

Example 1 : Apple Appstore charges
developers by taking a revenue share

on sold applications
Example 2 : Microsoft makes
consumers pay for video games
Face A
Platform1
or subsidize a side
Example 3 : Google Android finances
developers through a contest

Example 4 : Youtube finances video
content providers
Who should you be charging?

Who should be subsidized?
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
...
29
Financial data (1/2)

Revenues and Net margin (M$)
439
1466
3189
6139
Revenue distribution/activity (B$)
10604
16,6
Total
16594
0,2
Revenues
1%
CAGR Revenues 02-07 : 107%

CAGR Net margin 02-07 : 112%
Net
margin
Licences and other

revenus
5,8
Partner websites
(AdSense)
34%
10,6
4203
100
2002
399
106
2003
2004
1465
2005
3077
2006
Google web sites
CA 2007
2007
Most of Googles revenues still

come from its own websites
Net margins growth outperform

revenues growth
78% 79%
2005
65%
2006
85%
2007
Advertising revenue share to partner

web sites is increasing2
and is the highest of the market
Source: Google financial tables 2007
...
2 : calculated as Traffic Acquisition Cost/Google Network web sites revenues
30
Financial data (2/2)

Advertising revenues
Turnover
Traffic acquisition costs
R&D
investments
6139
10604
16594
16,4
10,5
34,9%
6,1
2,1
2005
31,5%
3,3
2006
30,1%
599
9,0%
4,9
2005
2120
12,0%
1229
11,0%
2006
2007
2007
Controlled traffic acquisition costs
High R&D investments
34,9% of advertising revenus in 2005 vs 30,1% in 2007
+88%/year between 2005 and 2007
+ 26%
1,9
2,4
2005
2006
Data center costs are under control

In Billion $ : +26% 2006/2007 (vs +72% revenues)
...
Source: rapport annuel Google 2007
31
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
...
32
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/
...
33
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
...
34

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Everything you always wanted to know

about GoogleBut were afraid to ask

This work is licensed under the Creative Commons to allow for

December 2008 Everything you always wanted to know about Google

Google key success factors : Web specific ?

Ability to easily grow at

The traditional walled

The utility of a good or a

The web offers the

Advertising is not a market

Why wont Google be affected by the crisis ?

Annex: Network effect, two-sided market, glossary, financial , contact

December 2008 Everything you always wanted to know about Google

Why wont Google be affected by the crisis ?

260 millions mobile

December 2008 Everything you always wanted to know about Google

Why is Google trying to change the

Limited Network Access

Terminals assigned to a unique operator

Access restricted to services/contents

Operator portals favored over other portals

December 2008 Everything you always wanted to know about Google

Why is Google trying to change the

Android Developer Challenge:

Google candidacy for mobile

Pressure from Google to force

Contest for developers to create

license attribution aims to force the

operators to offer its applications

A success : clause partially

In addition, Google developed and acquired mobile devices applications :

ShareYour Grand central 3

2 Federal Communications Commission

December 2008 Everything you always wanted to know about Google

Why isnt YouTube a content portal ? (1/2)

spending estimated to reach

through Google websites as

Next : Speech to text

Revenue sharing logic

YouTube has already won the audience battle

Market shares of 5 leading video websites,

December 2008 Everything you always wanted to know about Google

Why isnt YouTube a content portal ? (2/2)

YouTube Program Partner :

Attract as many viewers as

Monetize through relevant

YouTube acts as the platform of a two sided3 market composed of content

December 2008 Everything you always wanted to know about Google

Why does Microsoft fear Google ?

Consolidation of the online

Launching of the Office Google

Launching of Google Gears:

software pack: a word-processor,

Open Source project allowing an

Claimed ambition of becoming

Google partly destroys Microsofts market when shifting value

How Google wants to compete with Facebook ?

OpenSocial is not a Facebook competitor but a meta-social network .

Why is Google buying satellites ? (1/2)

Free Wifi in Mountain View

1 Long distance high-speed networks, core of the Internet network

December 2008 Everything you always wanted to know about Google

Why is Google buying satellites ? (2/2)