Google’s key success factors

November 2008

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Preliminary note –
This study does not aim to give an exhaustive description of Google’s strategy. We mostly attempt to identify the company and industry’s specificities and to give a wide vision of Google’s key success factors, part of these factors applying to the digital ecosystem. However, the teachings of this analysis may as well apply to any industry facing the need to evolve and innovate in a competitive environment. The Internet revolution is neither technical nor organizational, but a conjunction of both. Hence, the innovation paradigm of Google is considered as widely a replicable. Google web culture Throughout this paper, we identified major reasons on which is based Google’s success. A common denominator applies to the firm’s management model, to its innovation machine, and to its industrial strategy: Google is the first major company to fully understand and implement the recently born web culture. As an illustration, we can spot a few characteristics that are idiosyncratic of the Internet and hence of the Google model. -Scalability: what works on a small scale has to work on a large scale. This applies to infrastructures - a system must be ready for high loads – as well as to business models – a product must be adapted for a very important number of customers. -Network effects: the benefit of a product or service increases with the number of users. The reach of a critical mass of users constitutes a significant barrier to the entry of competitors. -Data: whether it be for internal management or for customer knowledge, the web offers the opportunity to collect, exploit and analyze a very large amount of data. This metric environment helps optimizing uncertainty management. -Openness: the traditional walled garden media strategy exploded; content and services must be open to all, and be interoperable. -Co-creation: Non-traditional actors become part of the value chain. In particular, users, content creators and external developers are given the tools to create new markets. -Business Model: advertising is not a market but a business model. Google is able to extend its domination by creating new markets or changing the model of existing industries.

KSF

Scalability

Network

Data

Openness

Cocreation

Business Model

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Google’s key success factors .................................................................................................................. 1 I Google as a Platform .......................................................................................................................... 4 1 The Google business model ......................................................................................................... 4 1.1 Google’s multi-sided market: making profit out of network effects ....................................... 4 1.2 Setting up a pricing system: who is paying for the service ................................................... 5 1.3 A scalable architecture: being prepared to get bigger .......................................................... 6 1.4 A disruptive business model ................................................................................................. 7 1.5 Google’s long tail of advertisers ............................................................................................ 8 1.6 The perfect ad ....................................................................................................................... 9 2 Google’s search for new ad supports ......................................................................................... 10 2.1 Monetizing the Web: AdSense ........................................................................................... 10 2.2 Moving up the long tail of publisher: acquisition of DoubleClick ........................................ 11 2.3 From search to content and services.................................................................................. 12 2.4 Offline Google ..................................................................................................................... 13 3 Google’s video strategy............................................................................................................... 16 3.1 Content and diffusion .......................................................................................................... 17 3.2 Attracting advertisers .......................................................................................................... 20 4 Google’s Mobile Strategy ............................................................................................................ 22 4.1 Moving the mobile industry to the web ............................................................................... 23 4.2 New mobile products and services ..................................................................................... 24 Google in its ecosystem .................................................................................................................. 27 Google and the crowds ............................................................................................................... 28 1.1 PageRank: from neutral hyperlinks to a ranking algorithm ................................................ 28 1.2 Google Image Labeler: when players index images .......................................................... 29 1.3 Google 411: a phonemes database to empower speech recognition ................................ 30 1.4 Google My Location: GPS users create cell phone databases .......................................... 30 2 Google and the acquisition of traffic ........................................................................................... 31 2.1 Acquisition of traffic from browsers and toolbars ................................................................ 31 2.2 Acquisition of traffic from hardware manufacturers ............................................................ 32 2.3 Acquisition of traffic from web portals ................................................................................. 32 3 Investing in Internet Access infrastructures ................................................................................ 33 3.1 Strengthening existing infrastructure in mature markets .................................................... 33 3.2 Democratizing access for billions of users ......................................................................... 34 4 Google and the developers ......................................................................................................... 36 4.1 Google Code ....................................................................................................................... 36 4.2 Financing Firefox................................................................................................................. 37 4.3 Entering the offline software market ................................................................................... 37 4.4 Promoting open source applications on mobile platforms .................................................. 37 5 The promotion of a more open Web and Mobile environment ................................................... 38 5.1 Opensocial: network effects on an open Web .................................................................... 38 5.2 Gears: interoperable standards for offline capabilities ....................................................... 39 6 Creative destruction .................................................................................................................... 39 6.1 Google’s destructive effect on other industries’ value ........................................................ 40 6.2 Creative destruction in specific industries .......................................................................... 41 1

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I Google as a Platform
1 The Google business model

Google applied all of its success factors in its business model by focusing on the users to create network effects, implementing a performance-based model to seduce advertisers, creating a scalable architecture for a worldwide market and by definitely changing the rules of the market.
KSF Importance
Scalability High Network High Data Normal Openness Low Cocreation Low Business Model High

1.1

Google’s multi-sided market: making profit out of network effects

Like many Internet companies, Google had a large pool of users before it knew how to make money. Unlike many of those companies, Google found an effective business model and achieved considerable success. One of Google’s mantra, “focus on the user” comes from that time when Google could record 60 million searches a day and only made a few dollars out of it. In fact Google only had to deal with the user, because he was its one and only customer. Google understood that money was not to be made from the individual user and quickly gave up the hypothesis of licensing its technology in a B2B model. By deciding to let everybody use their search engine for free, Google had to introduce a new type of player that would pay for the users: advertisers. By this simple fact, Google entered what is called a “two-sided market”.

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Reed's law 4 The price theory for two-sided markets: E. If the platform wants to be successful. and Strategic Product Design. a two-sided market is made up of a platform and two user groups. it needs to appeal to both groups that are necessary to its economic activity. For instance. 1. to be successful. Rochet and Tirole 3 References: Metcalfe's law. Glen Weyl faberNovel 42. boulevard de Sébastopol • 75003 Paris • Tél.Typically. Indirect network effects are a phenomenon increasing the value of a service with the number of members of the other group. the value of Google search engine partly increases with the total amount of people logging into Google since Google exploits and analyzes customer data to better its system. Substitutes. It means that a service becomes more valuable as more people are using it. a credit card company needs consumers to own its credit cards and businesses to run its system. This type of market has been unveiled and studied by Parker and Van Alstyne1 as well as Rochet and Tirole2. On the other hand. which in turn would attract more “clients” on the other side and more than make up for the difference of profit.2 Setting up a pricing system: who is paying for the service In order to maximize its profit. users come first and advertisers will follow. indirect network effects played a major part in Google’s success. For a single user. One of the main characteristics of these markets is their “network effects”3. In Google’s case. a company has to choose the right price for each group4. That explains Google’s “focus on the user”. The same cannot be said for advertisers: any single one of them would rather appear alone on a page and have no competitors. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 5 . Setting a lower price and giving up some value on one side may lead to more “clients” on this side. advertisers benefit from any increase in the amount of people using Google search Engine. the value of the telephone depends on the number of people who own one. Parker and Van Alstyne Platform competition in two-sided market. The company usually has to figure out 1 2 Information Complements. For instance.

Advertisers represent the money side. However. Sergey Brin and Lawrence Page. the platform has to subsidize the side that gives platform value. developers add value to the platform.http://infolab. it does not constitute a high barrier to entry for other competitors.edu/~backrub/google. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 6 . Google is the platform. on the operating system market. it has to understand which side is the most price sensitive. boulevard de Sébastopol • 75003 Paris • Tél. This figure is a good illustration of what Google is facing. 5 The Anatomy of a Large-Scale Hypertextual Web Search Engine. First.stanford. It wants to maximize the sum of the two rectangles and it can mean that the platform deliberately gives up value on one side. users make for platform value. On the other hand. the platform must take into account a couple of factors. in this model. In other words. On this figure the consumer demand is the most price sensitive side. A search engine is not more valuable when it gets more advertisers but when it gets more users. Google creators have always been focused on the importance of a scalable architecture to provide a cheaper and more efficient service: “Google is designed to scale well to extremely large data sets”5. the mantra only covers part of Google activity.which side is more price sensitive and accept to lower its price for this group in order to increase demand. Google decided to subsidize the group that made up of individual Internet users. To sum up.html faberNovel 42. 1. Stanford 1998 . To figure out from which side will come most of the money. Money is earned on the other side of the market. In Google’s market. Internet users account for one group and advertisers for the second one. the platform wants the rectangle area to be as big as possible. if Google’s “focus on the user” is at the core of its culture and its success. Any decrease in the price will lead to a significant growth in the demand. Second. This side will be subsidized to some extent. An operating system only has the value of the programs that can run on it. For instance.3 A scalable architecture: being prepared to get bigger However significant may have been the creation of the Pagerank algorithm in the quality of Google’s search engine.

the system which made Google rich was pioneered by Overture. It was only after the battle for users had been won that Google started to monetize its search engine. Whereas Google used numerous cheap Linux machines. The cost-per-click pricing and bidding systems make advertising cheaper: companies only pay for the traffic that really occurs on their website. Google cost-optimization in a scalable architecture 1.As an example. boulevard de Sébastopol • 75003 Paris • Tél. following the demand growth.4 A disruptive business model Incentives for individuals to use Google search engine are well known and explain Google’s position in search: a very simple and well-designed homepage. Altavista operated expensive and powerful supercomputers (Alpha servers). accurate results. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 . and its implementation in Google search engine lead Overture to sue Google for patent infringement. adapting smoothly to demand variations. let us examine the difference between Google’s and Altavista’s search engine cost structures. named Google AdWord was launched in 2000 and provides numerous benefits for businesses: Cheap. The system consists in linking text-ads to user queries and displaying them on the result page. the cost structure evolves as described below. etc. and can set a fixed price for any keyword they buy as well as setting a daily budget for any campaign 7 faberNovel 42. This ad system. a company later bought by Yahoo. In that context. quick response to any query. Ironically.

5 Google’s long tail of advertisers The ad system’s success is based on its ability to broaden significantly the market of potential advertisers. faberNovel 42. Advertisers can choose at what time of the day their ads will appear by setting up precise activation periods. 1. Companies can easily follow the results of their campaign: Google provides free tracking software (Google Analytics) which allows them to calculate their return on investment for every campaign. They usually cannot afford any other kind of advertisement and every feature of AdWords seems to fit their need perfectly: focus on any geographical area. The tracking possibilities linked to those ads suited perfectly e-retail websites that could display one ad by product and precisely follow its performance. They can also use tools such as “negative keywords” (the ads will not show up on the page should such a keyword be part of a query). pricing system etc. Small businesses find the most appeal in these ads. In the beginning. “phrase match” (keywords are to appear in a particular order in the query for the ad to be displayed) or “exact match” (the query has to match exactly the keywords for the ad to show up) It is the first advertising business model that was created specifically for the Internet and that has no equivalent in the offline world. and even for any individual keyword Targeting. the “advertiser” side of Google’s two-sided market was mainly made up of businesses that usually did not advertise on traditional media. boulevard de Sébastopol • 75003 Paris • Tél. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 8 . Display ads recreate the TV model of visual ads and the CPM (cost per thousand) pricing system.Tracking.

the position of the ads on the page is not only decided through the bidding price. In this respect. This metric is calculating how relevant a keyword is to a user's search query.1. it looked for other areas where it could implement its advertising expertise. as it would have been necessary in an open outcry auction. Once Google managed to make money out of its search engine and benefit from its first position in market share. Google doesn’t forget that its roots lie in “the focus on the user”. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 9 . the lower its minimum bid and the better its ad position. Google’s position as a platform of a two-sided market is totally clear: advertisers need the largest possible pool of users to make their campaign as effective as possible. Among various reasons. Relevant information for the user However. With this system. boulevard de Sébastopol • 75003 Paris • Tél. 6 Hal R. Varian: "Position Auctions". thus giving a true positioning advantage to ads considered relevant for the user. The higher a keyword's Quality Score. this ad system was implemented so as to stop advertisers from adjusting their bids constantly. An efficient ad system for the advertiser Google ads are based on a Vickrey auction6 model in which the winner is the person who makes the highest bid. International Journal of Industrial Organization. users “need” advertisers because they provide valuable additional information. However the winner only has to pay the amount bid by the second highest bidder. According to Google.6 The perfect ad Interestingly. the perfect ad. This focus on the relevance of the displayed ads leads Larry Page to claim that the ultimate goal would be to show only one ad. and aims at making its ad system but also the ads themselves efficient and relevant for the advertisers. Google is able to claim that their ads are in fact a way for them to provide additional information to the user. 2006 faberNovel 42. it also depends on Google’s “quality score”.

Google’s monetization was limited to a unique entry point. When a user clicks on an ad displayed on a website which is enrolled in the AdSense program. Google is a platform in a two-sided market where advertisers still make up for one side. to benefit from its large pool of users and make money.2 Google’s search for new ad supports Despite the success of its search engine.1 Monetizing the Web: AdSense Through the implementation of ads. boulevard de Sébastopol • 75003 Paris • Tél. Google launched the Google AdSense program in 2003 which allows website administrators to easily display ads run by Google. Its winning ad system coupled with a wide range of advertisers gave Google the opportunity to look for new advertising supports. with great success. Once again. Google managed. the advertiser will pay Google and Google will. faberNovel 42. in turn. give a percentage of that amount to the website displaying the ad. but where websites make up for the other site. Following the logic that says that any website page drawing some traffic is a potential support for ads. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 10 . KSF Importance Scalability High Network High Data Normal Openness Low Cocreation Low Business Model High 2.

DoubleClick is the second company in terms of market share when it comes to monetizing content: 7 7 Source: www. which is specialized in banner or display advertising.As a platform. Indeed. The advertiser places its ads in a favorable context. while the website can keep the essence of its pages intact Scalability. Thanks to the acquisition of Applied Semantics in 2001. especially since Google automatically matches the ads to the websites. 2. Furthermore. Google is able to analyze the content of any page of a website which enrolled in the AdSense program. For the website: Google administrates the advertisements and can run the ads regardless of the traffic of the page or the number of pages enrolled in the program. if Google only allows text-based ads on its search engine. Google created a system that is attractive to both sides: Relevance.1 billion acquisition of the ad serving company DoubleClick. Advertisers do not have to enroll in a specific program – they can simply use the Google AdWords platform to display their ads on Google AdSense websites.com faberNovel 42. AdSense is a way of embedding images or even videos on a website and allows Google to make its first step in the market of banner advertising. This analysis allows them to display only relevant ads on the page. Webmasters only have to insert a JavaScript code on their pages to display Google ads. Google performs latent semantic indexing of these pages to extract high value keywords. boulevard de Sébastopol • 75003 Paris • Tél. For the advertiser: each page of every website enrolled in the program is a support for ad displaying. the system is easy to use for both sides. The sheer number of those pages makes even the largest campaign easy to run. Indeed. Each side needs the other to be able to function efficiently and make money. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 11 .attributor. which benefit to both the advertiser and the website. AdSense is not only a way for Google to expand the area where it can put ads.2 Moving up the DoubleClick long tail of publisher: acquisition of The second step was the $3. Google’s role is here to connect advertisers and websites.

85% share for websites with more than a million monthly unique visitors whereas DoubleClick has a 48% market share. they can enroll in the AdSense program and display ads on the pages of the blog.3 From search to content and services As a way of increasing its advertising support. Some services are paradigmatic of this strategic move towards new audiences by Google: Blogger.000 monthly unique visitors is 71. whether it is by using some of its “traditional” advertising systems or by inventing new ad types. These services are meant primarily to draw a huge amount of traffic. Some of the most well known features of the Web are the result of that logic: drawing huge amount of traffic before trying to monetize them. which are used for content 8 Source: www.Direct monetization of these services through advertising 2. DoubleClick can then provide its expertise on major websites. Google is confident in its ability to later find a business model for every one of these services. Google has not only monetized its search engine and external websites. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 12 . 8 2. boulevard de Sébastopol • 75003 Paris • Tél. Google wants to build an ecosystem of services to guide users towards monetized services Blogger: a new audience for direct monetization Google offers people two main ways to monetize the content of their blogs.38%. Google has a meager 15. as well as its customer base to Google.Furthermore. First. On the other end. We can identify a double goal in Google’s acquisitions and service providing: 1. it was also bent on monetizing the free service it offers to the users. Google has also launched a few services that show a shift in Google’s position in the Web. Google AdSense is essentially used by small and medium-sized websites. Google needs to acquire data to better its search engine b. Gmail and Google Maps. Google acquired DoubleClik as a means to get a new typology of customers. The second way consists in displaying ads in RSS feeds.com faberNovel 42.Indirect effects a. Indeed.attributor. Google’s market share on websites with less than 100.

Gmail provides Google with a new audience targeted according to the mail exchanges. Google runs a semantic analysis of the incoming and outgoing mails to determine relevant ads. webmasters and programmers alike through an API. despite a permanent growth the Internet. Google Maps: a new search engine Rather than Google indexing external websites and simply gathering information from other places. US advertising market. Third. Gmail encourages users to stay within Google’s set of services. Indeed. Google is able to effectively display ads in RSS feeds.delivery in a standardized format. the 9 Source: TNS Media Intelligence. Thanks to this acquisition. Gmail: reinforcing Google’s ecosystem and exploiting data First. which are displayed on the right of the pages. In 2007 Google acquired FeedBurner for a reported $100 million.) so as to own the maps needed to run this service. boulevard de Sébastopol • 75003 Paris • Tél. Google hosts billions of written conversations they can exploit statistically to improve their search engine. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 13 . Keyhole. as a media. Google Maps is used both to display traditional textads and customized sponsored icons on the map as part of the Local Business Ads program. faberNovel 42. Google acquired a number of mapping companies (Where2. Furthermore. Google Maps makes sense as a leading service for mobile users. which constitute a major part of a blog. On the other hand. Google Maps offers a free database hosted by Google and accessible by users. Second. etc. still accounts for a small 8% in the US advertising market. 2.4 Offline Google US advertising spending measured by media (2007-2008)9 As exposed here above.

Google believes that the simplicity and flexibility of the platform is sufficient incentive for the advertisers to use Google as a multi-media advertising center. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 14 . billboards and video games. TV or print ads. Google does bring its AdWords platform to the table. E. In fact. radio. Consequently. and has filed patent or bought companies to develop its activity in new advertising system. As for online ads. Youtube on TV -Going fully offline. Google has not even tried to adapt its bidding system to its radio. Right now. However. The presence of Google in these industries is still limited. CNBC. More surprisingly. as would any competitor.g. everything from the pricing system to the ad format remains as it has been for decades and Google is only entering a new industry. advertisers can put ads: On the Internet On TV: networks such as ESPN. boulevard de Sébastopol • 75003 Paris • Tél. faberNovel 42. through the AdWords platform. Google is aiming to expand its growth according to two models: -Transferring online onto an offline advertising market. MTV. but gives an indication as to their business model ambitions. Adwords platform for newspapers Google has not tried to duplicate its online advertising programs Some of the main features are not compatible with the offline media: cost-per-click pricing would not mean much when related to TV or radio ads.Internet as a communication protocol is extending to all kinds of devices and supports such as television. it is the only system of reservation Google offers. ABC family On the radio with more than 1600 radio stations In magazines and news paper: 800 newspapers representing 70% of US paid circulation Google always looks to expand its area of expertise in advertising.g. E.

By buying Adscape. especially for products available in stock. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 15 .Videogames: entering a new advertising market Digital advertising in games is limited to IP-connected games where ads can be changed or updated through the Internet connection such as persistent worlds. Still. Google proved its interest in virtual universes with the release of Google Lively. the billboard would display another ad. able to embed Youtube videos. a 3D virtual environment. Although for now. Once a product is no longer available. Street advertising: a patent to connect billboards to the Internet. they filed a patent that would connect billboards to the Internet and to the AdWords platform. specialized in in-game advertising for $23 million and by launching Google Adsense for Games in September 2008. massively multiplayer online games and casual online games. ATM machines and all other digital displays in malls and hotel lobbies. 10 Source : Yankee Group 2007 faberNovel 42. the market of ingame advertising should represent $732 million by 2010 10 . Furthermore. Such a billboard would display ads for local businesses. boulevard de Sébastopol • 75003 Paris • Tél. Such a patent could extend the whole street advertising market by connecting kiosktype billboards. Google has not launched a product that translates its online advertising system into a real-life product. Google expanded its advertising presence in other digital worlds.

Organizing the world’s information. However. In the “winner takes all” context of the web industry. On the other hand. However. Google may be spending $1 million a day to pay for YouTube bandwidth. 11 Source: CNN Money faberNovel 42. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 16 . new media. thanks to speech-to-text technology. boulevard de Sébastopol • 75003 Paris • Tél. They are now facing the difficulty of attracting advertisers and promoting an efficient revenue model on a new market KSF Importance Scalability Low Network High Data Normal Openness High Cocreation High Business Model Low Google’s $1. Google’s decision to acquire YouTube is part of an overall strategy of running for the audience. controlling video is a competitive advantage in Google’s original mission of information organization. this buy-out makes sense as part of a larger strategy of content control and audience domination.6 billion take-over of YouTube in 2006 is still criticized for its lack of efficient revenue model.3 Google’s video strategy Google is largely dominating the online video market. Google has to control the eyeballs and monetize leading entry points. Google confirms its leading position as a search engine by enriching it with a new silo of information: searching for videos in the short term and searching for information within videos in the medium term. They focused on creating a wide network of contributors and on opening their content to all possible sources of audience. New medium. Accessibility: according to recent reports11. the ambitions of the video-sharing leader exceed that of being a mere portal: Google fosters third parties to capitalize on YouTube content and to monetize it in partnership.

cinema studios and sports organizations: Warner. The website has been criticized. about its amateurish and oftentimes low quality clips. As Google did as a search engine. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 17 . YouTube is but a platform which purpose is to connect content providers – in the case of UGC. YouTube managed to draw a huge amount of traffic and outgrow the market’s development. etc. Once again. CBS. Google plays the part of a platform in a two-sided market. Youtube exploited the multi-sided network effects of video diffusion: 1. Attracting a large audience 3. it reflects on YouTube. BBC. relying primarily on UGC – User Generated Content. Ensuring a maximum number of content providers enriches the service 2. Sony BMG. boulevard de Sébastopol • 75003 Paris • Tél. individual uploaders – to content seekers. March 200812 3.1 Content and diffusion Google and YouTube have won the battle for “eyeballs” in the online video industry. 12 Source : Hitwise 2008 faberNovel 42.Market Share of top 5 US Video websites: March 2007 vs. YouTube has tackled this problem by: Launching the YouTube partner program geared towards semiprofessional uploaders who receive a compensation for their work Striking deals with major content providers such as television networks. Providing advertisers with efficient tools Content: from amateur to professional providers Youtube gathers its videos. In this model of content sourcing. especially by potential advertisers. Should UGC provide an absurd amount of content to the website.

by using an existing Google audience. Google made a deal with the creator of “Family Guy” to broadcast his new comic series consisting of several short clips through the AdSense network. Dailymotion insists strongly on the website and doesn’t offer such powerful tools to broadcast videos on external or partner websites. For example. YouTube videos are indeed displayed in Google News.of people who visit it each month. Once again. Google’s automated news aggregator. YouTube has implemented several aggressive changes to make its platform even more accessible and valuable. but it also allowed its technology to be very accessible for anyone who wished to use it. faberNovel 42. Furthermore. YouTube has developed an API that lets webmasters tap into YouTube features and video database and exploit them in an external website. YouTube not only managed to draw traffic on its website. with the launching of AdSense. the videos embedded in blogs and external websites and the use of Google websites as a support for diffusion – has made YouTube the number one player in the online video industry. boulevard de Sébastopol • 75003 Paris • Tél. This differs strongly from how competitors work. Google acknowledged the fact that drawing traffic to one’s website is only part of the equation. to make money out of the thousands –or millions. For a website to be successful and achieve profitability. one of the most popular features of YouTube is the capacity to “embed” a YouTube video on one’s blog or website. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 18 . for free. one must be able to monetize it. thus cannot benefit from a network as strong as Google websites.Diffusion: from the Internet to all IP-devices To win the battle for eyeballs. These three sources of traffic – the YouTube website. However. As a matter of fact. Google managed to benefit from traffic from external websites. A third way of broadcasting YouTube videos is through Google websites. Furthermore. Furthermore.

For every one of its services and features. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 19 . many analysts have described Google’s attempts to make money out of YouTube as a failure. boulevard de Sébastopol • 75003 Paris • Tél. YouTube is no exception. Google decided that money would be earned through advertising and the user would receive full use free of charge. and neither users watching videos nor video uploaders have to pay a fee to use YouTube. faberNovel 42. Advertising is Google’s business model and Google naturally intends to monetize YouTube with advertisements. However.

+33 1 42 72 20 04/ Fax +33 1 42 72 20 03 20 . When the ad has been played. Before watching a video on a website. The traditional way of putting ads in a video consists in what is called a “pre-roll ad”. YouTube videos mainly come from users themselves.3. who are reluctant to display one of their ads and link their brand name to an amateur video whose quality or topic may be seen as not appropriate for them. users have to watch a short clip (usually 30 seconds) that cannot be speeded up or skipped: a video ad. the real video can begin. this system of advertising is not well suited for YouTube for a couple of reasons. User Generated Content (UGC) is not easily accepted by advertisers. boulevard de Sébastopol • 75003 Paris • Tél. faberNovel 42. Google implemented traditional video within YouTube pages. However. These ads may have different formats reproducing a usual monetization model: text ads. Google’s focus on the user. Google has still tried to implement different kinds of advertising in order to make money out of the online video website.2 Attracting advertisers Usual ads do not mix up well with YouTube. the perception of the obtrusiveness of these ads would only increase and be a nuisance for the user. Traditional ads. YouTube content. display ads and video ads. The quest for new types of ads Traditional Ads In-video ads Brand engagement While YouTube cannot be monetized through classic ads. for they are seen as obtrusive and of little relevance. Users usually don’t appreciate pre-roll ads. These two characteristics – obtrusiveness and lack of usefulness – are exactly what Google has always claimed to avoid – they pride themselves in providing additional and useful information which happens to take the form of advertisements. Since YouTube videos are mainly very short clips.

if clicked on. Companies can pay Google money to open up a channel and upload whatever videos they want. enabling advertisers to be present before or after the diffusion of the video. Since August 2007. Also.In-video ads. Google found a way to make money from businesses and please the user by offering him useful and unobtrusive sponsored content. engaging users with contests. One way to make money while making the user happy is to offer a new type of content. Google has been experimenting overlay ads. it has not resulted in significant YouTube revenues for Google. Google introduced pre-roll and post-roll formats. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 21 . “advertisers can participate in the community. These ads are displayed for a dozen of seconds after the beginning of the video at the bottom of the player. faberNovel 42. boulevard de Sébastopol • 75003 Paris • Tél. promotions. However. With this format. As described by Google. in the form of a text-ad that opens a new window and pauses the video. and sponsorships”. as a way to display ads that would at least be a lesser nuisance. Furthermore. Google took the first experimental steps forward transforming Youtube into a digital retailer in 2008. Brand engagement. “Click to buy” buttons linked to the videos will redirect users to Amazon or iTunes to purchase video games from Electronic Arts or music from EMI Music and Universal Music Group.

mobile Internet users are expected to exceed traditional Internet users 13 in numbers. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 22 . KSF Importance Scalability Low Network Low Data Normal Openness High Cocreation High Business Model Low Promising advertising revenues The mobile phone universe is promising when considering Google’s advertising model. from manufacturers to mobile carriers. Expected worldwide mobile advertising spending 2006-2011 in millions $14 13 14 Source: International Data Group . Still.2008 Source: Emarketers 2007 faberNovel 42.4 Google’s Mobile Strategy The search engine mobile strategy is confronted to the existence of a value-chain structured around strong players. personalized and localized mobile uses provide significant market targeting opportunities that may ensure consequent advertising revenues in the mid term. they are investing on the hypothesis of a significant mobile advertising market. boulevard de Sébastopol • 75003 Paris • Tél. In addition. By 2012. Google’s energy is focused on recreating an open ecosystem in which they could reproduce their web model.

Several barriers prevent Google from reproducing its Internet model: . reproducing the same success within the mobile universe requires changing the rules of the game. Google drags all mobile actors along with him: -Application developers: they benefit from Google development tools and incentive contests such as the Android Developer Challenge -Market actors: they are the carriers. boulevard de Sébastopol • 75003 Paris • Tél. Indeed. decentralization and accessibility favored important network effects. A locked mobile universe Google was born inside the Internet ecosystem and took benefit from its industrial and economic mechanisms: openness. An active and powerful lobbying toward regulating entities faberNovel 42. To ensure the success of this initiative. 34 of whom are joining Google within the Open Handset Alliance initiative.4. interoperability. manufacturers and distributors. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 23 .1 Moving the mobile industry to the web i. Its opening efforts are on a triple scale: An “open source” operating system: Android Google developed a partially open source mobile operating system. its expected goal is the diffusion of services and applications developed by Google or by third parties. Google still retains a partial control on the OS. Changing the rules of the game Google must create a favorable environment to distribute its services and open access to all web contents. the mobile industry is structured on a locked value chain with controls access and distribution. Even though. Nevertheless.Barriers on network access: o Handsets are locked on a unique carrier o Bandwidth trading by third party is limited Barriers on services/contents access and creation o Carriers favor their own walled-gardens and portals o Handsets manufacturers favour their own services o Mobile OS are rarely open and interoperable ii.

This strategy is 24 faberNovel 42. the rise of a free-constraint market cannot be done without the regulating agencies. Google’s fame and high quality products put them in a comfortable position to negotiate directly with operators to distribute its application. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 . The firm imposed the installation of its services as Original Equipment Manufacturer. but also to create new markets and to be present on all use cases.2 New mobile products and services Google has been trying to impose the rules of the web on a mobile world. they intensely focus on the new trends lead by mobile uses. In 2007. Not only do they want to transfer their existing products and services on handheld devices. This clause has been partly imposed by the FCC to Verizon. On the other hand. Partnership on products with operators Eventually.In parallel. boulevard de Sébastopol • 75003 Paris • Tél. 4. thus generating advertising revenue share. Google was involved in a 700 MHz mobile frequencies auction for integrating a quadruple opening clause to its offer. the highest bidder.

Judging criteria were set to leverage Android features through original and intuitive application. The goal of the contest was to design the most innovative application for Google mobile OS. i. Google organized a contest for Android with total offered prizes of 10 million dollars. Developers were encouraged to explore wide fields from media consumption and gaming to mash up (combined) functionalities and humanitarian benefits15.html faberNovel 42. etc.google. calendar.g. it had to find a way to encourage innovation. On the first quarters of 2008.5 million dollars Technologies Grand Central: a voice over Internet protocol service that provides a simple interface to manage one’s phone numbers. Grand central was acquired for an estimated amount of 45 million dollars Reqwireless: a mobile browser for J2ME/MIDP devices and other rich content AllPay Gmbh: payment services for mobile OS Android: before developing the actual OS for mobile. Rethinking of traditional user interface. Use of location-based services. e. IM. management. Since May 2005. boulevard de Sébastopol • 75003 Paris • Tél. Gaming. Grand central gathers all phone calls on a single call and organizes one’s private and business phone numbers. or sharing. Media consumption. photo. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 25 . editing. Applications in service of global economic development. A large range of acquisitions Acquiring innovative technology and audience on mobile services. a dating service given the location of the user Zingku: a mobile social network service helping people to manage their inner circle of friends.. Humanitarian benefits.illustrated by external growth through acquisitions of existing solutions as well as internal development of mobile products. Zingku was bought for an estimated amount of 1 million dollars Jaiku: a micro blogging service available via the phone and the web purchased for an estimated 1. Google is not afraid to upset the status quo and is actively seeking to create new trends. Developing new solutions Shaping new trends through innovation. Whatever you're excited about!” Source: http://code. Productivity and collaboration such as email. developers were asked to specially focus on: 15 “Social networking. ii.com/android/adc. Google has begun an integration strategy towards mobile service. The forthcoming acquisitions show a certain interest in two specific fields/categories: Products and services Dodgeball: a location-based social networking service for mobile that provides text alert to a circle of friends. Use of mash-up functionality. Android was known as a software company for mobile phones Yet. Thus. fitting the actual trends is only part of Google’s vision. News and information. To that purpose..

but also media consumption seem to be the new promising emerging services.-Originality of the application through novel and value added services. Gaming. -Effective use of the Android Platform with location-based services that would encourage networking with a speedy and designed application. boulevard de Sébastopol • 75003 Paris • Tél. faberNovel 42. -Polish and Appeal through easy and intuitive application. They are an example of what future applications on Android could be. 16 Receiving respectively $250 000 and $100 000 prizes from Google. Some applications such as Gocart which allows an instant comparison of best prices nearby through the scan of a product barcode or ShareyourBoard that simplifies the capture and sharing of whiteboard data were particularly rewarded by Google for their high degree of innovation16. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 26 . productivity and collaboration. location-based services. -Indispensability with a compelling application for a given segment of the population Part of Android’s main future applications can be considered through the following scheme.

+33 1 42 72 20 04/ Fax +33 1 42 72 20 03 27 . providers supply service or commodity. The definition of the market itself is put into question since network externalities can destroy the value of unrelated industries. Google has been able to evaluate the weight and limits of its ecosystem: -users are key data providers. In the IT world and particularly in the web industry. thus wide pools of users account for great barriers to competitors -developers and webmasters are necessary to create content on the internet and have to be considered as indirect providers -network infrastructures are compulsory to provide users with persistent and highspeed internet -the advertising mechanisms financing the search engine can be scaled to other existing markets monetized as services -the Internet is a marketplace for eyeballs and traffic has to be brought at the entry points through browsers or manufacturers We shall give a wide overview of how Google managed to coexist with a wide range of partners and to recreate its own ecosystem. faberNovel 42. by financing them through advertising. boulevard de Sébastopol • 75003 Paris • Tél. these models have evolved to such an extent that former analysis proved incomplete or false. A customer may pay zero and still be a key value-creation asset. A developer can either be a customer or a provider according to the business model implemented. competitive threats may come from new entrants or substitution products and business models episodically evolve. The roles of these agents are easily analyzed with longestablished logics: customers buy services or products. In that context.II Google in its ecosystem Traditional visions of industrial strategies tend to identify a unique market and a clear typology of actors. The aim is to identify how the search engine totally redefined the perimeter of the advertising market and the potential roles of all key players.

Analysis of the users’ behaviors as a measure of quality. At that time. having the users be part of the creation of databases and thus pillars of search technology. Wired Magazine faberNovel 42. Search engines used statistical techniques to rank pages. KSF Importance Scalability Low Network Low Data High Openness High Cocreation High Business Model Normal Crowdsourcing. The following table describes examples of information crowd sourced by Google and exploited for product creation or enhancement. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 28 . 1. boulevard de Sébastopol • 75003 Paris • Tél. Indexed pages were 17 The Rise of Crowdsourcing: Jeff Howe. Designed for users. Google has always understood the major part people play in the Web.1 PageRank: from neutral hyperlinks to a ranking algorithm Google’s approach to search was completely different from its competitors’. This exploitation has been expanded to other products. Google’s search engines have always included user data into their technology.1 Google and the crowds As a sheer Internet player. defined by Jeff Howe in Wired Magazine 17 as the process of outsourcing a task to the crowds or users is at the heart of Google’s philosophy and strategy.

measured through the use of the PageRank. This idea of involving users. Since we use text to make a query.html http://images.stanford. Google decided to get help from its millions of users. the purpose of this game is clearly explained to the users.edu/~backrub/google. Rather that insisting on the actual analysis of the pages’ contents.2 Google Image Labeler: when players index images Searching for images is more difficult than searching for text. Google made the statement that users and webmasters were best suited to say which pages were relevant and which were not. The most emblematic technology of Google is then based on the analysis and use of the work of “the crowds”. whether they know it or not in the making of Google search algorithms has been used several times to improve Google technology. Google analyses the text on the page to find and rank images. This game is sheer crowdsourcing: Google tries to bypass a technical difficulty by getting free help from individual users. Google has tried to improve its image search engine. Image Labeler is the tool used to manually add a description to images. Google Image Labeler is a game in which participants have to “label” images – they’re shown an image and they have to enter words related to it – and win points if their “partner” has entered the same words. Sergey Brin and Larry Page focused on the analysis of hyperlink – one of the papers they published while in Stanford was titled “The anatomy of a Large-Scale Hypertextual Web Search Engine”18. By taking into account the “popularity” of a page.analyzed and compared to the actual query.com/imagelabeler/ faberNovel 42. The page with the most occurrence of the keyword appeared first in the search engine.google. “Want to help improve Google Image Search? Try Google Image Labeler”19 18 19 Source: http://infolab. 1. Since it’s a huge and daunting task. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 29 . Unlike some other features. boulevard de Sébastopol • 75003 Paris • Tél. Since most images on the Internet are not next to an accurate description of their content.

this service is completely free for users and is furthermore fully ad-free. The alternative is to exploit the location coming from the mobile carrier’s antennas (cell-ID location). October 2007 21 Source: The Official Google Blog faberNovel 42. AGPS. Therefore. 20 « If you want us to build a really robust speech model. However. which is a syllable as spoken by a particular voice with a particular intonation. GPS. and without the need of mobile carrier partnerships. these mobiles upload the cell-ID (the “name” of the cell) and the GPS geographic coordinate. accessible to all handsets with no waiting time. prerequisite to building efficient speech recognition software 20 . With such crowd-sourced database. 1. the market share of devices having access to a location system (Wifi. mobile carriers own the databases necessary to translate the cell identity into a location. entirely automatic. boulevard de Sébastopol • 75003 Paris • Tél. Marissa Mayer. In that situation.3 Google 411: a phonemes database to empower speech recognition Launched in September 2007. Google acknowledged that it was designed to gather a very large database of phonemes. Google can now run its own proprietary location system. Google vice president of Search Products & User Experience. So we need a lot of people talking.1. Google 411 is a free service that lets users call a tollfree number to make a business search. As stated. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 30 . optimized by users’ locations. the true purpose of this enhancement is not to improve the Google 411 service but to improve audio and video search. Google launched such an application with Google Elections Video Search. saying things so that we can ultimately train off of that ». we need a lot of phonemes. interview By Juan Carlos Perez. Google implemented a quite successful strategy of location crowdsourcing. eGPS…) is quite limited. for all mobile phones. This feature allows users to enter a text query such as “Iraq” or “health” and search into the spoken content of videos. IDG News Service. A timeconsuming substitute would be to scan all possible signals of cell-IDs with a GPS to translate them into locations. Since the service has no business model. However. Says Google: “videos from YouTube's Politicians channels are automatically transcribed from speech to text and indexed”21.4 Google My Location: GPS users create cell phone databases In a near future. In July 2008. mobile advertising revenues will be dependent on contextual targeting. The service uses a speech recognition software to answer users’ questions and is thus. All mobile devices using Google Maps with a GPS are exploited by Google to identify the location of mobile operators cells: for each cell.

Google Toolbar. As a default. Google’s important financial resources and ability to monetize eyeballs lead the company to buy huge amounts of traffic from traditional partners (Adsense network. Deals with browser makers. To bypass Internet explorer’s emphasis on the Microsoft search engine. Google Toolbar is mainly installed through popular free software such as Java 22. Google launched the Google Toolbar. the one browser Google cannot strike a deal with. KSF Importance Scalability Low Network Low Data Low Openness High Cocreation Low Business Model High 2.2 Google and the acquisition of traffic Google often claims its ability to attract users thanks to the sole quality of its products. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 31 . Adobe’s Shockwave 23 and Flash. thus neglecting traditional marketing investment. Still. Doubleclick network). which shows Google’s willingness to be aggressive in its pursuit of partners allowing its presence in their browsers. By 2008. nontraditional partners (Web browsers. Same can be said of Safari or Opera. the option to install the toolbar is selected. Firefox accounted for 60 million daily users. boulevard de Sébastopol • 75003 Paris • Tél. as well as a Google search bow in the default Firefox homepage. device providers) and even from competitors. Google has a deal with Mozilla to put it search engine by default in the top right search bow. which basically embeds a Google Search box into the browser. 22 23 Java accounts for 20 millions downloads monthly (source : faberNovel) Shockwave is used by 390 million users in 2008 (source : Adobe) faberNovel 42.1 Acquisition of traffic from browsers and toolbars Google has been mainly following two strategies to draw traffic to its search engine from the browser.

the result was that Google has recorded 50 times more visits from the iPhone than from any other device. the search engine does not neglect the huge pools of traffic generated by these players. However. it had to make a deal directly with PC makers. Since Windows and Internet Explorer are installed by default on most PCs. Google and AOL wanted to make more AOL content available to Google users. By the end of 2008. iPhones sales had reached 13 million units24. Part of Google’s effort to acquire mobile traffic is the development of Android. 2. One of those deals was made with Apple for its iPhone. For instance. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 32 . Google signed a deal with Dell to include the Google toolbar and Google Desktop on all consumer PCs. advertising revenues will be split between the two parties. boulevard de Sébastopol • 75003 Paris • Tél. Google also made a deal with Nokia to be the preferred search engine on Nokia mobile phones.2 Acquisition of traffic from hardware manufacturers Microsoft proved that linking software to operating system and hardware was a very efficient way of doing business. Even then. Google can be present by default on all these PCs.3 Acquisition of traffic from web portals Although web portals and walled-garden strategies is contrary to Google opened strategy.2. mobile users traditionally keep the original browser installed on their phone. According to the deal. 25 AOL declined from 20 million subscribers in 2005 to 8 million subscribers in 2008 faberNovel 42. This type of deal is especially critical for the mobile market. In 2005. Sure enough. Google is still trying to strike deals with phone makers to implement its search engine as the default option. if Google wants to be present by default on a brand new machine. If Firefox has managed to gain a significant share of the market. this was mainly justified by the need to monetize new eyeballs25 through white labeling of Google’s advertising technology and to expand display advertising throughout the Google network. Google invested $1 billion for a 5% stake in AOL. Thanks to this deal.

Google is becoming dependent on this value chain and must secure its providers. the network covers 25 000 homes to serve 15 000 unique users. Meraki provided free Internet access to 100 000 people in San Francisco. Fon Wireless is another for-profit company funded by Google along with Sequoia Capital. Google has already committed to provide free Wifi for the city of San Francisco. Thanks to the shared wireless network services. cable and satellite operators or backbone manufacturers who all subsidy the access of users to the Internet. Google is more than willing to invest in hybrid shared wireless networks.1 Strengthening existing infrastructure in mature markets Google WiFi? Since August 2006. faberNovel 42. Index Venture and Skype. For the city of San Francisco. Fon claims to be the world’s largest WiFi community through its shared wireless network service. boulevard de Sébastopol • 75003 Paris • Tél. In July 2008. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 33 . For people to access the web. a technology that allows Internet users to voluntarily share a portion of their broadband connections. In order to extend its free wireless network. On a macroeconomic scale. This trend is aiming at a multiple goal: -Ensuring long-lasting existing infrastructures -Giving access to the Internet for non-connected populations and countries -Offering high-speed and permanent access to the World Wide Web 3. This ad-financed service will not be expanded to other cities in the short-run.3 Investing in Internet Access infrastructures Internet infrastructures are a free provider for Google: the search engine indirectly benefits from Wifi providers. a network equipment manufacturer that provides hardware and software for wireless community networks. KSF Importance Scalability High Network High Data Low Openness High Cocreation Low Business Model Normal Google is consequently driving towards infrastructure investing. So far. Mountain View inhabitants can freely connect to the Internet after having created a Google account. Google invested with Sequoia capital on Meraki.

Goldman Sachs and Hearst invested more than 100 million dollars in Current Communication Group. collaboration. according to Space Data Corp which announced in February 200827 it might team up with Google to set up this service. Sprint opens a consistent market to Google that will provide search. Liberty global and Allen&Co made a 60 million dollar investment in O3b Networks. New investment money is currently expanding deployments in the United States and overseas.2 Democratizing access for billions of users Google is planning to build a bridge for remote areas and emerging countries. boulevard de Sébastopol • 75003 Paris • Tél.wsj. Going Wimax Sprint Nextel Corporation. a company specialized in power-line broadband. social-networking applications and services. a telecommunications company. a company dedicated to offering high speed and low cost Internet services to emerging countries. Still. In order to reach more than 150 countries and a growing demand.html faberNovel 42. Satellite Launch In September 2008. as of today.com/public/article/SB120347353988378955. high-speed services have become a strategic issue. However. Google. not only in the USA but also across the world. a lot of remote areas. these large populations lacking Internet access might soon be able to go online. Google is supporting two technologies to cover these markets.Exploring backbone services In 2005. The balloons could provide internet and phone access even more effectively than satellites. Seemingly. Google. 3. Because of high infrastructure costs. there is no clear agreement between the two companies. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 34 . 26 27 Telecommunication technology providing broadband high speed without cable requirements The Wall Street Journal . Wireless Balloons This innovative technology relies on the launch of free-floating balloons by paid farmers in remote areas. Current broadband allows users to send data up to 10 times faster than typical technologies.http://online. along with HSBC holding. announced in May 2008 a formal partnership with Google to deploy WiMax 26 technology. Google applications will be offered to potential customers. remain completely untapped with Internet access. With an expected market of 100 million people by the end of 2008. the system has been designed to be scalable and to easily allow additional satellites.

Whether be it in developed nations or in emerging countries.Google’s interest in brand new Internet access technologies and services gives us clear signals about the forthcoming challenges: . There is a unique and historical opportunity to provide Google services on new communication services and platforms .In developed countries.Google would prefer to make co-investments or partnerships rather than directly acquiring these new technologies faberNovel 42. . Google must secure and invest in high-speed connection services that will enable its sturdy applications to work. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 35 . boulevard de Sébastopol • 75003 Paris • Tél. unconnected people represent a huge and new potential market for Google.

and tutorials. Google allows developers to search for open source codes. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 36 . It is a platform making available all the resources useful for open source software developers: Google’s code samples.4 Google and the developers As publicly underlined by Steve Ballmer 28 . which includes more than 50 000 projects. To promote the open source community. Another way to emphasize on innovative open source applications is the free hosting of open source projects on the Google Code platform.com/watch?v=KMU0tzLwhbE faberNovel 42. This platform contributes to promoting a more open Web and to supporting innovative open source software. Google also organizes several events intended for developers: o Google Summer of Code is a yearly program offering student developers stipends to write code for open source projects o Google “developer days” are global. in an IT ecosystem. guides. developers matter as content providers. with Search Code. Moreover.youtube. Google launched Google Code. boulevard de Sébastopol • 75003 Paris • Tél. they are one day events that include seminars and code labs on Google web products 28 http://fr. KSF Importance Scalability Low Network Normal Data Low Openness High Cocreation High Business Model High 4. Google fully understood the benefits of online products and service creators for their advertising models. They consequently designed processes and tools in favor of open and free development. In 2005.1 Google Code Promoting innovative open source applications to increase Web traffic.

although Google launched Chrome. tutorials are easily available. Google puts its new products on Google Labs very early. Google promoted the open source community (even if for a number of members in the open source community. everything is done to make the development of mobile applications easier: code is based on a Java-like language. Google has also adapted Gears to mobiles and offers now offline mobile applications like Google Docs or Google Calendar. Google has launched the Android Developer Challenge. you can access your Gmail account or Google Calendar offline. Supporting the open source community is not only a philanthropic action. Since 2005. This is also a way to address the desktop applications market and to become a serious Microsoft Windows competitor. Moreover. Google’s goal is similar: supporting innovative applications to promote new mobile usages.2 Financing Firefox In august 2008. In order to develop valuable mobile applications. 4. it poses a conflict of interest). Google launched Gears which is an open source browser extension for creating offline Web applications. 4. Although parts of the code are proprietary and closed sources. Google accounted indeed for 85% of Mozilla’s revenues. Google’s market platform is the whole Web. it keeps financing Firefox for one reason: with this deal. faberNovel 42. In 2007. 4. Google pays the browser-maker for assigning Google's search engine as Firefox's default home page and default choice in the search box. this is very valuable for a two-sided market platform like Google. Google announced that it had extended the deal with Mozilla (Firefox open source browser-maker) for another three years. As we will see in the next paragraph. which will provide $10 million in awards for the greatest mobile applications designed for the open source Android Platform. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 37 .Supporting an open Web. Firefox users (19% of the world market) are more likely to use Google search engine. Google’s tools are quite identical. But the company’s objectives are not only focused on Web but also on the offline software market.3 Entering the offline software market As seen. Since Google Gears is based on an open source technology. Firefox totally depends upon Google: in 2006. It allows Google to have external developers feedback and to add features they would like to see. boulevard de Sébastopol • 75003 Paris • Tél. In this way. It indirectly enables to open the Web further. Developers are indeed Google’s best public relations. it allows Google to benefit from the free developers’ word of mouth. Today. it runs not only with Google applications but also with any Web application in order to encourage openness.4 Promoting open source applications on mobile platforms On the mobile market. Free public relations. Thanks to Gears. To do this.

Google’s is the whole Web.5 The promotion of a more open Web and Mobile environment The developers’ pool is nothing but a tool to expand Web usages. Bebo. KSF Importance Scalability Low Network Normal Data Low Openness High Cocreation High Business Model High 5. Friendster. Google’s Opensocial partners Google has developed OpenSocial along with MySpace and a number of other social networks. Six Apart. whereas Facebook platform is limited. Ning. hi5. Google launched OpenSocial in 2007. Hyves. This explains Google’s strategy on the social network market: rather than launching a Facebook competitor (except Orkut which is successful in Brazil. faberNovel 42. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 38 . OpenSocial is a perfect example of Google’s goal to promote interoperability in order to benefit from more network effects. The following step is a totally open Web. Viadeo. MySpace. NetModular. imeem. including features on sites such as Hi5. Google’s business model is indeed based on interoperability and circulation of data and users. Google never managed to enter the social network market). Netlog. Plaxo. Applications implementing the OpenSocial APIs are interoperable with any social network system that supports them. etc.1 Opensocial: network effects on an open Web As seen.com. orkut. Since Google is at toll. Linkedin. which is a cross-platform of APIs for social networks. Engage. boulevard de Sébastopol • 75003 Paris • Tél.

We want to see this accepted as a standard”. Youtube’s APIs allow users to export very easily video content to other platforms. Among others.2 Gears: interoperable standards for offline capabilities With Gears. Google’s goal is also to make this technology the single standard for offline capabilities. boulevard de Sébastopol • 75003 Paris • Tél. Following this model. “The big thing we are trying to do is add this phenomenal capability [Gears] to the browser. director of Product Management at Google. 6 Creative destruction Google is not only creating or developing the advertising market. Google destroys value either to monetize directly its services through advertising or to reinforce its global ecosystem faberNovel 42. but also destroying foreign markets to strengthen its own model.Google’s Opensocial vs Facebook expected networks effects 5. Gears is also an initiative to promote interoperability: opening Gears to all Web applications is the best way to make Web and offline applications more open. And the deal between Google and AOL includes clauses imposing interoperability between AOL messenger and Gmail. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 39 . Accordingly. According to Sundar Pichai. There are a lot of other examples showing Google’s objective to open the Web.

This force can be perceived as the innovation that leads to more competition against old industries. We can identify a few examples of creative destruction from Google: 29 Joseph A.KSF Importance Scalability Low Network Normal Data Low Openness High Cocreation High Business Model High 6. Schumpeter. Socialism and Democracy" (New York: Harper. 1975) faberNovel 42. boulevard de Sébastopol • 75003 Paris • Tél.1 Google’s destructive effect on other industries’ value Creative destruction29 refers to a force that will create a long-term sustainable growth after a short-term destruction of values. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 40 . This innovation will radically and positively change the environment of a given industry even though it may generate a lot of distortions when implemented (destruction of employment and industries). Capitalism.

boulevard de Sébastopol • 75003 Paris • Tél. It democratizes powerful tools that threaten Nielsen and Comcast’s business model. It provides a large range of statistics on a targeted audience to scale advertising campaign. Creative destruction in Google Documents Since 2006. New features allow several users to work or share the same document. unique visitors. session durations etc. Google has compelled traditional company to provide a free service and change their former business model based on paid content. This new kind of Office 2. hence destroying the core business of the traditional web track analysis software/environment/companies. Google now offers high-resolution satellite images for most urban regions across the world. Google agenda) for free. With the purchase of Urchin. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 41 . Google model: this offer is an opportunity to give direct link to Google Adsense service and purchase key words for advertising. IndexTools. Google talk.2 Creative destruction in specific industries Creative destruction in the web analysis industry Web analytic software provides wide information of online behavior (such as the number of pages viewed. Creative destruction in the Mapping industry/Service Whereas in the past we had to purchase maps on restricted areas.0 tool has been designed for small and large companies. Google model: the idea beneath this service is to dominate the mapping industry and use it as a springboard for geo-localized advertising. bounce rates. SiteCatalyst. faberNovel 42. Google favors transparency among website audience and optimizes advertising campaign.6. Creative destruction in Audience Analysis Google Ad planner is a research and media planning tool that pledges to connect advertisers and publishers.). the latter was dominated by Clicktracks. Even if competing with services such as Viamichelin or Blay Foldex. Before Google entered the market. Google offers new office tools and applications (Gmail. Google model: by doing so. Google offered a high performing web analysis for free. Google model: this offer is a direct threat to common office software such as Microsoft Office and a smart way to reinforce Google’s user ecosystem.

Nokia’s move toward illustrated the impact on mobile OS providers. Android is the Trojan horse that will reinforce its ecosystem of users and allow the sale of geo-localized services while giving more mobility. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 42 . Google model: For Google. faberNovel 42. the Android Operating System is an open source platform for mobile. Android is disturbing Symbian and Windows Mobile OS hegemony. boulevard de Sébastopol • 75003 Paris • Tél.Creative destruction in Mobile OS Recently announced by Google. It should dramatically change the lock value chain of the mobile industry.

In July 2008 they had acquired no more than 53 companies in fields of activities ranging from 3D software. As expressed by Google’s CEO Eric Schmidt “if the company were founded today on an empty lot. they are able to attract talented engineers and to create an ecosystem of startuppers through important internal incentives. Orkut or Google News. Google began adapting Overture’s performance-based ad system that lead to Adwords. Their well-known human resource model encourages engineers to create personal projects during their time-off. services and monetization models relies on a wide range of reasons: -They implemented an original “build-it ourselves culture”. Second. Google was already planning to use that tool to get shares in the television advertising market.html idem faberNovel 42. Google did not try to optimize existing models: contrary to traditional industries. whether be it through internal innovation or by absorbing external ideas and assets. long-term strategic vision and the explosion of the Internet market. -They are able to absorb external innovation. they refuse risk adverse behaviors and encourage uncertain initiatives: their failures (Google Checkout. -They maintain internal innovation. Yet. Google’s innovation machine Google’s ability to create new products. In 1996.com/business/2007/04/my_other_interv. boulevard de Sébastopol • 75003 Paris • Tél. when walledgarden portals such as Yahoo were efficiently monetizing through displaying ads. we know our revenue. 30 31 http://blog. They are either morphed to new products or considered as part of the risky innovation process. the company always focused on changing the rules of the game. First by tracking all kinds of data within and outside the company: “We know the status of our projects on an instantaneous basis. In 2006. Google Catalogs or Google Coupons to name a few) are not trashed in pure loss.Conclusion Google’s persistent growth is obviously based on excellent technological products. In 2000. to aerial photography or communications security. which resulted in the creation of products such as Gmail. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 43 . when most players considered the research for information as a solved problem. we know our clicks31”. -They manage risk.wired. Parallel to that. we would build the buildings brick by brick 30 ”: they tend not to appeal to external providers and to reproduce internally solutions already existing on the market. when many analysts criticized the acquisition of Youtube. they began designing an efficient search engine.

Business models. However difficult these changes may be. developing open-source business models. and consumer analysis all have been deeply affected by the Internet logic. These factors are mainly implemented to fast moving ecosystems such as digital industry. Innovation processes can be designed for all kinds of companies and industries. Industrial creativity mainly depends on corporate culture and on organizational structures. As seen in this paper. Still. partnership policy. they can open vital sources of growth or help these industries prepare for potential threats. Still. Web models are not web-only Apart from the innovation model. most of these Internet models are easily exportable. well-established industries must be ready to adapt to disruptive evolutions of their own ecosystem. They imply reforming hierarchical structures. Google accelerated changes of entire sectors of the economy from traditional media supports to cartography. decision-making procedures or project management methods. encouraging community of providers. faberNovel 42.These success factors can be exported to other industries Innovation’s management for all Google’s innovation management can obviously be applied to other industries. biotechnology or clean-techs. Offering open APIs to co-create value. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 44 . relating to competitors. favoring interactions with and between customers. all factors justifying Google’s success come from a web environment. boulevard de Sébastopol • 75003 Paris • Tél. marketing. or tracking user data: all these web-native mechanisms can and should be adapted to all industries. the latest are less eager to exploit the new digital models within their environments. Whereas pure Internet players often borrow success factors from brick-and-mortar industries.

com Matthieu Lecomte Junior Project Analyst matthieu.fremaux@fabernovel.fabernovel.com faberNovel 42. bd de Sébastopol 75003 Paris Tél. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 45 . boulevard de Sébastopol • 75003 Paris • Tél.com Pierre Fremaux Project Analyst pierre.com 42. : +33 1 42 72 20 04 Fax.lecomte@fabernovel.Stéphane Distinguin CEO and Founder stephane.distinguin@fabernovel.com Cyril Vart VP Strategy & Development cyril. : +33 1 42 72 20 03 www.vart@fabernovel.

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