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.







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


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

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

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

+33 1 42 72 20 04/ Fax +33 1 42 72 20 03 8 . 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). Small businesses find the most appeal in these ads. boulevard de Sébastopol • 75003 Paris • Tél. 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. 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. Advertisers can choose at what time of the day their ads will appear by setting up precise activation periods.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. Display ads recreate the TV model of visual ads and the CPM (cost per thousand) pricing system. faberNovel 42. 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. In the beginning. pricing system etc. “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. The tracking possibilities linked to those ads suited perfectly e-retail websites that could display one ad by product and precisely follow its performance. 1.Tracking.

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

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

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

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

Google Maps makes sense as a leading service for mobile users. still accounts for a small 8% in the US advertising in a standardized format. Google Maps: a new search engine Rather than Google indexing external websites and simply gathering information from other places. On the other hand. Gmail encourages users to stay within Google’s set of services.4 Offline Google US advertising spending measured by media (2007-2008)9 As exposed here above. Google is able to effectively display ads in RSS feeds. US advertising market. Second. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 13 .) so as to own the maps needed to run this service. Google hosts billions of written conversations they can exploit statistically to improve their search engine. Furthermore. Gmail: reinforcing Google’s ecosystem and exploiting data First. Thanks to this acquisition. which are displayed on the right of the pages. faberNovel 42. Google runs a semantic analysis of the incoming and outgoing mails to determine relevant ads. which constitute a major part of a blog. Google acquired a number of mapping companies (Where2. despite a permanent growth the Internet. In 2007 Google acquired FeedBurner for a reported $100 million. boulevard de Sébastopol • 75003 Paris • Tél. Google Maps offers a free database hosted by Google and accessible by users. 2. Indeed. webmasters and programmers alike through an API. Keyhole. the 9 Source: TNS Media Intelligence. Third. Google Maps is used both to display traditional textads and customized sponsored icons on the map as part of the Local Business Ads program. etc. as a media. Gmail provides Google with a new audience targeted according to the mail exchanges.

g.Internet as a communication protocol is extending to all kinds of devices and supports such as television. Google has not even tried to adapt its bidding system to its radio. However.g. 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. 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. radio. CNBC. 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. Youtube on TV -Going fully offline. faberNovel 42. MTV. TV or print ads. through the AdWords platform. boulevard de Sébastopol • 75003 Paris • Tél. E. as would any competitor. Right now. The presence of Google in these industries is still limited. E. and has filed patent or bought companies to develop its activity in new advertising system. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 14 . advertisers can put ads: On the Internet On TV: networks such as ESPN. Google is aiming to expand its growth according to two models: -Transferring online onto an offline advertising market. Consequently. but gives an indication as to their business model ambitions. In fact. More surprisingly. Google does bring its AdWords platform to the table. everything from the pricing system to the ad format remains as it has been for decades and Google is only entering a new industry. billboards and video games. it is the only system of reservation Google offers. As for online ads.

able to embed Youtube videos. Furthermore. massively multiplayer online games and casual online games. Google proved its interest in virtual universes with the release of Google Lively. 10 Source : Yankee Group 2007 faberNovel 42. By buying Adscape. 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. Still. they filed a patent that would connect billboards to the Internet and to the AdWords platform. Street advertising: a patent to connect billboards to the Internet. boulevard de Sébastopol • 75003 Paris • Tél.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. Such a patent could extend the whole street advertising market by connecting kiosktype billboards. the billboard would display another ad. Once a product is no longer available. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 15 . a 3D virtual environment. Such a billboard would display ads for local businesses. the market of ingame advertising should represent $732 million by 2010 10 . Although for now. ATM machines and all other digital displays in malls and hotel lobbies. specialized in in-game advertising for $23 million and by launching Google Adsense for Games in September 2008. especially for products available in stock.

+33 1 42 72 20 04/ Fax +33 1 42 72 20 03 16 . controlling video is a competitive advantage in Google’s original mission of information organization. boulevard de Sébastopol • 75003 Paris • Tél. However. Accessibility: according to recent reports11. New medium. this buy-out makes sense as part of a larger strategy of content control and audience domination. However. They focused on creating a wide network of contributors and on opening their content to all possible sources of audience. 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. new media. In the “winner takes all” context of the web industry. 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 may be spending $1 million a day to pay for YouTube bandwidth. Organizing the world’s information. thanks to speech-to-text technology.6 billion take-over of YouTube in 2006 is still criticized for its lack of efficient revenue model. 11 Source: CNN Money faberNovel 42. 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. Google has to control the eyeballs and monetize leading entry points. On the other hand.3 Google’s video strategy Google is largely dominating the online video market. Google’s decision to acquire YouTube is part of an overall strategy of running for the audience.

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

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

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

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

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

+33 1 42 72 20 04/ Fax +33 1 42 72 20 03 22 . Still. they are investing on the hypothesis of a significant mobile advertising market. Expected worldwide mobile advertising spending 2006-2011 in millions $14 13 14 Source: International Data Group . Google’s energy is focused on recreating an open ecosystem in which they could reproduce their web model. By 2012. boulevard de Sébastopol • 75003 Paris • Tél. 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. mobile Internet users are expected to exceed traditional Internet users 13 in numbers.4 Google’s Mobile Strategy The search engine mobile strategy is confronted to the existence of a value-chain structured around strong players. In addition. personalized and localized mobile uses provide significant market targeting opportunities that may ensure consequent advertising revenues in the mid term.2008 Source: Emarketers 2007 faberNovel 42.

To ensure the success of this initiative. Even though. 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.4. Nevertheless. manufacturers and distributors. 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. A locked mobile universe Google was born inside the Internet ecosystem and took benefit from its industrial and economic mechanisms: openness. interoperability. Several barriers prevent Google from reproducing its Internet model: . Its opening efforts are on a triple scale: An “open source” operating system: Android Google developed a partially open source mobile operating system. 34 of whom are joining Google within the Open Handset Alliance initiative.1 Moving the mobile industry to the web i. Indeed. An active and powerful lobbying toward regulating entities faberNovel 42. decentralization and accessibility favored important network effects. reproducing the same success within the mobile universe requires changing the rules of the game. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 23 . the mobile industry is structured on a locked value chain with controls access and distribution. boulevard de Sébastopol • 75003 Paris • Tél.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. Changing the rules of the game Google must create a favorable environment to distribute its services and open access to all web contents.

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

The goal of the contest was to design the most innovative application for Google mobile OS. calendar. To that purpose.illustrated by external growth through acquisitions of existing solutions as well as internal development of mobile products. 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.. Android was known as a software company for mobile phones Yet.. Thus. or sharing.g. Media consumption. a dating service given the location of the user Zingku: a mobile social network service helping people to manage their inner circle of friends. Google has begun an integration strategy towards mobile service. IM. Grand central gathers all phone calls on a single call and organizes one’s private and business phone numbers. Use of location-based services. Developers were encouraged to explore wide fields from media consumption and gaming to mash up (combined) functionalities and humanitarian benefits15. Judging criteria were set to leverage Android features through original and intuitive application. Google organized a contest for Android with total offered prizes of 10 million dollars.html faberNovel 42. 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. fitting the actual trends is only part of Google’s vision. Use of mash-up functionality. editing. photo. developers were asked to specially focus on: 15 “Social networking. Gaming.5 million dollars Technologies Grand Central: a voice over Internet protocol service that provides a simple interface to manage one’s phone numbers. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 25 . ii. Humanitarian A large range of acquisitions Acquiring innovative technology and audience on mobile services. i. Developing new solutions Shaping new trends through innovation. management. boulevard de Sébastopol • 75003 Paris • Té Productivity and collaboration such as email. 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. Applications in service of global economic development. it had to find a way to encourage innovation. e. Rethinking of traditional user interface. Google is not afraid to upset the status quo and is actively seeking to create new trends. Since May 2005. On the first quarters of 2008. etc. News and information. Whatever you're excited about!” Source: http://code.

productivity and collaboration. -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.-Originality of the application through novel and value added services. Gaming. They are an example of what future applications on Android could be. -Polish and Appeal through easy and intuitive application. 16 Receiving respectively $250 000 and $100 000 prizes from Google. faberNovel 42. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 26 . location-based services. but also media consumption seem to be the new promising emerging services. 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. boulevard de Sébastopol • 75003 Paris • Tél. -Effective use of the Android Platform with location-based services that would encourage networking with a speedy and designed application.

faberNovel 42. In the IT world and particularly in the web industry. The roles of these agents are easily analyzed with longestablished logics: customers buy services or products. A customer may pay zero and still be a key value-creation asset. competitive threats may come from new entrants or substitution products and business models episodically evolve. The definition of the market itself is put into question since network externalities can destroy the value of unrelated industries. In that context. A developer can either be a customer or a provider according to the business model implemented. 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. providers supply service or commodity. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 27 . these models have evolved to such an extent that former analysis proved incomplete or false. 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. by financing them through advertising.II Google in its ecosystem Traditional visions of industrial strategies tend to identify a unique market and a clear typology of actors. Google has been able to evaluate the weight and limits of its ecosystem: -users are key data providers. boulevard de Sébastopol • 75003 Paris • Tél.

having the users be part of the creation of databases and thus pillars of search technology. Google’s search engines have always included user data into their technology. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 28 . This exploitation has been expanded to other products. Indexed pages were 17 The Rise of Crowdsourcing: Jeff Howe. Designed for users.1 Google and the crowds As a sheer Internet player. Google has always understood the major part people play in the Web. Wired Magazine faberNovel 42.1 PageRank: from neutral hyperlinks to a ranking algorithm Google’s approach to search was completely different from its competitors’. Search engines used statistical techniques to rank pages. The following table describes examples of information crowd sourced by Google and exploited for product creation or enhancement. KSF Importance Scalability Low Network Low Data High Openness High Cocreation High Business Model Normal Crowdsourcing. Analysis of the users’ behaviors as a measure of quality. 1. At that time. boulevard de Sébastopol • 75003 Paris • Tél. 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.

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

The alternative is to exploit the location coming from the mobile carrier’s antennas (cell-ID location). mobile carriers own the databases necessary to translate the cell identity into a location. and without the need of mobile carrier partnerships. optimized by users’ locations. AGPS. entirely automatic. interview By Juan Carlos Perez.3 Google 411: a phonemes database to empower speech recognition Launched in September 2007. Google vice president of Search Products & User Experience. this service is completely free for users and is furthermore fully ad-free. eGPS…) is quite limited. GPS. mobile advertising revenues will be dependent on contextual targeting. As stated. for all mobile phones. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 30 . The service uses a speech recognition software to answer users’ questions and is thus. saying things so that we can ultimately train off of that ». Google acknowledged that it was designed to gather a very large database of phonemes. However. Says Google: “videos from YouTube's Politicians channels are automatically transcribed from speech to text and indexed”21. This feature allows users to enter a text query such as “Iraq” or “health” and search into the spoken content of videos. Google can now run its own proprietary location system. which is a syllable as spoken by a particular voice with a particular intonation. Google implemented a quite successful strategy of location crowdsourcing. boulevard de Sébastopol • 75003 Paris • Tél. the true purpose of this enhancement is not to improve the Google 411 service but to improve audio and video search. In July 2008. accessible to all handsets with no waiting time. However. these mobiles upload the cell-ID (the “name” of the cell) and the GPS geographic coordinate. With such crowd-sourced database. 1. Google launched such an application with Google Elections Video Search. IDG News Service. Therefore. A timeconsuming substitute would be to scan all possible signals of cell-IDs with a GPS to translate them into locations. Google 411 is a free service that lets users call a tollfree number to make a business search. Since the service has no business model. 20 « If you want us to build a really robust speech model. October 2007 21 Source: The Official Google Blog faberNovel 42. we need a lot of phonemes. In that situation.1. prerequisite to building efficient speech recognition software 20 . So we need a lot of people talking. Marissa Mayer.4 Google My Location: GPS users create cell phone databases In a near future. All mobile devices using Google Maps with a GPS are exploited by Google to identify the location of mobile operators cells: for each cell. the market share of devices having access to a location system (Wifi.

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. boulevard de Sébastopol • 75003 Paris • Tél.2 Google and the acquisition of traffic Google often claims its ability to attract users thanks to the sole quality of its products. which basically embeds a Google Search box into the browser. Same can be said of Safari or Opera. thus neglecting traditional marketing investment. Adobe’s Shockwave 23 and Flash. Google Toolbar is mainly installed through popular free software such as Java 22. By 2008. Google has a deal with Mozilla to put it search engine by default in the top right search bow. Deals with browser makers. Still. which shows Google’s willingness to be aggressive in its pursuit of partners allowing its presence in their browsers. Google’s important financial resources and ability to monetize eyeballs lead the company to buy huge amounts of traffic from traditional partners (Adsense network. the option to install the toolbar is selected. Doubleclick network). as well as a Google search bow in the default Firefox homepage. KSF Importance Scalability Low Network Low Data Low Openness High Cocreation Low Business Model High 2. the one browser Google cannot strike a deal with. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 31 . Google Toolbar. As a default. Google launched the Google Toolbar. To bypass Internet explorer’s emphasis on the Microsoft search engine. nontraditional partners (Web browsers. Firefox accounted for 60 million daily users. device providers) and even from competitors. 22 23 Java accounts for 20 millions downloads monthly (source : faberNovel) Shockwave is used by 390 million users in 2008 (source : Adobe) faberNovel 42.

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

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

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

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

KSF Importance Scalability Low Network Normal Data Low Openness High Cocreation High Business Model High 4. which includes more than 50 000 projects. in an IT ecosystem. they are one day events that include seminars and code labs on Google web products 28 http://fr. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 36 .com/watch?v=KMU0tzLwhbE faberNovel 42. and tutorials. 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 Google and the developers As publicly underlined by Steve Ballmer 28 . developers matter as content providers. with Search Code. Google fully understood the benefits of online products and service creators for their advertising models. guides. Google launched Google Code. boulevard de Sébastopol • 75003 Paris • Tél. To promote the open source community. Google allows developers to search for open source codes. It is a platform making available all the resources useful for open source software developers: Google’s code samples. They consequently designed processes and tools in favor of open and free development.1 Google Code Promoting innovative open source applications to increase Web traffic. In 2005. Moreover. Another way to emphasize on innovative open source applications is the free hosting of open source projects on the Google Code platform.

3 Entering the offline software market As seen. although Google launched Chrome. It allows Google to have external developers feedback and to add features they would like to see. Google puts its new products on Google Labs very early. Free public relations.Supporting an open Web. +33 1 42 72 20 04/ Fax +33 1 42 72 20 03 37 . Firefox totally depends upon Google: in 2006. which will provide $10 million in awards for the greatest mobile applications designed for the open source Android Platform. Google’s tools are quite identical. This is also a way to address the desktop applications market and to become a serious Microsoft Windows competitor. But the company’s objectives are not only focused on Web but also on the offline software market. In 2007. it keeps financing Firefox for one reason: with this deal. this is very valuable for a two-sided market platform like Google. Google launched Gears which is an open source browser extension for creating offline Web applications. Google promoted the open source community (even if for a number of members in the open source community. Developers are indeed Google’s best public relations. Thanks to Gears. 4. tutorials are easily available. 4. Supporting the open source community is not only a philanthropic action. In order to develop valuable mobile applications. boulevard de Sébastopol • 75003 Paris • Tél. Firefox users (19% of the world market) are more likely to use Google search engine. you can access your Gmail account or Google Calendar offline. faberNovel 42. To do this. Google accounted indeed for 85% of Mozilla’s revenues. Google’s market platform is the whole Web. Google announced that it had extended the deal with Mozilla (Firefox open source browser-maker) for another three years. Moreover. Google has also adapted Gears to mobiles and offers now offline mobile applications like Google Docs or Google Calendar. As we will see in the next paragraph. 4.2 Financing Firefox In august 2008. it runs not only with Google applications but also with any Web application in order to encourage openness. Google pays the browser-maker for assigning Google's search engine as Firefox's default home page and default choice in the search box.4 Promoting open source applications on mobile platforms On the mobile market. Since Google Gears is based on an open source technology. it poses a conflict of interest). Although parts of the code are proprietary and closed sources. Today. it allows Google to benefit from the free developers’ word of mouth. Google has launched the Android Developer Challenge. In this way. Google’s goal is similar: supporting innovative applications to promote new mobile usages. everything is done to make the development of mobile applications easier: code is based on a Java-like language. Since 2005. It indirectly enables to open the Web further.

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

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

Capitalism. 1975) faberNovel 42. boulevard de Sébastopol • 75003 Paris • Tél. Schumpeter. +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).KSF Importance Scalability Low Network Normal Data Low Openness High Cocreation High Business Model High 6. This force can be perceived as the innovation that leads to more competition against old industries.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. We can identify a few examples of creative destruction from Google: 29 Joseph A. Socialism and Democracy" (New York: Harper.

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

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

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

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

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