Marjan Suban www2.arnes.

si/~msuban1/

sites.google.com/site/chaosweld/

24.01.2010 www.facebook.com/marjan.suban

CASE 14 Google’s Strategy in 2008
1. Discuss competition in the search industry. Which of the five competitive forces seem strongest? weakest? What is your assessment of overall industry attractiveness? Search Engine Industry is built upon Search and also advertising. If we look at the latest data (for year 2009) there are beside Google 5 big players: • Yahoo, which has a challenger’s and loser’s position • Bing, this is new brand name for MSN Live search • Baidu, China

search engine • • Ask AOL, where

search engine is powered by Google At the figure, we can see that Google own 65% of U.S. Market and 85% of global Search Engine Market. Data from StatCounter Global Stats for Year 2009 shows that Bing market share was in start (june 2009) a little higher then MSN Live search had in past. In that time there is also a litlle decrease of Google’s market share. In the latest statistics there is a new competitor from China Baidu (2,8% of global market), which is right behind Bing (3,3%). I can identify following five competitive forces of Porter’s model (figure on right side): • Bargaining power of Buyers

In 2008 almost 97% of Google’s revenue was made by advertising. There are many single account contributing low percentage to net revenue (max. is 3%). They realize that selling popular keywords is valued. • Bargaining power of Suppliers

Beside Google’s big market share, suppliers trust Google’s ad system as reliable source of income.

google. Competition is based on non-price dimension like marketing. Google is a big player in this field. search technology.facebook. Beside that number of Internet users worldwide is rapidly increasing. Organizing information and conducting searches like Google do is for near future business with no threats.com/site/chaosweld/ 24. brand.si/~msuban1/ sites. Second trend in industry is rising a competition in mobile search/advertising and importance of social networks is still in growth. If you add to this a search-based ads. In the search engine market I can find following trends: • • Internationalization of the search market China as a new prospective market and fight between Google and Baidu for market share in China • • High possibility of further mergers in the search market It can be expected that some of the search engines will be specialized for customer-based needs. As a strongest competitive force I can identify competitive rivalry. On the other side internet advertising is 2nd best form of ads (just behind newspapers). So that new entrant must provide better and quicker search results then others competitors. then you have a wining solution. industry has high overall attractiveness. • Threat of new Entrants If you want to enter in internet search market then you have to jump over a high barriers. How is the search industry changing? What forces seem most likely to bring about major change to the industry within the next three to five years? Cloud computing technologies are one of the trend which will have also a big impact on software market. 2.suban • Threat of substitute Products and Services There is now other suitable substitute for search. This field is still going under great improvements. Threats of new market entrants is relatively low. Market is driven by innovations. where the weakest is bargaining power of the buyers.01.Marjan Suban www2. Microsoft has identify this as a big threat to their business. Current big players exhibits a high technology and a lot of know-how. .com/marjan.2010 www. • Rivalry among Existing Competitors All competitors have a similar services and products. As already stated before.arnes. Because this is relative new business there are good growth opportunities also for economics of scale in advertising. New entrant also does not have data on search history of users.

google. accurate. they must leverage their current resources to develop new capabilities if they hope to compete with Google for the consumers. interchangeability) • • • • • Net neutrality Improved search algorithms (fast. Google has an advantage in efficient organization of information. . capabilities. all are household names. and resources of successful search engine companies? Key factors of search engine industry success are: • Consumer demand for innovative and interoperable products or services (platforms.01. although they also face risks from this due to global antitrust issues.si/~msuban1/ sites. privacy concerns and protections) Awareness of user habits and needs (supply solutions to anticipate and meet needs) Google core competencies are: • • • • • • Constant Innovation of search algorithms Impartial algorithms used to rank data weight Open transparent organizational culture Policies: Implement.com/marjan.suban 3. in fact. People-Profit Corporate Reputation = Brand Trust Back net-neutrality interoperability + open source Google. Yahoo has a number of social networks and content advantage. internationality. they all have the financial clout to afford large acquisitions. What are the key factors that define success in the industry? What are the key competencies. and Microsoft have both similar and dissimilar capabilities: • All are financially sound.com/site/chaosweld/ 24. then monetize. In reality.arnes. broadcast and entertainment Trust (user security.facebook. because Google users have a greater level of trust. Yahoo and Microsoft must reassess their resources and capabilities to decide how to deploy them most effectively. internet. Google’s impartial search algorithm is also the key to its popularity. or to invest significant financial resources in a R&D.2010 www. Currently. Microsoft’s advantage resides in their long reign of global market dominance in business by means of their market share of computer software and operating systems. • All are global.Marjan Suban www2. impartial and easy to use) Awareness of convergence in media. By means of using an unbiased algorithm to rank data relevancy. Yahoo.

The "content network" shows AdWords ads on sites that are not search engines. Advertisements are short.2010 www. Licensing fees ranged from $30.com/site/chaosweld/ 24. What are the company’s revenue-cost-profit relationships? What strategies has Google relied upon to build competitive advantage in the industry? Google business model generates revenue by providing. from 2004 to 2007 its . This appliance delivers accurate search results throughout a number of documents.facebook.google. Meaning your company would have its own search engine and it would work just as well as google. the other side of the Google advertising model.si/~msuban1/ sites. The third way in which they make money is through its Google Search Appliance which they sell to their customers. The AdWords program includes local. AdSense is used by website owners who wish to make money by displaying ads on their websites. consisting of one title line and two content text lines and/or image.arnes. This Google’s search technology can be integrated into a third party’s Web page or intranet. The first one is the advertising when you search on Google. a program called AdWords. national.01. and site-targeted advertising for both text and banner ads. These content network sites are those that use AdSense. directly matched by keyword to a user’s search query. advertisers with an opportunity to deliver online advertising.000.com. Some of the most important strengths of the Google’s business model are: • • • • Reliable pricing system Scalable architecture Disruptive business model Efficient ad system and relevant ads AdSense Search appliance AdWords Figure presented Google’s revenue-costprofit relationship is displayed here. Google has grown rapidly. There is also Google Mini Search Appliance designed for small businesses. and international distribution.000 to $600. Describe Google’s business model. User’s click on ad displayed on a Web page means that advertiser pays Google and Google give percentage of that amount to the webpage. Google business model is based on three elements shown also on right-side figure.suban 4.Marjan Suban www2. AdWords offers pay-perclick advertising. AdWords is Google's advertising product and main source of revenue.com/marjan.

objective data in the shortest time” Focus on user experience and anticipate user needs Develop personalized user products and services Innovate advertising solutions for business sector Protect key talent by investing in culture Explore & develop internet video / wireless frontiers Innovate services / interfaces for wireless sector That it is why Google need to: • • • Invest in R&D (innovations. Beside constant growth of total revenue. The company generated 97% of its 2008 revenue from advertising.1% per year) accept maybe in year 2008.6% per year). the inventory of which is sold both directly to customers as well as in conjunction with advertising agencies serving large clients. both paid search products. In parallel there is also a growth of market share. The company reported a year-over-year growth of 31% for 2008.facebook.si/~msuban1/ sites. To support further growth of Google they are relaying on this strategies: • • • • • • • Differentiation “Deliver the most relevant.2010 www.com/marjan. where increase was not as high expected.Marjan Suban www2.arnes. By the year 2009 I can say that Google has almost monopole position in a search engine market. but still increased by more than 50% every year (average is 71. Google's two primary advertising products are AdSense and AdWords.suban revenue growth slowed. net income has also constant growth (average is 109.com/site/chaosweld/ 24.01.google. search for algorithms and communications) Pursue strategic alliances (integration and interoperability) Manage the Google brand (avoid marketing) .

Other cost are at low level. In 1st quarter of year 2009 we can observe first negative growth. Search based advertising is the main revenue source.01.arnes.suban 5.com/marjan. Liquidity/Cash Ratio Google has better liquidity then Yahoo. Since 2007 there is also a new source of revenue. which can be related with recession. Total Revenue Structure From the figures we can see that the growth of the Google Total Revenue is constant.google. that is licensing revenue. Yahoo had bigger problems with liquidity in year 2007. Have Google’s business model and strategy proven to be successful? Should investors be impressed with the company’s financial performance? How does the company’s financial performance compare to that of Microsoft and Yahoo? Please conduct a financial analysis to support your position—you may wish to use the financial ratios presented in Table 1 of Chapter 4 as a guide in doing your financial analysis of the company. Cost Structure From the cost point of view we can see that largest part of cost are represented by cost of revenues.com/site/chaosweld/ 24. We can notice that there was some affect of recession.Marjan Suban www2.2010 www. .si/~msuban1/ sites.facebook. Cost for R&D are little increasing. but now it is improved. but in general they represent significant level of total cost (company which investments a lot of mony in R&D).

com/marjan.2010 www.Marjan Suban www2. Debt ratio Google reflect lower debt ratio then Yahoo. Google clearly runs it’s bussines more effective with better cost management.com/site/chaosweld/ 24.suban Profitability/Operating Profit Both companies has been affected by economic downturn in year 2008.si/~msuban1/ sites.google.facebook. Profitability/ROE Google gain higher profitability level then Yahoo.01.arnes. while Yahoo took some measures to decrease debt in 2008 (and converted some coupons in stock). Google’s growth is organic. .

facebook.Marjan Suban www2.01.si/~msuban1/ sites. strategic alliances and joint ventures with suppliers • Investments in R&D innovation (service and interface for wireless) Market power in value chain User demand for convergance and methodologies • High brand awareness: users' trust with the • famous "Google it" (consumer trust) • • Significant infrastructure base Financial stability (low debt.arnes. Strengths • Large leader in the global search market • with more than 85% of the searches • conducted • • Leader in the global search advertising • market • Superior search (relevant and objective algorithems) • Superior advertising algorithems nad • Opportunities Increase in internet users Increase in search advertising New market growth (China) Larger definition of search marketing including new forms of advertising such as some sorts of social media Increase in wireless subscribers worldwide will embrace local mobile search services by 2013 Integration.com/site/chaosweld/ 24. large cash reserves. What are the company’s key resource strengths and competitive capabilities? What competitive liabilities and resource weaknesses does it have? What opportunities exist? What threats to its continued success are present? The best way to answer this question is by Google’s SWOT analysis.google.2010 www.com/marjan. exponential growth in revenues • and net income) • interoperability Weaknesses • • Interruption or failure of Google's services Competitor networks) • Inability to hire or retain key people (high • cost of highly skilled people) • • • • Inability to scale operational processes Top management issues Lack of product integration Possible slowing of high revenue growth • • • • strategic actions • Threats Privacy concerns Antitrust and Copyright infringement suits against Google Increase global competition Disruptive innovations Internet security Open source's ecosystem threats Recession impacts on search marketing and online advertising trends (global economic slowdown) • Foreign exchange risk (social • .suban 6.

Support public education: critical issues impacting Internet access Net neutrality. Reduced cost of personal training.si/~msuban1/ sites.…) information. open access and interoperability across platforms is very important. services. increasing its usefulness and building trust in Google’s brand.suban 7. Try new solutions with real people. Invest also in internet security Safe (without viruses. networks and applications) are already in Google strategies.com/marjan. WiFi Network and Google’s mobile search capability). Mobile Operating System Mobile industry is one of the important goal in Google strategy. Allow users to have interactive access and control over their own personal information. Cloud Computing Further improvement of Google’s web browser in a way of supporting cloud computing.Stimulate innovation Constant search for improved algorithms and communications.facebook. Extend the reach of Goole’s search into the wireless sector (seek alliance with wireless network provider or create a Google wireless network).01. Invest in R&D . 2. applications can become more and more important and valued. Open platforms (devices.arnes. . 6. and its auctioning system for traditional media ads? Here are some recommendations for Google: 1. support. Maybe seek alliance with Apple (combining iPhone.Marjan Suban www2.com/site/chaosweld/ 24. 7. and developing tools that meet them. Attract Microsoft’s customers. 4. first by Google search. What recommendations would you make to Google’s top-management team to sustain its competitive advantage in the search industry? How should it best capitalize on its strategic initiatives in mobile search. Anticipate. expand user’s bond with the Google brand by anticipating their needs. 5. Implement new innovation very quick. well established services and then also with cloud computing. cloud computing.2010 www. 3. Manage the Google brand Keep on avoiding marketing.google. Search for strategic alliances (integration and interoperability) Seek alliances with like-minded companies that promote open source standards.

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