Introduction

The widespread use of interconnected computer networks to provide an extensive range of

information and services defines the modern world. With its roots in a US defense project dated
as early as the 1960’s, the internet found widespread commercial use by the 1990’s. The
Internet’s widespread adoption across the world during this time period and the increasing
importance of information technology to the global economy has led some observers to describe
these changes as a Digital Revolution. The importance of information technology to economic,
political and social life during this period has been remarkable and the characterization of this
time period as the Information Age seems appropriate. The Internet has become an integral part
of how people work and interact in Western culture and has seen expanded access around the
globe. (See Exhibit 1).

During this time period the growth in computers that are networked to the Internet and the
expansion of users have been remarkable. (See Exhibit 2). This expansion has resulted in
access to new markets, new information and an explosion of new content. Originally very
chaotic, useful results were as likely to be in the 1st page of answers to your query as your last,
Google entered the scene with a new model to organize the information contained on the
Internet, which revolutionized the Internet search and online advertising industry. This new
model has proven so strong that it has provided Google with a consistent competitive advantage
because of its incorporation. It has also helped to weather the changes in the turbulent digital
economy.

Industry Change

Advertising
Over the time period of the Digital Revolution, the advertising industry has changed in a number
of ways. Bevan-Dye posits that one of the primary purposes of advertising is to provide
consumer information in order to facilitate awareness and knowledge of products, services
organizations and/or ideas. Timely and accurate information leads to a more informed consumer
therefore his/her better decision making and increased satisfaction with economic decisions.
Thus the purpose of the advertising industry has been to transfer information between
stakeholders. With the development of the internet and digital realms of communication,
powerful new methods of advertising became available. Prior to this, the advertising industry
had been dominated by the price-per-impression (PPI) method of advertising, which is best
exemplified by TV commercials. Advertisers are paying for impressions, or more simply put,
how many people see their advertisements. For example, if 1000 people are watching an event
and PPI is $10, then the commercial would cost $10000. For our purposes this is basically true
industry wide, whether we are talking about print advertisements or television ones.

This method of advertising has some inherent issues that limit its effectiveness as a method of
transferring information. (In the first place, the target advertisement audience is too general,
which leaves the intended recipients (be within a certain demographic or industry) not covered. )
the population you are advertising to may be too general, which may cause the intended target
for your ad (be it a certain demographic or industry) may not have seen the ad that was put out.
In addition, you also have to take into account the willingness of individuals who are watching
the advert to pay attention to it. This is a problem that many advertising sources face, as
advertisements can be seen as irritating or distracting from the entertainment or informational
pursuits that the advertisements interrupt. Lastly, this method of advertising requires complex
contracts and can be very expensive depending on the (time slots) size of the audience you are
trying to target.

While the internet initially followed the standard advertising model, several new methods of
advertising were emerged and developed. Internet advertising mitigates some of these
concerns and as such has evolved the global advertising industry. Globally, the online
advertising industry reached a market value of 100 billion USD in 2012, and is projected to grow
to 118.4 billion USD by 2013. This growth has been due to the variety of solutions internet
advertisers which have developed to the problems inherent in analogue advertising. The first
method internet advertising developed was the banner approach, introduced in 1994. Banner is
the advertising form which internet users see at the top, bottom and margins of most websites
they visit. The banner approach gets around the idea that people are not seeing the ads
because they appear as people are accessing these websites. While banners relieve estimation
and past performance issues, (they) still suffer due to the generalness of the audience and
contract/cost issues.

Affiliate marketing is another model employed by internet advertisers, first showing up around
1996. This method is used by companies such as Amazon and involves sites hosting specific
advertisements for a company. In this case, Amazon would pay a host site a percentage of all
sales that are generated by advertisements.

In 1998, Yahoo pioneered the 1st price auction sponsored search. In this approach, the
advertiser pays when a customer clicks on a link. The highest bidder gets the link shown at the
top of the search, which is considered as the most prominent position for search.

Google in 2002 innovated the sponsored search idea to 2nd price auction. The 2nd price
auction is similar to the 1st one, in that the advertiser pays when a customer clicks on a link, but
there are a few differences. The link ranking is based on the probability that the link will be
clicked and the Price Per Click for the link. When the customer clicks the link, the advertiser is
charged the minimum required to maintain the ranking. The second price auction approach has
significantly reduced barriers to entry for advertisers and reduced the substitutability of internet
advertising.

How has the competitive nature of the industry changed? First, the concentration the industry
has remained relatively constant, although the players have changed. Industry growth has been
high and growth forecasts are positive. Fixed costs in terms of hardware remain the same,
however fixed costs in terms of data and intellectual property are increasing. There is no real
excess capacity and due to the nature of the industry there is unlikely to be any. For certain
advertisers there is no substitute to Internet advertising. Thus, there are no similar products in
the sense that TV is not a close enough substitute to Internet advertising to matter. Brand
strength for Google is extremely high and Yahoo, the second-biggest search engine, enjoys
some brand strength as well. Yahoo and Google have enjoyed strong brand strength going back
as far as 2004. Diversity of competitors is steady.

Due to changing technology and techniques used by Internet search and advertising
companies, Google and Yahoo in particular, rivalry has remained low in the industry. Low rivalry
was achieved by building brand strength and by providing a service with no real substitutes. For
some customers, there is no real alternative. Also, barriers to entry have been steadily rising
since the early 90s. It would be very difficult for new player to enter the market effectively. Bing
is a prime example. Microsoft has its own brand-name power and plenty of capital to invest and
yet they haven’t successfully threatened Google. Google and Yahoo are not competing on
price; they are competing on quality. Thus, industry rivalry has been decreasing and shows no
signs of changing course.

Competitive Advantage

Competitive advantage is a concept that defines an organizations ability to provide a good or

service to consumers in the best possible manner as compared to a firm’s opponents. This can
mean that a firm is able to provide its services at a cheaper price, or a better quality .
Sustainable competitive advantage is defined as long-term that cannot be duplicated by
competitors. Competitive advantages come in a variety of packages, whether they are
economies of scale, a corporate culture, brand name or technical expertise.

The factor that ties these competitive advantages and countless other attributes, is their ability
to aid in value creation when bringing a product or service to market. In the online
advertisement and search engine industry, customers began the chain of activity by providing
the initial data that they wish to transmit to the world’s internet users. The value lies on an
operator’s ability to connect networks and provide relevant data to a variety of stakeholders.
This is where Google has been able to differentiate itself from other search providers and online
advertisers. Google has developed a sustainable competitive advantage built on brand loyalty, a
superior fiber optic system that increases their network speed, a superior search algorithm and
a corporate culture, which stresses innovation as the hallmarks.

Test of Inimitability

Google has a variety of resources that make it hard for competitors to simply copy what they do.
Microsoft has attempted to get into the Internet search and online advertisement industry with its
Bing search engine, and even though it has the comparative advantage of Microsoft’s enormous
cash reserves, it still cannot copy what Google does. This is partially due to the physical
uniqueness of the data Google has been able to compile regarding its users. Throughout its
existence as a search engine, Google has collected data about the search needs and habits of
its users that allow it to provide more relevant search results. This physical asset of hard data is
something that cannot easily be replicated by competitors.
Another aspect of Google’s inimitability is that Google has a brand identity that sets it apart from
all of its competitors. These include its name becoming synonymous with and word for
searching the Internet. Google’s brand is also summed up by people’s experience with it as the
search provider that can provide the most relevant search information in the shortest amount of
time. This is in contrast to Microsoft’s Bing, which is seen at best as a cute imitator to Google
and at worst as a hilariously incompetent rival to Google. (See Exhibit 3). In either case,
Google’s brand image has been carefully created to leave little doubt as to who dominates
online advertising and Internet search.
It is likely the combination of these and numerous other small advantages, which on an
individual basis other companies may be able to beat Google on, but when taken in aggregate
provide Google with an insurmountable lead.

Test of Durability

Googles position as the leader in Internet search faces constant challenges due to the potential
in the digital economy for new actors to achieve great success and for old actors to lose
relevancy. Dealing with whether Google can maintain its competitive advantage over an
extended period of time requires looking at Google’s business from two points of view: its
physical assets and its digital assets. From a business perspective, Google’s physical assets
are far more durable than its digital ones. This is because Google has made infrastructure
spending a basis of its company strategy. By ensuring that Google has a variety of data centers
and fiber optic cables networking them, Google is able to provide search speeds that rivals find
hard to compete with. These assets are fairly durable, with data centers being large asset
investments that can provide an advantage for 10 or more years.
In terms of its digital assets, Google faces a shorter advantage window. This is due to the
relatively short lifespan that digital properties enjoy. In this instance, Google promotes a culture
of innovation within the company, where employees are encouraged to work on their own
projects on company time. This allows Google to develop web applications in house to provide
users with new experiences and incentives to use Google products.

Appendix
Exhibit 1
Exhibit 2

Growth of Internet Users (2000-

2012)
World Regions Growth (2000-2012)

Africa 3606.70%

Asia 841.90%

Europe 393.40%

Middle East 2639.90%

North America 153.30%

Latin America/Caribbean 1310.80%

Oceania/Australia 218.70%

World Total 566.40%

Competitive Advantage is achieved when an organization is able to provide same set of
products and services to the consumers at cheaper price, or higher set of good and services by
commanding higher price. A sustainable competitive advantage is a long-term competitive
advantage that cannot be duplicated by the competitors. This advantage can be in the form of
economies of scales or product differentiation which enables an organization to either produce
goods at a lower price through economies of scale or sell the goods at higher price by
increasing the willingness to pay.
To achieve sustained competitive advantage it becomes imperative to develop competitively
valuable resources. In order to determine which resources are valuable and why they are hard
to imitate, let us start with a value chain analysis of google.
Value Chain Analysis: A value chain is the chain of activities performed in the organization in
order to deliver a successful product in the market. In laymen’ term it is the value addition at
each hierarchy of production. Value chain analysis of Google will help us explain the competitive
advantage of google and why is sustainable. The chain of activity starts with the customer
providing set of information to google for advertising it online. Now when a customer starts
searching online the advertisement depending upon the algorithm of relevance will be showed
to customer. This information will be transferred through a set of optical fibers to the internet
users looking for the advertisement. Now, there will be a different set of algorithm, which will be
recording the responses of the customers and for the next time advising them on the relevance
of a particular advertisement.
Now the set of resources that completely distinguish google and provide with a sustainable
competitive advantage are its optical fibers, data base and brand loyalty. The optical fibers
helps in quick uploading of results whereas the data base helps in looking at wide poo, of data.
These factors together have built a brand loyalty for google the fruits of which are now enjoyed
by google.
1) Julie
2) Lan
3) The Test of Appropriability: Who captures the value that the resource creates?
The value which a firm captures by selling its goods and services is one of the driving factors for
the existence of the firm. The Test of Appropiability is important for sustainability because it
makes the market lucrative for the firm to exist and if the market is not lucrative enough it is very
likely that the firm might exist the market making the resource no more lucrative for the firm. The
value which a firm creates might be distributed amid different hierarchies like suppliers, retailers
etc. However this is not the case with Google since it is an online advertising company there are
very few hierarchies for reaching to the end user and whatever profit is generated by google it is
taken by the google as a whole. So the value is captured by the resource which created it
making it very lucrative for google to stay in the market.
4) The test of substitutability: Can a unique resource be trumped by a different resource?
A resource can be considered as substitutable if the work generated by the resource could be
generated by some other resource and the work is homogenous in nature. The resource of
Google and in particular the optical fibers (infrastructure) and data could not substituted by an
other alternatives. Google has by far the fastest uploading speed of results because it uses the
optical fibers which transmits the data with lightning fast speed and no other resource can
transmit the data as fast as it can. Besides, the data collection of google is indeed immense
unmatched by any libraries or collections. So there is no threat for substitutability which indeed
makes google sustainable.

Test of imitability
The answer is no. Google cannot be imitated.
Although Google itself is an imitation of Yahoo, but only Google did a better job than Yahoo in
terms of larger market share, faster speed and larger consumer base

1. Technical strength: Optical Fiber and server all over the world
2. Google’s huge data base comes from Google’s circulate value chain: Google – companies –
end-users
3. Google’s brand power is far stronger than the other opponents.
Exception: China, Russia and a few foreign markets.
Google fiber is one of Google’s patents that provide strong technical base of Google’s fast
search. For example, it only takes Google 0.28 seconds to provide 15,900,000 results.
Google doesn’t reveal how many servers they have all around the world. We are only sure that
Google has millions of servers now and still plan to add up more.

Google generated a circular supply chain between its upstream the companies which either
want to advertise on Google or want to move their searching results upward, and the end-users,
the cyber citizen. Although the press criticized google’s revealing personal information, google’s
thorough understanding of the netizens is one of Google’s inimitable advantages.

The only exception of Google’s dominance in market can be seen in China, Russia, South
Korea, according to (Kevin will provide the market share in different countries).
Basically, Google had always been at the remote second place in searching engine market in
China, followed by the dominant winner Baidu. Google even redirected its server from mainland
China to Hong Kong in the late March of 2010, ending the only six-year practice in China.
According to the Chinese government and Google itself, the main reason of Google’s exit is that
Google didn’t follow Chinese regulation of cyber censorship, which contradicts Google’s
essence of providing free flow of information.

The search engine/online advertising industry can be imitated, but in mature market, such as in
the United States, it becomes extremely hard for new entrants to enter and sustain.
Google almost is the number one winner in search engine/online advertising industry all over
the world, except in China. After entering China’s market in 2004, Google had always been the
second in market share and revenue, much lower than the local dominant Baidu. Google’s
market share even dropped more in mainland China after it redirected its users to Hong Kong
search site in late March 2010 because of the issue of censorship.
Each Google’s niche product has corresponding opponent in China. For example, qq is to gtalk
is tudou is to google video; qqmail is to gmail is to baidu tieba is to google group. But in terms of
the integration of several Google products, Google cannot be imitated.
 GOOGLE – TEST OF DURABILITY
Google.com remains the No. 1 search engine in the world
How quickly does this resource depreciate? The longer lasting a resource is, the more valuable
it will be. This test asks whether the resource can sustain competitive advantage over time.
Comparing to overtime, Google upgrades and invent more version of the available software
such as Google Chrome, Google Drives, Google Calendar, Google Earth, Google Map, Google
Scholar etc. to serve different types of people with their needs.
To maintain the innovative, creative ideas, Google continuously work on the R & D
projects which provides funds, resources and awards for different universities’ projects. As a
result, Google will have updated and the best qualified products gaining from these research.
How long does Google’s model last? Google & Adworlds
http://boingboing.net/2013/03/23/how-long-should-we-expect-goog.html

Is Google’s model difficult to imitate?

Google helps local and international businesses blooming around the world. By one click,
people could find out most information needed of the service, company or organization. Google
is a bridge to connect people and organizations together.