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…to organize the world’s information and make it universally accessible and useful.
2008: Gross Revenues of $21.2 billion/ Operating Income of $5.5 billion. Expansion beyond web search: Gmail, Google Maps, Google Books, Google Finance, Google Docs, Google Calendar, Google Checkout… Acquisitions of YouTube and DoubleClick.
Competition: ◦ Gmail & Finance against portals like Yahoo! & Microsoft’s MSN.
◦ Book Search, Maps, and Checkout against eBay & Amazon.
◦ Ad supported e-mail, calendaring, & document-management systems taking on Microsoft’s Office & Windows.
Need for search services grew as the World Wide Web expanded. Yahoo! First to organize sites into categories using “human editors” – not feasible. Software “crawlers” created searchable index of page contents - algorithms ranked pages based on keyword frequency. Searches increasingly led to “spam”.
1998: 1998, Sergey Brin & Larry Page graduate students at Stanford developed their PageRank algorithm. Result: Focal page determined by counting inbound links.
1999: Brin & Page received funding from venture capital firms Sequoia & Kleiner Perkins.
2000: Google’s index of ONE BILLION web pages surpassed all rivals. Google became Yahoo!’s search engine.
Where did Google’s revenues come from?
From licensing its search technology.
Google.com initially carried no advertising or add-ons to increase page-views.
Pioneered by Overture (acquired by Yahoo! in 2003) - concise text ads or “sponsored links” placed next to search results. Paid listings sold on a “per-click” basis (CPC). Advertisers found search engine leads more effective than banner ads – WHY? Users looking for products & services “to buy!”.
Overture supplied ads to Yahoo!, MSN, & AOL, drawing thousands of advertisers.
1999: Google introduced its first paid listings. Sold how? First on cost-per-impression basis - fixed fee. February 2002: Google moved to CTR (click- through rate) using “weighted bids”. Higher the bid better the ad placement on search pages. Spending nothing on marketing, Google.com became 9th largest website in US.
May 2002: AOL switched to Google for algorithmic search results & paid listings. Google’s market share surpassed Yahoo!’s in 2004 – grew to 65.6% by 2009. March 2003: Google launched “contextual” paid listings, with Google AdSense.
Contextual listings showed ads on web pages with editorial content (news or blog postings) not pages with search results.
Example: iVillage.com page on allergies had sponsored link offering a “safe, fast, and guaranteed” hypnosis program to end allergies. Froogle, a product search service, identified merchants selling “requested” products – no fee for listing.
2005: Google launched Google Maps, with faster scrolling & browsing than competitors. Maps launched without ads, but location-based paid listings added later. To buy placements on partner sites, Google struck several key deals. Bid against Microsoft for the right to show ads on AOL search results. How? Google’s offered to buy 5% stake in AOL (for $1 billion) - provided AOL $300 million credit.
Coverage rates based on queries received per paid listing.
Click-through rates (CTC) that improved with better targeting techniques. Average CPC, higher for paid-listing provider with larger advertiser base. Revenue splits – percentage ad revenue listing providers paid to network affiliates.
Early searches had 50% failures (irrelevant) - better algorithms needed.
January 2004: Google launched Personalized Search, adjusting results to user’s prior searches & clicks. To increase advertisers offered free software like Google Analytics to optimize campaigns. 2005: Google earning 60% of U.S. paidlisting revenue from 52% search queries.
Two reasons for Google’s success of Google’s paid listings:
1. Google improved ranking of paid listings based on relevance.
2. Two to three times more advertisers than Overture, by late 2005.
2007: Google bought DoubleClick, market leader in display ads - expanded AdSense to show display ads & text ads.
As Google grew, Brin & Page wanted a seasoned executive to lead the company. 2001: Eric Schmidt, formerly CTO of Sun Microsystems & CEO of Novell, joined as CEO. Brin became President of Technology & Page President of Products.
April 2004: Google announced plans for an IPO. “Google is not a conventional company. We do not intend to become one.”
Governance: 10 votes per share for holder of Class B stock & one vote per Class A share. Corporate Values: 1. Don’t be evil: preserve integrity of search results; 2. Technology matters: invested heavily in infrastructure; 3. We make our own rules: unconventional management practices.
Managing Innovation: Google adopted unconventional approaches to manage innovation. HOW?
Engineers were encouraged to spend 20% of their time on projects of their own choosing.
“Charged for clicks that didn’t occur or lacked interest”, “Clicks on competitor’s ads could deplete ad budget”, “Hacking through zombie PCs”. Estimates of click fraud: 10% - 50%. ◦ 2004: Insurance company Geico sued Google for showing competitors’ ads when users searched for “Geico.” ◦ Mixed court rulings on disputes.
Yahoo! Leading Internet portal with 2008 revenues of $5.2 billion & operating income $1.2 billion, competed head-to-head with Google in search & paid listings.
Direct rivals to Google’s Local Search, Home Page, Froogle, Gmail, Maps, and Picasa applications. Yahoo!’s key advantage? Broad reach & easy access to third-party content but core infrastructure & poor employee morale.
Microsoft operated under the “MSN” brand. Search offering repeatedly renamed – from MSN to Live Search to Bing (launched in May 2009). Bing received favorable reviews. Bing calls itself a “decision engine” offers shortcuts to help users refine their searches & “hover” previews.
Users received refunds (up to 20%) if they browsed Bing, clicked an advertiser’s link, & made a purchase. Microsoft promoted Bing! Frustrated by failed 2008 bid to take over Yahoo! Microsoft (July 2009) offered to place their ads on Yahoo!’s result pages – if the Regulators’/ Rules permitted.
To get market support for cloud computing Microsoft planned to: 1. Allow developers to run Apps on Windows Azure, 2. Put in an “Office Web” version & 3. Allow users to install web apps in their own servers.
Google’s expansion threatened WHOM? HOW? 1. Amazon (books, general merchandise, & cloud-computing infrastructure),
2. eBay (general merchandise & payments),
3. Hulu (online video) to newspapers &
4. Facebook (communications, picture hosting, & apps).
French President Jacques Chirac called Google “a tool of U.S. cultural imperialism.”
Hosting: Video and Books: began when YouTube bought in 2006. Action led to lawsuits: YouTube infringement of copyrights. Service grew BUT losses incurred. Hosting & searching digital versions of books. Authors filed “class-action” suits. Google argued scanning was fair use. BUT, cases in court as of February 2010.
Communications Applications: In 2004 Gmail launched with 1GB storage space. Yahoo! Mail & Hotmail offered 2MB to 4MB. Gmail offered user-interface advances/ faster technology; system received user instructions & showed new content without stopping browser. Privacy complaints: “It’s automated. No one is looking” argued Brin.
Communications Applications: Google’s Gchat “instant messaging” real-time voice communications; Transcriptions of voicemails into e-mails or text, easy - single number- conference calls. 2008: Android platform as free, opensource mobile-phone OS. Features: easy access to Google web applications. 20 models of phones/ 59 carriers/48 countries.
Productivity Applications: Cloud-based applications with easy upgrades.
1. Fast, reliable Internet connections needed as applications ran while a user was connected to the Internet. 2. Privacy a bigger concern: Data in remote location could be misused.
Unique cloud-based applications with easy upgrades from Google.
Reader Personalized Home Page allowed users to pull headlines from news sites & blogs from favorite sites with RSS feeds.
Google Photos, Google Calendar, Google Docs competing against Microsoft Word, Excel, and PowerPoint.
Google Checkout (2006), a payment system similar to PayPal’s without revealing credit card number. September 2008: Google Chrome web browser, grabbed 5% share of browser usage by January 2010; With “Omni Bar” users could request website by giving address “New York Times”. Result: nytimes.com.
July 2009: Google Chrome OS for lowcost “netbook” computers announced offered “speed, simplicity, and security … to support cloud-based applications”.
Q. What would happen to Microsoft Windows platform, as a result?? Similar innovation or GO BUST!
Supported “network neutrality rules” so ISPs could not levy surcharge on certain content providers – “level playing field”. 2007: Asked FCC (Federal Communications Commission) to allow consumers to use new wireless spectrum with any device, service, or app.
2008: After Microsoft’s failed attempt to take over Yahoo! Google wanted to place its ads on Yahoo!’s site. Was stopped by U.S. Department of Justice based on antitrust rules. 2009: Google’s share of search queries more than 90% in France, Germany & U.K. Google comment “competition is one click away,” angered critics. Google allowed free exit – others charged money.
Two major moves: search:
1. Better/ MORE RELEVANT web
Before launch of Google in 1999, web search plagued by “spam”. Google solved problem with PageRank algorithm – “focus page” linked with “referenced pages”. Attempts to manipulate it failed.
2. CASHING IN ON SEARCH TRAFFIC
Early search portals AOL, Yahoo! & MSN saw “search” as “commodity” & a “convenience” for users - not a revenue generator.
Competitor Overture’s search website GoTo.com that did not succeed. Google first planned to license search technology.
1999: company introduced first ads on Google.com: “keyword-based” text listing at a fixed rate per thousand page views. 2002: Google adopted “cost-per-click” (CPC) model. Higher the advertiser bid for keywords higher the placement. As Google’s advantages became apparent, Advertisers bid for placing ads.
First Yahoo! then AOL licensed Google’s superior search engine and promoted the brand (“Search powered by Google”).
Without spending anything, Google gained 75% share of Web searches by 2003. Google mobilized affiliates using Google technology, by splitting ad revenue 70:30 when using their paid listings.
In short, “SPAM FREE MONEYMAKER”
By solving problem & creating value for its search engine Google: Opened up new avenues of progress &
Succeeded in pushing back competition, introducing another new concept: THE “LAST MOVER ADVANTAGE!
NO COMPANY IS INVINCIBLE IN THIS BUSINESS. In 2005, Microsoft replaced Yahoo’s Inktomi search engine with one developed in-house. Cost $100 million & announced plans to launch its own proving there was room for another player in the search market?
One single platform can dominate a networked/ “mediated” market. But only when:
1. Market is a natural monopoly - firm’s
“minimum efficient scale of operation” is bigger than the market; or
2. THREE conditions are met:
2) WHEN THREE conditions are met: A. Network effects are positive & strong; B. Multi-homing (going to many networks) cost is high;
C. Demand for differentiated features is limited.
THE OFFER: $1 billion for a 5% equity stake in Time Warner’s AOL unit (case p. 3) & a $300 million credit for ads on Google promoting Time Warner products. Payment covered AOL’s web & paid search services cost for FIVE years, more than what it could hope to earn – Microsoft unable to partner with AOL.
WHY DID GOOGLE PAY AOL SO MUCH?
With AOL’s traffic included, Google’s total query traffic went up, protecting its average RPS (revenue per search). Had Google lost AOL to Microsoft traffic share would have dropped from 52% to 43%.
Google’s Schmidt said “it will take… 300 years to organize all the world’s information.”
Stay focused on Google’s distinctive competency: develop superior search solutions & monetize them through targeted advertising – many avenues for future growth;
Google’s options: Branch into new areas: e.g. expand into a full portal like Yahoo! or MSN & aggregate content into thematic channels. Expand “Checkout Function” for financial transactions. Challenge Microsoft - develop products to compete with Windows & Office.
things that we’re doing, consistent with the mission of the company? We’re not in the portal business, we’re in the business of making all the world’s information accessible and useful.”
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