Google’s Strategy in 2011

Executive Summary

In January of 1996 an Internet search engine company initially named BackRub soon grew into what is now Google Incorporated. Partners Larry Page and Sergey Brin, along with a few investors lived on a shoestring budget. By year-end 1998 Google Inc. was handling 10,000 search queries each day. Google was also voted one of the top 100 Web Sites and Search Engines in 1998. Google was recording successes at a lighting speed pace and embarked on their Initial Public Offering on April 29, 2004. Google has found itself amidst a very competitive industry, which fundamentally competes to provide higher technology to users, low prices for advertising, and capacity to engage suppliers to subscribe to the search engine. Google, who is well known in the ever-changing search engine industry, must find a way to survive and compete. One of the biggest tasks currently at hand is to bolster forward into the mobile phone/search industry and win the significant market share it would need to survive. Google has done this thus far by making a profit, innovating, and maintaining their market position. Google focuses on the end user and all else seems to follow.

In our minds, the most important factor is that there is always more information out there. This is what keeps hope alive. Google has grown in a very gradual manner that serves as a strong foundation for years to come. Google was able to grow during the recession in 2009. Google is able to operate on a relatively low operating cost while at the same time, using state of the art technology. It is important that Google uphold its corporate philosophy guidelines. Steering away from these guidelines will result in a diminished brand image and is everything but acceptable. Google must also treat its employees, its most valuable resource, in a manner that induces productivity. Without the knowledge that rests in the minds of these employees Google would “treading in rough water”.

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First and foremost, we recommend that Google continue forward with the acquisition of Motorola Mobility. This will accelerate both innovation and choice in mobile computing. Basically, consumers will get the benefit of better phones at lower prices. Also, the patent portfolio of Motorola will help protect the Android system. We feel that Google has great software, and Motorola is good at devices, therefore this combination makes sense and will result in speedier innovation. To re-iterate, Google must take advantage of this opportunity if it wants to continue on the successful path it has led thus far. Google Inc. has maintained a clear vision and thus been able to maintain a steady, yet gradual, growth rate. Most simply put, this growth stems from new ideas and innovation. We would recommend that Google continue the diversification of its products and expand further into operations in multiple markets, perhaps the mobile phone industry being most important. The introduction of innovative products like Chrome OS, Android, Google Cloud Platform, Google Glass and Google Self Driven Cars will help maintain and grow their market share.

It is essential that Google continue to invest in R&D, which will create opportunities to increase the search, and improve technology and communication. The intent of this is not to redirect their strategy. The ability of Google to launch itself into the hardware section of the mobile phone industry will ultimately result in a larger search engine market share. Google must also tap into areas that have not yet been touched by other companies. For example, the “pen computer”, which is a computer that utilizes an electronic pen rather than a keyboard for input. Conceivably, through the Project Glass research and development project started in early 2013, Google has begun to develop Google Glass. This is a wearable computer with an optical head-mounted display and acts in the same manner as a smartphone, except it’s hands free. Google should search for strategic alliances (integration and interoperability) by acquiring more financial power through teaming up with larger companies and/or acquiring smaller ones. They could seek an alliance with a company in the wireless sector and create a Google wireless network or even create an Apple/Google smart phone. The case refers to cloud computing as the next big thing in technology. Learn when the government uses censorship, it puts a limit on what?

Google needs to “take the bull by the horns” and run with this opportunity. Google should also continue to improve its web browser in a way that attracts its competitor’s clients. Why shouldn’t the users of Google be able to customize the way they search and use their information? Something as simple as the ability to save “post-it notes” on the webpage would result in more attractiveness. It is imperative that Google manage its brand well, this will help Google survive market turbulences. This relates back to Google sticking to their Corporate Philosophy. This day and age brings about the opportunity for Google to invest in Internet security. Google should strive to make it safe for a user to use the Internet without fear of attracting viruses to their personal computers or mobile devices.

Analysis

The search industry is highly based on the ability to provide higher technology to users, low prices for advertising, and capacity to engage suppliers to subscribe to the search engine. Google’s well-established market leading position in the search industry is a major factor in the company’s overall success because it has become its main competitive advantage. Currently, this competitive position in search is very strong but there are a number of competitors that are threatening the company’s position. Google is the most visited site on the Internet as it had more than 1 billion unique visitors in 2011. In terms of Internet search, Google’s main competitors are Microsoft and Yahoo. Of these two, Microsoft was the second most visited site and Yahoo the fourth most visited. In July, 65.1% of Internet search traffic went to Google, 16.1% of Internet search traffic went to Yahoo, and 14.4% of Internet search traffic went to Microsoft’s Bing (Figure 1). In addition to these sites, however, smaller competition is emerging from Ask.com, Aol.com, and Baidu. Baidu is a particularly large competitor in the industry because the company has a strong market share in China.

Baidu and the Chinese market are major concerns for Google because of the size of the market in that region and the restrictions that China has placed on Google in terms of censorship. Currently, Baidu contains 75.9% of that market while Google contains only 18.9% of that market. After conducting a Competitive Advantages Assessment, we found that Apple ranked higher than Google overall, scoring 9.45/10 while Google scored an 8.6/10. We ranked the companies by strength measures of quality, innovation, brand image, and sync capabilities. This score is somewhat misleading because these companies are not selling the same products. While this assessment did give a visual representation of the companies’ strength measures on paper, it didn’t seem to depict an accurate measure. When considering the five competitive forces, the strongest force in the market appears to be the competitive pressures associated with rivalry among competing sellers to attract customers. Rivalry between Google and its competitors is fierce and consistent. One significant move by Google will result in a significant move from the competition. These companies are innovating and inventing new applications every day in order to have a strong competitive advantage. The fact of the matter is that “fast followers” like Microsoft, are savvy enough to trail behind key innovations and maintain its competitiveness.

The big players in the industry currently exhibit a high technology and a lot of knowledge in the industry. The least powerful competitive force in the industry is the threat of new entrants. Many products and innovations are emulated which results in similar designs arriving to the market. Designing and implementing a search engine that would truly compete with Google or other key players appears to be a nearly impossible undertaking. Although some competition has emerged, the threat of future competition is minimal. The overall attractiveness of the industry in terms of search appears highly favorable for Google as the company has a strong competitive advantage. Competitors face a significant hurdle in regard to the strong preference for Google among Internet users. Still, future growth into large new markets appears to be limited because of the Chinese government’s restrictions and Baidu’s established presence.

The search industry is changing in a variety of ways. Perhaps the most significant way that the search industry is changing is that it is more often being accessed through mobile technology. In the past, it was accessed primarily through traditional computers and laptops. More than 35% of the American public accessed the Internet through a mobile device in 2010. Around the world approximately 5 billion people own mobile phones. Google, for instance, introduced its Android mobile technology as a means of improving the company’s search traffic. Tablet technology similarly is impacting the search industry. In addition to these things, cloud technology is a major thing that is changing the search industry. Google predicted that the cloud software market would increase to $95 billion by 2013.

A number of forces seem likely to bring about major changes to the industry in the next three to five years. As stated, mobile technology will be a major force to bring about change. Between March 2011 and June 2011 the number of smartphone users in the United States grew by 10%. One can assume such growth will continue into the future and soon mobile may be the main way that people use the Internet. Tablet technology and other handheld devices are also predicted to increase in the future. The impact of this technology is that it will require search engine service providers like Google and Microsoft to make sure that their search platforms are compatible with mobile devices. This is not just true for search but will also impact the sorts of platforms that are created.

Google in the past has made a strong variety of Internet search platforms applications such as Google Earth apps that are useful for mobile technology and even tablets. In upcoming years, search engine providers will need to make more types of applications that are more useful for mobile users rather than just traditional computer users. Just like with mobile technology, the growing popularity of cloud technology will require search providers like Google to further develop applications for these platforms.

A number of key factors define success in the industry, with innovation being perhaps the most important. Innovation occurs throughout the industry most importantly in terms of developing effective search platforms. In order to maintain a strong competitive advantage companies must constantly improve their search algorithms to make sure results are fast, accurate, impartial, and easy to use. In addition to search innovation, companies must also innovate across other industries such as smartphones or tablet technologies because these things determine search access. Not only innovation, but also strategy is very important in determining which companies to purchase. For example, Google Earth came about only because Google bought a company called Keyhole, a digital mapping company. Google’s purchase of YouTube was similarly an important success factor. Google now extended its advertising capacity significantly with the addition of this video based website.

The key resources and capabilities of successful search engine companies are the ability to provide effective and efficient search technologies. These resources are very critical because by providing such effective search options companies are able to command very high dollars in advertising revenue, which is the most primary way that the companies make profits. In addition, companies also benefit by expanding into different industries. For example, Google has ventured into the television and smartphone industry. Entering into the smartphone industry is a very important resource because it allows the companies to stay on top of changing trends. If Google did not have the capability of entering into the smartphone industry then a company like Microsoft could eventually beat Google in search because Microsoft’s smartphones or tablets could be made so that they are only compatible with Microsoft’s search.

These key success factors compare to the key success factors of the smartphone industry. Innovation is important in the smartphone industry, however different things must be innovated. One of the major factors in the smartphone industry is for companies to be able to develop applications for the smart phones. Smartphone technology must be able to be used with other search technology platforms. Finally, brand identity is more important in the smartphone industry. Many people purchase smartphones partially as a social statement, so owning an Apple phone to them is better than a Microsoft phone. This is not as true in search where people are more concerned that the search is effective.

Larry Page stated, “The perfect search engine is something that understands exactly what you mean and gives you back exactly what you want.”(asahitechnologies.wordpress.com) Google’s customer value proposition and profit formula are linked to its business model. Google’s business model is partly seen by examining the company’s philosophy. Google’s success in the search industry alone can prove that these ideas are indeed working. Google has significantly improved its market share in the search industry through their emergence into mobile search. Google’s commitment to ethics and not being evil is also reflected in the company’s strong brand name. Though a hiccup occurred when Google was tied to allegations that the company violated federal wiretapping statutes. This approach has resulted in the company being able to present strong customer value propositions in the form of advertising options to other businesses. This advertising business model occurs in the form of Google Search Appliance, Google AdWords, and Google AdSense. The advertising is both highly efficient and a good value for businesses.

Google has relied upon a number of strategies to build competitive advantage in the industry. Google’s business model is essentially upholding a reliable pricing system, leveraging a disruptive business model and maintaining efficient ads. This strategy was highly successful in establishing competitive advantage for the company because after Google established itself as a leader in search it was able to leverage this to make revenue from advertising. In addition to this strategy Google has also entered into different industries to expand its competitive advantage. The largest such example of this was Google’s entrance into the mobile search industry. Google produced the Android mobile technology, an operating system, and made it open source. The strategy was that by doing this they could make sure that its search engine remained the compatible with the growing mobile industry. Google has used this strategy of entering into new technologies to gain a competitive advantage to advance its search platforms also in terms of things like cloud computing and Google TV. With cloud computing Google developed Google Apps to improve its position in this industry.

Google’s business model and strategy have proven to be extremely successful. Today the company is the world’s leading provider of Internet search services. In 2011, nearly 5 billion unique users visited the company’s website. Google’s advertising platforms, such as Google AdSense, have resulted in a significant amount of profits for the company. The company’s 29.01 profit margin percentage also demonstrated that the company was making a strong profit from this business model (Table 2). The company’s strategy in innovating and purchasing companies has also been successful, as it has
allowed the company to maintain a strong competitive advantage.

Investors should definitely be impressed with the company’s financial performance. The main reason investors should be impressed is not because the company has made a significant amount of money but because the company has been able to do so while dealing with heavy competition. Google has consistently demonstrated its ability to innovate and move into new territories as a means of allowing the company to maintain its strong advantage in search. Today this advantage is so strong that it is very difficult for new entrants to enter into the industry. Google’s continued success has been reflected in its rising stock price. Since 2006 Google’s stock has steadily increased even during the 2008 recession. The company’s financial ratios are strong. In 2010 Google had an 18.39 return on equity ratio and a price to earnings ratio of 20.36, which is relatively conservative for a technology company.

The company’s financial performance is not as strong as Apple’s in terms of smartphones, but this make sense due to the fact that Google is primarily concerned with the search traffic on these mobile devices and not the device itself. In 2011, Apple was the industry leader in smartphones. However, Google’s markets share in this field steadily grew throughout the year. Google’s total revenue compared to Apple was not as strong. The company’s greatest strengths are its strong competitive advantage in the search industry.

The company has been able to leverage its position in search by expanding into a variety of different industries. The company has also been very effective in innovating a substantial amount of product lines. The company’s business model also offers highly efficient means of targeted advertising that are more efficient than advertising in many other venues or mediums. In terms of weaknesses, the company’s greatest weakness is the challenges it will face growing into the future. While the Chinese market poses a potentially strong area where Google can grow, the company faces significant threats from Baidu. Also, the Chinese government’s restrictions and censorship may greatly limit the success Google can gain in the area. While China is a potential weakness, it may also be a potential opportunity. If Google were able to enter the Chinese market, the country’s extremely large population size would result in the company being able to grow to substantial new levels. If Google’s Android smartphones are able to continue to grow then they will be able to use this to help their search platform. Google TV may also be another opportunity for Google to embark on.

Finally, Google’s development of applications for cloud technology is another opportunity for future growth. The company faces threats from both mobile and tablet technology. These are threats because if Google is not able to innovate in these fields to a great level then they risk having other companies do so. These other companies could then use their position in these fields to direct customers to their own search platforms. Another threat Google faces is from Baidu in the Chinese market. Baidu is uniquely made for China and it may be more effective in meeting the demands of the Chinese government. Finally, Google faces consistent threats from Microsoft and Yahoo as these companies are trying to improve their market share in terms of search platforms and mobile technologies. Google must face what their competition is doing and counter it. Google’s employees are by far their most important resource. Competition is very high but Google survives on innovation and diversification of its products. The search engine market has endless opportunities and new applications are being introduced and integrated. Some examples of this are the Android (OS for smartphones), Google Calendar, Google Docs, and Google TV.

Specific Strategic Statement

Google’s mission is to organize the world’s information and make it universally accessible and useful in a socially responsible way. The company’s goals are to continue to be a world leader in search and to innovate across a variety of different platforms and industries. The company’s competitive advantage is in search and it is maintained through offering high quality services and entering into a variety of different industries to maintain the company’s leverage. The company’s growth direction is in terms of the current market but in different industries like smartphones. Additionally, the company is attempting to expand abroad into the Chinese market.

Functional Strategies

Google’s functional strategies are to provide high quality products and services in a socially responsible way. This approach involve innovating new products and within new industries. It also involves purchasing companies that hold the potential to allow Google to maintain its competitive advantage.

Critical Assumptions

The critical assumptions of the functional strategies are that they will aid the company in maintaining its competitive strength in search. The strategies accomplish this in a variety of ways. By providing high quality products, Google is able to gain customer support over its competitors and maintain the company’s strong brand. The company’s emphasis on social responsibility also helps contribute to making sure that the company’s brand remains very strong in the eyes of the public. In terms of innovation and buying other companies, the assumption in this is that it will make sure that Google is able to make its search platform effective across lots of different mediums. This will make sure that Google maintains its existing amount of search and also gains new users from people using the Internet in ways that it was not before used in.

References

1. John E. Gamble, A. A. (2013). essentials of Strategic Management (third ed.). (P. Ducham, Ed.) New York, New York, USA: McGraw-Hill/Irwin.

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