Google Inc - Strategic Analysis

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Strategic Management Semester Project Page 0

A Strategic Analysis of

GoogleInc.

By:Fahad ImtiazMuhammad AwaisNuman Ali


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Tale of !ontents

COMPANY PROFILE...................................................................................................2

TOOLS..................................................................................................................... 2

P"#T$#%S & '"#!$S A(A)*SIS....................................................................................................+

Supplier Power LOW.............................................................................................................2

Buyer Power STRONG.......................................................................................................... 3

Competitive Rivalry MODR!T...........................................................................................3

T"reat o# Su$%titutio& LOW.................................................................................................. 3

T"reat o# New &try MODR!T...........................................................................................3

S,"T A(A)*SIS............................................................................................................................ -

ISS$S/!A))$(G$S........................................................................................................................ &

ECOSYSTEM.............................................................................................................6

#$!"MM$(1ATI"(S.........................................................................................................................2

AMBIDEXTERITY.......................................................................................................8

3.3 #$!"MM$(1ATI"(S................................................................................................................. 4



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!"MPA(* P#"'I)$

Google5s founders6 )arry Page and Sergey 7rin6 met y chance on a Stanford ni8ersitytour in the summer of 399&. Page6 at the time6 was wor:ing on a Ph1 research ;roject

in8ol8ing the mathematical ;ro;erties of the lin: structure on the internet. The research

;roject6 uality of incoming lin:s. 7y 3994 Google%s we

crawler had inde=ed 20 million #)s and the com;any had een formally incor;orated.

?Google is not just a com;any@ it is an entirely new way of thin:ing aout understanding

who we are and what we want. ar8is has done something really im;ortantB e=tend that

a;;roach to usiness and culture6 re8ealing just how re8olutionary it is.C D !hris

Anderson6 Author of the )ong Tail

In the ne=t few years Google ecame the gateway to the internet for the masses6 as

well as a traffic director that could ma:e or rea: a com;any with its search ran:ings.

Google 1ocs6 Gmail6 and Google $arth demonstrated the com;any%s as;iration to mo8e

eyond sim;le we >ueries6 and its aility to merge ;layfulness with un;aralleled

functionality.

'undamentally6 Google%s usiness model is aout selling ad8ertising. To ma=imize

;roEts6 it is in Google%s interest to learn as much as it can aout its users. ,ith more

information6 it can sell more accurately targeted ads6 and therefore more e=;ensi8e

ones.

Tools

To identify the current ;osition and issues/challenges faced y Google we used two tools

iDe Porter - 'orces and S,"T. In coming te=t we will discuss them rieFy.

PORTERS 5 FORCES ANALYSIS

Porter%s & 'orces analysis is a framewor: for industry analysis and usiness strategy

de8elo;ment relati8e to the com;etitors of the firm Huic:M7A6 +00J.

Supplie P!"e # LO$

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Su;;lier argaining ;ower is currently low and should remain low as long as Google

maintains strong mar:et dominance. 7ecause of the ad system they use to generate

income6 oth the ad8ertiser and the recei8er are Google clients. The Android ;hone

system has een selling with great success for all moile ;hone com;anies6 so su;;liers

of these items want to maintain a good relationshi; with Google as well6 ;utting them in

a somewhat ;owerless ;osition.

Buye P!"e # STRON%

7uyer ;ower is strong in oth the Internet and !om;uter Software industries. There are

many com;etitors that host alternati8es to Google%s oKerings. ,hile many of Google%s

ser8ices are free6 they rely on ad8ertising to generate a moderate ;ercentage of their

re8enue. If ;eo;le choose not to use their ser8ices6 this could cause a dro; in

ad8ertising clients6 aKecting Google%s ottom line. There are also many com;anies that

create moile ;hone o;erating systems6 allowing consumers the choice not to uy

Google ased ;hones. 7ecause of this6 uyers could ;otentially control ;ricing if there isa general consensus that ;rices are too high.

C!&pe'i'i(e Ri()ly # MODERATE

,hile Google does ha8e current com;etitors in the search engine game the two largest

eing *ahoo and MS(J it still commands a large majority of internet ser8ices. Its search

engine is y far the most used year after year6 and inno8ations li:e Google $arth and

Street Liew lea8e com;etitors ;laying catch u;. *ahoo and MS( oth constantly u;date

their ser8ices ut they ha8e yet to ca;ture the success Google has.

T*e)' !+ Su,-'i'u'i! # LO$

The internet has ecome the ;rimary source for information gathering and >ueries6 and

the ac:one of this is uilt oK search engines and other ser8ices that return the results

needed. ,ith such a commanding ;resence6 Google Inc. has itself ;ositioned for long

term success on the internet. As of now6 there is no foreseeale sustitution for the

internet.

T*e)' !+ Ne" E'y # MODERATE

Google Inc. has a low ris: of new entry threat ecause of the high le8el of entry arriers.

It would ta:e a massi8e starting ca;ital to uild a startu; networ: infrastructure to

com;ete with all Google%s online ser8ices and ;roducts6 and would e a considerale

feat to maintain and u;grade ser8ices and ;roducts at a rate that would usur; their

current control of the industry.

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S$OT A)ly-i-

S'e/'*- $e)0e--e-

Google runs the gamut with its

renowned search engine technology

and is second to none in the search

engine mar:et;lace as it stands.

Google set itself a;art from the rest

y dis;laying more uni>ue

information that did not readily

come u; elsewhere.

(early all Google ;roducts are

integrated with each other forming

an ecosystem that enriches

customers e=;erience and

encourages using more ofcom;any%s ;roducts and ser8ices.

Google has an access to 9N of the

world des:to; search mar:et users.

Google has O-&.+ illion in cash

and only O illion in long term de.

Last a;; ecosystem with tons of

a;;s and de8elo;ers.

In +03+6 Google added 363&3

;atents and was the +3st com;any

worldwide in terms of numer of

;atents.

More than 90N of Google%s re8enue

comes from online ad8ertising. "nline

ad8ertising is e=;ected to grow in

doule digits in +03 and will growGoogle%s income in the short term. 7ut

in the long run6 Google may

e=;erience slow income growth or

e8en the decline.

Google has many ;roducts and

ser8ices that add little 8alue for the

com;any and ma:e only losses6 thus

decreasing Erm%s ;roEts.

Google is often in8ol8edin litigation o8er the reached ;atents

and other intellectual ;ro;erty.

This litigation is costly and time

consuming and distract the com;any

from inno8ating rather than litigating.

Opp!'ui'ie- T*e)'-

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Google Plus is in a great s;ot to

comine all of Google%s ser8ices and

ecome the est social networ:ing

and internet search tool a8ailale.

Google is ma:ing a lot of headway

into the talet mar:et.

The smart;hone mar:et in the S

isn5t saturated yet and millions still

need smart;hones6 many of which

will come with Android5s "S.

Google TL is relati8ely new ser8ice

that oKers TL ;rogramming6

mo8ies6 mo8ies and more6 across a

home internet connection. If Google

is ale to e=;and this ser8ice to

oKer local stations6 ;remium

channels and ;ayD;erD8iew ser8ices6

many consumers may e willing to

re;lace their current cale or

satellite TL ser8ices.

Google Lentures is relati8ely new

ca;ital 8enture grou; within Google.

Their main focus is in8estments in

com;anies that are de8elo;ing newand ;otentially worldDchanging

technologies. At ;resent6 Google

Lentures only considers in8esting in

startDu; Erms within (orth America.

)ea:ing of conEdential com;any

information can ;ut the future of new

Google ;roducts and ser8ices at ris:.

The more data com;etitors ha8e aout

Google5s ;lans and future ;roduct

lines6 the more li:ely they are to gain acom;etiti8e ad8antage in the

mar:et;lace.

Huite ;ossily the iggest threat to

Google is the considerale amount of

money it must s;end in defending

itself in court. In +0306 Google s;ent

almost two illion dollars almost

;ercent of re8enues on legal related

ser8ices.

$conomic downturn ;articularly aKects

Google due to highly discretionary

sources of re8enue. Google%s largest

source of re8enue and its fastest

growing source of re8enue would e

negati8ely aKected y a decrease in

consumer s;ending.

The aility to grow and ;ro8ide an

inno8ati8e ser8ice de;ends directly on

the aility to hire and retain

em;loyees with the aility creates

these ser8ices. The loss of :ey

;ersonnel could hinder the

management of Google%s technology6

culture6 or strategic direction.

I--ue-1C*)lle/e-

'rom Porter%s & forces analysis and S,"T analysis6 we e=tracted following

issues/challenges that Google is currently facing or can face in future.

3. More than 90N of Google%s re8enue is generated from ads. Thus there is only one

major source of re8enue. As an in8estor6 it%s always nice to ha8e a di8ersity of

re8enue streams coming to you.

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+. 'rom the Porter & forces analysis and S,"T analysis one thing is 8ery cleat that

;erha;s Google%s iggest challenge is to continuously come u; with the

inno8ati8e ideas that attract more users and retain the e=isting ones.

,e will e using following lenses to discuss the issues/challenges.

3. $cosystem

+. Amide=terity

$cosystem

Google had a glorious Erst ten years6 ut how aout the future ow can it maintain its

com;etiti8e ad8antages li:e ;age ran:ing6 accurate searching result while new ;layers

trying to gra mar:et shares6 some of the com;etitors are hea8yweight6 for e=am;le6

Microsoft

Google has de8elo;ed a strong networ: or ecosystem of ;roducts through its inno8ati8e

wor:;lace culture and also through its strategy of mergers and ac>uisitions.

Se8eral of Google%s ;roducts are deri8ed from ac>uisitions including 1ocs6 $arth6 and

*ouTue. These ;roducts ha8e e=;anded Google%s rand and rought the ;re8ious users

of these ser8ices to Google. The :ey feature of all these ac>uisition is that they all are

rele8ant to Google%s usiness and ser8e as com;lementars to other ;roducts. $Dg

Google ac>uired Picasa which is an online image organizer in +00-. And in +002 it

ought *outue6 and hence com;leted its ;ortfolio with oth image and 8ideo

managers. Google saw an o;;ortunity in moile software industry >uite early andac>uired Android in +00& which turned out to e the est deal till now in Google%s life

cycle. 7y ac>uiring such ;roducts Google :ee; on e=;anding its user ase and hence

attracts more customers. Google understands that the only way to maintain the only

re8enue stream is to :ee; largest ase of the customers. 'igure 3 hel;s in

understanding that how Google use this ecosystem to ha8e a com;etiti8e edge.

Also this strategy of ac>uisition ensures that Google :ee; on coming u; with inno8ati8e

;roducts e8en if it%s not de8elo;ing them on its own. This ecosystem of uni>ue yet

com;lementary ;roducts is the 8ery reason of Google%s success so far and in order to

sur8i8e in this highly com;etiti8e world Google understands that it needs to maintain

and grow this ecosystem.

Re!&&e3)'i!-



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Fi/ue 4 %!!/le- I!()'i! E!-y-'e&

Amide=terity

Amide=terity is the aility of eing e>ually ade;t with each hand or6 to a limited

degree6 feetJ. The word


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Google Inc - Strategic Analysis