Google

An Excellent The Business Model

Only Yesterday ..Jan 22nd 2009

• Google's Fourth-Quarter Earnings Beat Expectations ( $5.10 per share as against expected $4.96 per share )

• “…and we’ll continue to invest in Google’s core search and ads business as well as in strategic growth areas such as display, mobile, and enterprise.” - Eric Schmidt, CEO of Google

Build it and they will come

Initial Business Model (Algorithmic Search Technology Development)

• Earned revenue solely through proprietary licensing its search technology to Yahoo and other 3rd parties

• Google’s website contained no portal, communications, tools, or advertising content

• Google soon became the leader in algorithmic search technology and stood well positioned to move toward the more robust business model of paid listings, which further monetized search technology.

Content Providers

Content Providers

Content Providers

Users

Users

Users

Users

Capability of Connecting Data with Users

Expanded Business Model (Search Engine Funded by Paid Listings)

• Search technology becomes a critical component of Paid Listings as “search engine ads deemed more effective for marketers” than banner ads

• Leveraging its strength in algorithm design, Google adopts a variant of “cost-per-click” that incorporates “expected click-through-rate” into the ranking of ads to help ensure the viewer saw the most relevant ads first.

• Google’s new algorithm not only provides better service to marketers, but also increases Google’s revenue through better conversion rates.

• Google expands into “contextual” paid listings, Gmail, Portal offerings (iGoogle)

Google’s Expanded Model

Advertisers

Content Providers

Advertisers

Content Providers

Web portals

Users

Users

Users

Users

Advertisers Advertisers Users Users Users

How Paid Listing Works

Click on banner adds

American Express pays

Yahoo $.50

Google uses Search ResultsSponsored Links $$

Free Search Results

Click Through Rate

0%

5%

10%

15%

20%

25%

Search Banner

Click Through Rate

Activity Core

NewOfferings/Deals

Sourci

ng

Space

NewOfferings/Deals

NewOfferings/Deals

NewOfferings\Deal

Foundation & Integrative Capabilities

Activity CapabilityCapability Enhanced

Over Time

Android phone design

Gadgets Design

Product Marketing

Server

Hardware develop

Search Algorithm

Data Connection

Map data base

Customer experience

Google checkout payment

Software integration

Street view data base

Business Strategies

Build on-line infrastructure

Satellite data base

Open Office

G-Doc

Picasa

Photo

Chrome

browser

Innovation

Capabilities: Core and Non-Core

Google’s Value Calculus and Value Generation Engine

Value Gen Engine:

•Creative employees

•Search Technology

Value Captured by Company:

•Paid Listing (CPC)

•High traffic

•High Conversion Rate

Value Created for the Customers:

Find Anything free of charge, through one standard interface by Search Package

Compelling offers

Access the customer

Create Products and Services

•iGoogle

•Free to user, charge to advertisers

•One convenient interface

•Old model: license to Yahoo, AOL, Ask

•Search Engine

•G-Map, G-Doc, G-Earth,

Android Phone, Chrome…

Google’s Balanced Model: Virtuous Cycle

•iGoogle-- packs whole product portfolio. Became the Reference Point” in the industry

•Free to users, charge to Advertisers by clicks

•Customer Experience: singe interface, easy and reliable, create conveniences.

•Best Search Engine in the industry

•Creation of products of Google’s offerings: G-Map, G-Doc, G-Earth, Android Phone, Chrome…

•Old model relies on Yahoo, AOL, Ask to get customers- not sustainable

Transformation Business Model

  Degree of Change

Business Model

Components (for searchers) Substitution Augmentation Transformation

Offers

•Quicker and better Search results •Provide Search technology to Web Portals

•Embedded advertisement in searched results.•Induces searcher’s traffic to advertiser’s sites through searched results.•Map facilitates local business

•Search for anything users can think of free of charge. Changed internet user’s behavior from “browse” to “search”•iGoogle: the prototype of future operation system

Capabilities and Capability

Sourcing

•Maps, e-mails, •Android cell phone, sourced to HTC and open source software.

•Web services•Open sourced platform 

•Connection of Data: Precisely connect searched data and advertiser’s data to searchers.  •Establish data base (map, satellite, street view, etc) as a new web infrastructure to facilitate business transactions

Value Capture

•Licensing fee from web portal sites (Yahoo, AOL, Ask)  

•Paid listing advertising (Cost Per Click)

•Great User Experiences transforms web users’ browse behavior•High Internet Traffic- Let users spend as little time in Google web site as possible. •High Conversion Rate: (high % in business transition) so advertisers are willing to pay

Google’s Evolving Value Calculus

Value Gen Engine:

Creative employees

Value Captured by Company:

Licensing Search Engine Tech to

Web Portals

Value Created for the Customers:

Search Engine Algorithms

Value Gen Engine:

Creative Employees / Innovation

Value Captured by Company:

Licensing &Ad Revenue

Value Created for the Customers:

Search Engine & Advertising

Value Gen Engine:

Innovation/ worlds best place to work !

Value Captured by Company:

Licensing, Ad Revenue, Web

Services

Value Created for the Customers:

Search Engine, Advertising, Virtual

Web Software/Services

Competitors

Current Competitors

( Search, Browser, OS and other IT services )

Future Competitors

Energy Companies – Google has spent millions in renewable energy R&D.

Phone – Google’s 3G has started gathering momentum

New Search imitators -** Teoma and Wisenut have imitated Google in terms of service and has better search algorithm but has smaller database.

** Teoma and Wisenuts are California startups in search engine space. CourtseySearchEngineWatch.com

Next Step for Google

• Disruptive Operation System– Google would not compete with

Microsoft on operation systems.– IT devices (not necessarily computers)

may not need operation system in the future

• All devices connected with Internet can operate with Google’s offerings – Mobile devices (smart phone, PDA,

netbooks) connected with Google resources (Maps, business directories) to facilitate more business for clients.

– iGoogle: a personalized web portal, can do almost anything OS can do

Factors to Google’s Success• Corporate environment attracts top talent, fosters

innovation, and promotes some risk taking has made Google a leader in both algorithm search technology as well as strategically significant virtual applications.

• Governance - Google maintains a corporate structure designed for the long-term horizons with some independence from Wall Street

• Corporate Values – Google’s values and unconventional management practice promote trust among employees and clients by providing commitment to leading-edge technology driven solutions.

• Managing Innovation – Google’s resource allocation promotes risk taking and “bottom-up” innovation, which tends to driver high-reward projects with larger margins.