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Google Innovation
Strategic Management II Term Project










By Group 7


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Table of Contents
Executive Summary ................................................................................................................................. 4
About Google .......................................................................................................................................... 6
How does Google make money? ............................................................................................................ 6
AdWords ............................................................................................................................................. 6
AdSense ............................................................................................................................................... 7
Google Products & Services .................................................................................................................... 7
Web ..................................................................................................................................................... 7
Mobile ................................................................................................................................................. 7
Business............................................................................................................................................... 7
Media .................................................................................................................................................. 8
Geo ...................................................................................................................................................... 8
Specialized Search ............................................................................................................................... 8
Home & Office..................................................................................................................................... 8
Social ................................................................................................................................................... 8
Innovation ........................................................................................................................................... 8
SWOT Analysis....................................................................................................................................... 10
Strengths ........................................................................................................................................... 10
Consistent Increase in Revenues .................................................................................................. 10
Robust Research and Development Capabilities .......................................................................... 10
Broad Range of Service Portfolio .................................................................................................. 11
Android Market Share ................................................................................................................... 11
Weakness .......................................................................................................................................... 11
Dependence on Advertising Business ............................................................................................... 11
Opportunities .................................................................................................................................... 11
Growing Cloud Computing Opportunities ........................................................................................ 11
Strategic Acquisitions .................................................................................................................... 11
Threats .............................................................................................................................................. 11
Invalid Clicks .................................................................................................................................. 11
Rapid Technological Changes ........................................................................................................ 12
Principles of Innovation @ Google ....................................................................................................... 13
Innovation from everywhere ............................................................................................................ 13
Focus on the user .............................................................................................................................. 13
Think 10x ........................................................................................................................................... 13
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Launch and Iterate ............................................................................................................................ 13
20% Time ........................................................................................................................................... 13
Default to open process .................................................................................................................... 13
Fail Well ............................................................................................................................................. 13
Bet on Technical Insights .................................................................................................................. 14
Have a mission that matters ............................................................................................................. 14
Googles Organizational Growth Strategy ............................................................................................ 15
Concentration Strategy ..................................................................................................................... 15
Product and Market Exploitation .................................................................................................. 15
Product Development ................................................................................................................... 15
Vertical Integration ........................................................................................................................... 15
Horizontal Integration ....................................................................................................................... 16
Diversification ................................................................................................................................... 16
Innovation Drivers @Google ................................................................................................................. 17
Google Innovation Enablers .............................................................................................................. 17
Google vs. Apple: A Comparison of their Innovation Models ............................................................... 18
Conclusion ............................................................................................................................................. 18

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Executive Summary
In this report on Google Innovation we analyze the internet giant since its inception at Stanford and
through its years of growth where in 2004 it gets listed with the NASDAQ to the current year of 2014
where it continues to baffle people with innovation.
Google was not the first search engine to enter the industry as we would see in this report but its
superior searching algorithm based on page rank technique made it achieve a foothold in the
industry. So Google took its baby steps in the industry backed by breakthrough innovation done by
its famous founders.
The industry dynamics was changing. Computers (Desktop) had reached most households in USA
and also in India computers had become a symbol of future. The internet was a vast pool of
information and people all over the world were beginning to understand its potential. Google helped
people get access to this information. We all owe to Google in more ways than we imagine. To do
our projects or work or to select a weekend destination or to select a eatery or to just find about a
trivia we now Google. Probably it was just meant to be a mistake that Google was named so.The
founders wanted to name it Googol meaning 1 followed by 1 million zeroes. By the year 2006 Google
was added to Oxford dictionary and Merriam Webster dictionary. Below we provide a staggering
statistic of the rise of Google:
Year Annual Number of Google Searches Average Searches Per Day
2013 21,61,53,00,00,000 5,92,20,00,000
2012 18,73,91,00,00,000 5,13,40,00,000
2011 17,22,07,10,00,000 4,71,70,00,000
2010 13,24,67,00,00,000 3,62,70,00,000
2009 9,53,70,00,00,000 2,61,00,00,000
2008 6,37,20,00,00,000 1,74,50,00,000
2007 4,38,00,00,00,000 1,20,00,00,000
2000 22,00,00,00,000 6,00,00,000
1998 3,600,000 *Googles official first year 9,800

Google had the technology and now it had to monetize this idea. Googles searching algorithm
would list the relevant pages so the next pages or search links listed were not random. So Google
started to allow advertisers to put ads on relevant locations. We discuss in detail in the report about
this. So basically Google is an advertising company.
Google to harness these advertising earnings has built a portfolio of services to engage users for
maximum time possible. All this services are for free for the individual user. Google launches these
services at a rapid rate and mostly in Bea stage. One thing that stands out is that Google is not afraid
to fail and this attitude among the Google employees makes them take risks and bet on their
insights.
Googles First Wave of Innovation: In the first wave of innovation Google made search its core
competencies. It certainly did not launch the concept of keyword search but it certainly took it to
new levels of perfection. It developed or acquired services around this core competency. All of this
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allowed it to place ads at strategic locations and generate clicks to earn revenue. Google acquired
YouTube. It continues to use True view technology to understand user preference in watching ads in
YouTube online videos .It also gives the user control to watch the ads they want and skip the rest.
In a world of over 222 million unique visitors, Googles website account for over 187 million of
them
1
.
Googles Second Wave of Innovation: In 2006 Google acquired a small java based mobile operating
system company known as android. Today in hindsight the decision has worked wonders for Google.
Through the acquisition of android Google has built the same kind of service offerings for people
who access internet through mobile devices and tablets.
In 2014 Apple ranked as the top Smartphone manufacturer (41.3%), Android led as the number one
Smartphone platform with over 52% of the market share. What makes this more staggering is
Google sites hit close to 90% of the entire Smartphone browsing and app audience.
2

Googles Third Wave of Innovation: What will be the third wave of innovation?
Google recently acquired Nest, a company producing smart thermostat. So Google is trying to get a
foothold in smart home appliances segment.
Google also has an interesting project Google Self-Driving Car in its pipeline. The software powering
the car is known as Google chauffeur. Though at present Google has no interest in entering a high
capital requiring automobile segment. But probably it wants to develop a software platform for cars
and then sell it to automobile companies for a license fee.
Google has also invested heavily in several drone companies. It recently acquired Titan aerospace.
This company is in the business of high altitude drones which can be used to blanket the earth in
cheap internet connectivity all round the globe even to remote areas.
So what would be the next big thing from Google?
In this report we analyse why Google can keep bringing up innovative solutions continuously at
break neck pace?



1
ComScore Media Metrixs rank of the top 50 U.S. desktop web properties for February 2014
2
ComScores February 2014 U.S. Smartphone subscriber market share
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About Google
There is no need for introduction to Google. If anyone in this era has not heard about Google then
he/she is definitely is not aware of computers and internet. Google has brought information to the
finger tips. Google is the number one search engine in the world and has invaded the life and space
of most internet dwellers. It has become an indispensable part of our lives. It now offers many
services such as email, cloud storage, a document processor and many more products and services.
But its speed of innovation has not stopped. Both organically and inorganically Google continues to
grow and spellbound people. It has forced organizations around the world to have a relook at their
own innovation model. Google by its very nature is not a conventional company. In the last few
years it has consistently topped the list of Best Companies to work for.
The Google story began with two Stanford PhD. Students Larry Page and Sergey. Google Search
Engine was their research project. Google was not the first search engine to exist on the internet.
There were some players like Alta Vista and Yahoo. But their search algorithm was based on the
frequency of words present on the web page. Google Search engine was based upon Page Rank
algorithm where in every page had a rank given to it based upon its relevance. Google started
functioning within the Stanford web domain (google.stanford.edu and z.stanford.edu). It would
surprise many that "Yahoo!, AltaVista, and many other major search engine and technology
companies approached by Stanford University turned down the chance to buy Google's search
system for $1 million. Their refusals forced Stanford Ph.D. students Sergey Brin and Larry Page to
reluctantly drop out of school and start the firm. The rest as they say is history now.
The domain name for Google got registered on September 15, 1997 and the company got registered
on September 4, 1998. Google started off in a garage at Menlo Park, California, USA. But most of us
who have used Google or its various services have used it free. So the question arises.
How does Google make money?
As per Googles annual report:
"We generate revenue primarily by delivering relevant, cost-effective online advertising."
Advertising Revenues forms about 96% of the total revenues.
AdWords
Google had become the number of search engine. Google realized that when people enter a search
query and clicks on a link they would not land up on a page accidently and hence companies would
like to place their ads at relevant locations on a web page.
Companies use Google AdWords to have their Ads displayed to specific audiences, thanks to the
search engine's advanced algorithms. AdWords is a cost per click service, so if one does not click a
link then the company need not pay a penny to Google.
AdWords brings in about 70 per cent of the company's advertising revenue. The top sectors in
advertising were finance, insurance companies, retail agents and travel agents and the most
expensive search terms were insurance, loans and mortgage.

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AdSense
Google AdSense allows advertisers to join the vast Google network and display their ads on
websites. Display advertising is usually charged at cost per page impression, because the huge
volume of online traffic ads is often sold cheaply at a cost per thousand impressions. The rest 30% of
advertising revenues comes from AdSense.
Google gets its remaining revenues from enterprise product and advertising management services.
Googles IPO took place on Aug 19, 2004. The company offered 19,605,052 shares at a price of US
$85 per share. Shares were sold in an online auction format using a system built by Morgan Stanley
and Credit Suisse, underwriters for the deal. The sale of US $1.67 billion gave Google a market
capitalization of more than US $23 billion. Currently (at the time of writing this report) one share of
Google costs US $ 573 and with a market capitalization of US $ 387.98 B.

Figure 1: Google Share Price over the Years
Google Products & Services
The Google site currently features the following products under the following categories:
Web
Web Search Search billions of web pages
Google Chrome Browser A browser built for speed, simplicity and security
Toolbar Add a search box to your browser
Mobile
Mobile Get Google products on your mobile phone
Maps for Mobile View maps, your location and get directions on your phone
Search for Mobile Search Google wherever you are
Business
AdWords Attract more customers and only pay for results
Google Apps for Business Get email, docs, storage and more, customized for your
business
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Media
YouTube Watch, upload and share videos
Books Search the full text of books
Image Search Search for images on the web
News Search thousands of news stories
Picasa Find, edit and share your photos
Geo
Maps View maps and directions
Panoramio Explore and share photos of the world
Specialized Search
Blog Search Find blogs on your favourite topics
Alerts Get email updates on the topics of your choice
Trends Explore past and present search trends
Scholar Search scholarly papers
Home & Office
Gmail Fast, searchable email with less spam
Drive Create, share and keep all your stuff in one place
Docs Open, edit, and create documents
Sheets Open, edit, and create spreadsheets
Slides Open, edit, and create presentations
Forms Build free surveys
Drawings Create diagrams and flow charts
Calendar Organize your schedule and share events with friends
Translate Instantly translate text, web pages, and files between over 50 languages
Google Cloud Print Print anywhere, from any device
Google Keep Save whats on your mind
Social
Blogger Share your life online with a blog - its quick, easy and free
Groups Create mailing lists and discussion groups
Hangouts Conversations that come to life. Anytime, anywhere, for free
Orkut Meet new people and stay in touch with friends
Innovation
Code Developer tools, APIs and resources
With this rapid pace of innovation or high rate of products that Google launches, many get
shutdown also. This year (2014) the closure of social networking platform, Orkut was announced.
Several others such as Google Reader, iGoogle, Knol shared the same fate. A research study has
shown that out of the data collected for 350 Google products, 35 percent of them were shutdown.
Some of the characteristics shared by the closed Google products show that these shutdowns were
not a part of their acquisition, did not generate revenue and were introduced in the early years of
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Googles history. The number of shutdowns shows an increase from the year 2011.This strategy of
Google was attributed to the fact they were trying to narrow down Googles focus.


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SWOT Analysis
Strengths
Consistent Increase in Revenues
Google over the years since its inception in the year 2004 has been able to increase its revenues,
which means that for now it has been able to do it 10years in a row.

Robust Research and Development Capabilities
Google has consistently invested in building robust R&D capabilities. Its R&D expenditure in absolute
terms has consistently gone up since 2004.


3,189
6,139
10,605
16,594
21,796
23,651
29,321
37,905
50,175
59,825
2004-122005-122006-122007-122008-122009-122010-122011-122012-122013-12
Google Revenue Over the Years in
USD Million
7.07 7.88
11.59
12.78 12.82
12.02
12.83
13.62
13.54
13.29
2004-122005-122006-122007-122008-122009-122010-122011-122012-122013-12
R&D Expenses (Expressed as a % of
Revenue)

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Broad Range of Service Portfolio
As mentioned earlier Google is basically an advertising company which charges customers on a pay
per click model. Now Google through its advanced searching algorithm helps the advertisers to place
the ads at strategic places.
So to bring in large number of clicks Google has to ensure maximum visits to its pages. To ensure this
Google has created a vast portfolio of services to keep the user constantly engaged with Google
which in turn helps Google to increase market share and revenues.
Android Market Share
The difference between great companies and ordinary companies is that great companies are led by
great leaders who have great foresight. Google sensed that desktop mode of accessing internet had
saturated and now people would look to gain access to internet through mobile devices and tablets.
It acquired Android, a mobile operating system and now commands an 85% market share.
Developing an Android ecosystem benefits Google as more and more users around the world get
exposed to the service offerings by Google.
Weakness
Dependence on Advertising Business
Google generates a major portion of its revenue from its advertising business, which can have a bad
impact on its business operations. The advertising business accounted for 95%, 96% and 96% of the
total revenue during fiscal years 2012, 2011 and 2010, respectively. Over dependence on one service
to achieve revenue increases risk and Google over the years is trying to diversify this risk by entering
into new business segments. Many industry experts feel that even though Google has been able to
produce many new offerings but has not been able to monetise the same.
Opportunities
Growing Cloud Computing Opportunities
The two areas where the battle between some of the tech giants would heat up are Android and
Cloud Computing. Though Google has been able to capture the Android market segment but in case
of cloud computing traditional players like Microsoft, IBM and Adobe are fighting for it hard. Though
Google has some cloud products like Google Drive and Google Docs but there is ample opportunity
to expand in this business segment.
Strategic Acquisitions
Google with its huge reserves and surplus continues to make strategic acquisitions. Many of its
successful products or services were acquired such as YouTube, Android. Google recently acquired
Nest as it probably sees a future in the smart home segment.
Threats
Invalid Clicks
Invalid clicks are a major threat to Google. Since the company derives a majority of its revenue from
advertising, fraudulent clicks can expose it to related lawsuits. Click frauds artificially inflates the
number of clicks, and increases pay per click advertising fee charged to advertisers. Increased
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number of click frauds may also result in the company being compelled to refund the fee to its
advertisers. Thus, avoiding invalid clicks should remain the companys focus area as they could have
a bad impact on the companys brand image and profitability.
Rapid Technological Changes
The technology market is subject to rapid changes, and to compete effectively, the company must
continually introduce new products or service offerings that can lead to increased market share and
penetration. The introduction of products using new technologies or the adoption of new industry
standards can make the existing products or services obsolete or rendered useless. In order to
remain competitive and increase its revenues, the company must learn to adapt to the dynamic
business environment.
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Principles of Innovation @ Google
The culture of innovation at Google is second to none. From producing the best search algorithms
to the most popular mobile operating system, Android to devices like Google Glass, Google
continues to wow the world. In this section, we list down the 9 principles of innovation that Google
that Google follows, since it took the first steps:
Innovation from everywhere
At Google innovation is not the responsibility of a particular person or department. Employees are
asked to look for problems ranging from simple to complex and come up with solutions that can
have an impact.
Focus on the user
Every employee at Google needs to frame the problem from the user perspective and then model
the solution to the problem that not only benefits the user but is easy to use and user friendly. The
solutions should improve the user experience and at the same time bring in more revenues and
reduces operational expenses.
Think 10x
How do you approach a problem? May be look at existing solutions and try to improve them. But
Google does not believe in such approaches. Google expects its employees to think a solution that is
better by at least 10 times and not just by 10 percent. So we can say that Google believes in radical
innovation over incremental innovation.
Launch and Iterate
Innovation at Google does not mean perfection. At Google it implies improvement. Employees are
encouraged to introduce products or services in Beta stage. At this stage user experiences and their
feedback is recorded and then those are incorporated into the solution to improve user experience.
20% Time
Google gives it employees the freedom to allocate 20% of their work time to their own side projects
in areas of their interest. This policy helps the employees to develop a culture of free and focused
thinking and the end result has been great. This policy also helps foster an intrapreneurship which
is essentially entrepreneurship within the company.
Default to open process
This principle allows the expansion of Googles internal collaboration to permit a greater degree of
open source partnership. Innovation stems from interaction of the best minds but, only a few of
them are directly employed by Google. Open-source invites contributions and ideas from a far larger
number of potential innovators than are normally employed with the firm, bringing a collective
approach to problems/ projects of all kinds.
Fail Well
At Google failure is considered to be a by-product of innovation, and is frequently the source of
process improvement. Ideas might not work out as planned, but can lead to something else of value
which was not thought of before. Even if a project is an outright failure, there can still be learnings
involved or good ideas that can be retooled and reprocessed, can lead to future success.
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Bet on Technical Insights
State of art Labs can only be a means to innovate. The real logic behind the innovation has to be
developed on insights from various spheres of life around us and then should be modelled into a
solution. Google employees are encouraged to bet on such technical insights.
Have a mission that matters
An underlying objective of innovation for a corporate is to provide a means to achieve corporate
objectives and strategies. Googles products and services impact millions of people worldwide every
day, which gives the firms innovation culture a prevailing sense of purpose, which is based on
improving communication among people, businesses and nations. Googles mission of generating
information for anyone with access to a computer motivates its employees to innovate across all
fields and disciplines, for an exceptional range of products and services.

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Googles Organizational Growth Strategy
The company implements its organizational growth strategy through:
Concentration Strategy
Vertical Integration
Horizontal Integration
Diversification
Concentration Strategy
Google meets its growth objective through increasing its level of operation in its primary business
segment. Google looks for ways to grow through different combinations of its present product(s)
and market(s).
The options before Google are as follows:
Product and Market exploitation
Product development
Product and Market Exploitation
This involves trying to increasing the sale of its existing products in existing markets. Though Google
does not sell its products as such but what it tries to do is maximise the time for which the user is
engaged with its products and that increases the probability of the users clicking on advertisement
links which generates revenue for the company.
Product Development
Google develops complementary products and services that are used alongside their products or
services. The company develops applications and solutions which cater to their consumers full
needs.
Vertical Integration
Google like many others has not companies has not outsourced some of its intrinsic operation
which it considers to be at the core of the Google core competencies. In todays era of computing
where most companies have their expertise in either software or hardware, Google is an expert in
both.
Google to powers its search engine has written and patented custom codes which it runs on
thousands and thousands of PCs which have also been customized by Google. Google assembles,
deploys, and is constantly improving the performance capabilities of more than 400,000 inexpensive
PCs. It builds and stacks them.
Google is able to do this cost effectively because of the massive scale of its operations and of higher
quality than buying custom PCs from someone else. Working together, these customized computers
rapidly carry out searches by breaking the queries down into tiny parts. These parts are processed
simultaneously by comparing them to copies of the Internet that have been indexed and organized
in advance.
Some people consider this to be Googles Best Kept Secret and call this huge network of customized
PCs and customized codes running on them as Googleware.
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Horizontal Integration
Horizontal Integration refers to the strategy of increasing market share through inorganic means
that is through acquisitions and buyouts.
Google acquired YouTube a video sharing platform when it failed to make its way on its platform
through its own enterprise Google Videos. Google Videos was eventually shutdown. More of M&A
would be dealt in another section of the report.
Diversification
Google is basically an advertising company. In the year 2011, 98% of its revenues came from
advertising. Such dependence on one revenue earning platform can be disastrous. Google has made
several strategies or plan to diversify. Its acquisition of android was one such move.
But Google does not make any money from android directly since it is based on an Open source
model. Though Google does make some money because of the Google Apps Store where in
developers need to pay some money to list their apps.
Also recently Google acquired Nest which people are seeing as a move by Google to move into smart
homes.

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Innovation Drivers @Google
Google is not only an innovator in terms of the new products and services but also in terms of it
employee centric model and its adoption of the open innovation model.
The term Open Innovation was first introduced by Henry Chesbrough in 2003, when he published
Open Innovation: The New Imperative for Creating and Profiting from Technology (HBS Press).
Open Innovation is the use of internal and other companies' ideas to develop new businesses. He
identifies five key elements in the new innovation process as shown in the diagram below:

Figure 2: Open Innovation Key Elements

Google Innovation Enablers
Mansfeld, HLzle, and GemNden in 2010 identified 5 innovator roles which play important roles or
act as an enabler:
Expert Promoter utilizes technical knowledge as a means of supporting an innovation
project
Power Promoter provides support through the use of hierarchical power, providing
necessary resource or providing protections detractors
Process Promoter provides support through the understanding of organizational processes
and the familiarity of inside contacts
Networking
R&D
Proactive
Intellectual
Property
Management
Corporate
Entrepreneurship,
Collaboration
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Relationship Promoter supports an innovation project by providing connections to external
networks; and Champion supports the project through personal enthusiasm, persistence,
and promoting collaboration
Throughout Google people play these roles and are not confined to one of these roles only. These
roles keep getting interchanged from one project to another.
Google vs. Apple: A Comparison of their Innovation Models
Both these companies are no doubt two of the most innovative companies in the world and yet their
innovation models are completely opposite.
Google has conditioned its users to the fact that the first version of its product or service would be a
beta version. It would not be a perfect product or service but it would incorporate the feedbacks and
find new uses of its product or service. For example for Google Glass only a few products of Beta
version were released and still people clamoured for it.
Apple on the other hand maintains absolute secrecy of its new product. It launches a finished and
almost perfect product and wows its loyal consumers. Hence Apple takes some more time within
launches of its product as it requires a meticulous planning and an astute eye for detail. This eye for
detail and understanding consumer behaviour was what made Steve Jobs special.
Google on the other hand introduces new products and services at very short intervals. Google has
an army of experimenters who collaborate and bring out products and services in quick succession
and then incorporate the feedbacks. This is process can be seen in small start ups. They get a proof
of concept product on the market quickly to see if their idea is viable. Its known as finding the
minimum viable product (MVP).
Conclusion
Google is an innovative company because it has developed its culture in such a way that people are
not scared to take risks and fail. Google as it grows would face immense challenge from start-ups
and other innovative companies like Facebook etc. The closure of social networking site Orkut this
year on 31
st
July, was a huge setback for Google. Even though it had captured a substantial portion
of the social networking market share in Brazil and India, once Facebook came it toppled Orkut.
What Google needs to maintain is that even though it would continue to grow, it still needs to
remain nimble. When a company grows some processes creep in and tend to slow down the pace of
things. Although Google continues to top the best companies to work for, it has seen some attrition
where it employees chose to work for rival companies like Facebook.
With Google innovating at such break neck pace where different teams work on different projects,
Google needs to consolidate its findings so that duplication can be kept to a minimum. People who
would play an integrating role would find importance.
Another challenge for Google is its leadership transformation that would take place in 2014 as per
the current contract. Both Larry Page & Sergey Brin are geniuses who have guided this company with
great elegance as they are the founders and know the vision of the company inside out. Companies
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like Microsoft and Apple have done well under the stewardship of Bill Gates and Steve Jobs
respectively but lost their edge once the founders left. Even though there is a ten year gap but still in
4 or 5 the search and grooming of the next CEO should begin.