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Model Answers for

Googles Strategy in 2010


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Refer page C 184

Overview
Google was the leading Internet search firm in 2010 with 60-plus percent market shares in both searches
performed on computers and searches performed on mobile devices. Googles business model allowed
advertisers to bid on search terms that would describe their product or service on a cost-per-impression
(CPI) or cost-per-click (CPC) basis. Googles search-based ads were displayed near Googles search
results and generated advertising revenues of nearly $22.9 billion in 2009. The company also generated
revenues of $761 in 2009 from licensing fees charged to businesses that wished to install Googles search
appliance on company intranets and from a variety of new ventures. New ventures were becoming a
growing priority with Google management since the company dominated the market for search based ads
and sought additional opportunities to sustain its extraordinary growth in revenues, earnings, and net cash
provided by operations.
Google launched its Android operating system for mobile phones in 2008, which allowed wireless phone
manufacturers such as LG, HTC, and Nokia to produce Internet enabled phones boasting features similar
to what were available on Apples iPhone. Widespread use of the Internet-enabled Android phones would
not only help Google solidify its lead in mobile search, but would also allow it to increase its share of
banner ads and video ads displayed on mobile phones. The company had also entered into alliances with
Intel, Sony, DISH Network, Logitech, and other firms to develop the technology and products required to
launch Google TV. Google TV was scheduled for a fall 2010 launch and would allow users to search live
network and cable programming, streaming videos from providers such as Netflix, Amazon Video On
Demand, and YouTube, and recorded programs on a DVR. Perhaps the companys most ambitious
strategic initiative in 2010 was its desire to change the market for commonly used business productivity
applications such as word processing, spreadsheets, and presentation software from the desktop to the
Internet. Information technology analysts believed that the market for such cloud computing applications
could grow to $95 billion by 2013.
While Googles growth initiatives seemed to take the company into new industries and thrust it into
competition with companies ranging from AT&T to Microsoft to Apple, its CEO Eric Schmidt, saw the
new ventures as natural extensions of its mission to organize the worlds information and make it
universally accessible and useful. In a J uly 2010 interview with the Telegraph, Schmidt commented that
Googles new ventures into mobile devices, television search, and cloud computing would allow the
company to organize the worlds information on any device and in any way that we can figure out to do
it. In J uly 2010 it was yet to be determined to what extent Googles new initiatives would contribute to
the companys future growth. Some industry analysts preferred that Google focus on improving its search
technology to protect its competitive advantage in search and thereby its key revenue source. There was
also a concern by some that, as the company pushed harder to sustain its impressive historical growth rates,
it had backed away from its commitment to make money without doing evil. While free speech
advocates had criticized Google for aiding China in its Internet censorship practices since its 2006 entry
into China, authorities in the United States, Canada, Australia, Germany, Italy, the United Kingdom, and
Spain were conducting investigations into Googles street view data collection practices. It had been
discovered that while Googles camera cars photographed homes and businesses along city streets,

Questions
1. Discuss competition in the search industry .
2. Describe Googles customer value proposition and profit formula linked to its business
model. What is Google Strategy ?

3. What are the companys key resources and competitive capabilities?
Modelanswers
1. Discuss competition in the search industry.

FiveForcesAnalysis
1. Thebargainingpowerandleverageofbuyersamoderatecompetitiveforce
Oneshouldnotconfusesearchengineuserswithbuyersofsearchengineservices.The
buyersellerrelationshipisbetweenthesearchenginecompanyandthecompaniesthatpay
foritssearchbasedads.
Asecondcategoryofbuyersincludescompaniesthatpurchasesearchappliancestooffer
searchfunctionalitytointranetsorcorporatewebsites.
Bothtypesofbuyershadamoderateamountofleverageintheirnegotiationswithsearch
enginesellers.
Thesearchenginecompanieshavestandardfeesthatarechargedforbothsearch
appliancesandsearchbasedads.However,therearenomeaningfulswitchingcostsfor
buyers,whichputspoorsellerswithpoorperformingsearchtechnologyataconsiderable
disadvantageinthemarketplace.

2. Thebargainingpowerandleverageofsuppliersaweakcompetitiveforce
Mostofthetechnologythatpowerssearchenginesiseitherdevelopedinternallyor
acquired,sostudentswilllikelyconcludesupplierstotheindustryareveryweakintheir
relationshipswithsearchenginecompanies.
Computerhardwareandtelecommunicationsequipmentarethemajorpurchasedinputs
intodeliveringsearchresultsandtheseproductsarereadilyavailablefromanumberof
suppliers.
Itshouldbeassumedthatsearchenginecompaniesareabletonegotiateforlowprices
whenpurchasinglargenumbersofserversandacceptingbidsontelecommunications
services.
3. Competitionfromsubstitutesaweakcompetitiveforce
MemorizationofURLs,usingafavoriteslist,orperusingwikisitesareamongthefew
substitutesforsearchengines.
SearchenginesareacriticalapplicationforInternetuseandhavenosubstitutes.
4. Threatofentryamoderatecompetitiveforce
Entryintotheindustryseemsrestrictedtoonlythosewithconsiderabletechnological
capabilitiesandaccesstocapital.
EntryintotheindustryislimitedtoaselectgroupoftechnologyandInternetcompanies,but
itislikelynewsearchengineswillemerge.
Googlewasdevelopedonaverylimitedbudgetbytwocreativecomputersciencegraduate
students.
Itspossiblethatthedevelopmentofaviablesemanticsearchenginemightoriginateina
similarfashion.
5. Rivalryamongcompetingsellersofsearchengineservicesastrongcompetitiveforce
Theabilitytoattractbuyersofsearchbasedadswasafunctionofasearchenginesabilityto
deliverhighlyrelevantsearchresultsandthenattractvastnumbersofInternetuserstoits
site.
Thesearchengineindustrywashighlyconsolidatedwiththreesitesaccountingformore
than90%ofallsearchesinApril2008.
Competitionamongrivalsearchenginesisbestcharacterizedasstrong,sinceeachsearch
engineattemptedtocreatethebesttechnologytosearchbillionsofwebsitesanddevelopa
followingamongmillionsofInternetusers.
Internetadvertiserswereunlikelytoutilizetheservicesofsearchenginecompanieswith
inferiortechnology,limitedresults,orsmallnumbersofInternetusers.
6. Overallattractivenessofsearchengineindustry
ThesearchengineindustryishighlyattractiveforacompanywithGooglescapabilities.Buyershave
littleabilitytobargainforloweradratesfromGoogle,substitutesandsuppliershaveverylittle
impactonindustryprofits,andthecompanystechnologyprotectsitfrominterfirmrivalry.
However,thepotentialentryofafirmhavingmasteredsemanticsearchtechnologycouldquickly
erodeGooglescompetitivepositionandcauseittoloseInternetusersandadvertisingclients.
Therefore,theabilityofconsumers(andadvertisers)toswitchallegiancestobettersearch
technologiesmakestheindustryveryunattractiveforcompaniesofferinginferiorsearchtechnology.
Searchengineswithinferiortechnologyandsmallnumbersofuserswillfinditverydifficultto
attractsufficientadvertisingrevenuestoearnprofitsandrecoverdevelopmentcosts.

2. Describe Googles customer value proposition and profit formula linked to its
business model. What is Google Strategy ?
Googles business model has evolved from one keyed to licensing its search engine technology for use
on corporate intranets or web sites to revenue generation through search-based advertising. In 2008,
the company continued to license its Google Search Appliance to commercial users, but the vast
majority of its revenues were derived from its AdWords and AdSense programs. The AdWords
program provided discreet text-based ads to Internet advertisers, while AdSense allowed various
websites to share in Googles advertising revenues by hosting its text-based ads.
Googles customer value proposition linked to highly-relevant search results and low cost discreet ads
is very powerful, as is its profit formula that allows profits to soar as volume increases. Google has
expanded its business model further to include revenues from banner ads and the licensing of cloud
computing software applications. So far, these additions to the business model have made only a
negligible contribution to corporate revenues.
Googles strategy is Broad Differentiation. :
The company pursues competitive advantage through differentiation with its text-matching
techniques and PageRank technology that returns search results by examining the underlying links
to websites across the Internet
The company also creates value for its advertising customers by providing consumers with highly
relevant ads. Also, the wide usage of Google ensures advertisers that their ads will be seen by the
largest possible number of consumers accessing the Internet through either a computer or mobile
device.
The company has expanded its product and services offering to consumers beyond search results
to Gmail, Blogger, Mobile, Maps, Book Search, images, news, and many other features (See case
Exhibit 3).
The strategy was unique to eBusiness since there was no fulfillment activities and the company
was able to direct traffic to its site primarily by word of mouth.
3. What are the companys key resources and competitive capabilities?
Strengths and competitive assets
Googles text-matching techniques and PageRank technology provides highly relevant search
results by searching billions of web pages to examine how many sites point to other sites
Googles search functionality allows users to search stock quotes, street maps, telephone numbers,
flight information, perform web page translations, and track overnight parcels
Extensive list of services and tools listed in case Exhibit 3
Liquid assets of more than $24billion as of December 31, 2009
63.7% market share in Internet searches from computers
60-plus percent market share in mobile search
Search based ads were translated in 51 different languages
About one-half of Googles traffic was generated from United States
23% annual increase in revenues from the United Kingdom and 47.2% annual increase revenues
other countries outside the United States between 2006 and 2009
Policy of separating paid ads from search results is admired by consumers
Cost-per-click (CPC) sales model is appealing to advertisers
Bidding process allowsadvertisers with high click-through rates to offer lower minimum bids
CPC bidding process that ensured advertisers paid only 1 cent more than the next highest bid,
regardless of the actual amount of the bid
Wide network of AdSense partners has allowed revenue from Google Network web sites to
increase from $628.6 million in 2003 to more than $7.1 billion in 2009
Google Checkout provided revenues from sales at participating e-retailer websites
Specialized marketing services for large advertisers
Googles acquisition of DoubleClick allowed it to provide advertisers with banner ads in addition
to search ads
Googles Android operating system allowed it to shape how mobile phones and PDAs would
access Internet content
Androids U.S. smartphone platform market share had grown from 2.5% in September 2009 to
13.0% in May 2010
Google Apps provides businesses with a low-cost productivity software alternative to Microsoft
Office
Google TV search capabilities
Googles Chrome browser helped the company defend against attempts by Microsoft to limit
Googles ability to deliver relevant search based ads to Internet users.
Weaknesses and competitive deficiencies
Only $761million of Googles 2009 revenues of approximately $23.7 billion were generated
Search Appliance licensing fees
Googles site was not as diversified as those of web portals such as Yahoo
Googles 31% share of local search-based ads in China was a distant second to Baidus 64% share
of search ads originating from China
Googles Street View data collection approaches were seen as privacy violations in some
countries
Googles Chrome browser held only a 7% market share in J une 2010
The companys involvement in government relations seemed to be in possible violation of its
founding principles
Google generated no revenues from auctions
Market opportunities
Development of relationships with content providers that would allow Google to provide links to
proprietary information sources
Development of relationships with paid-access content providers such as Lexis-Nexis or The Wall
Street J ournal Online that would allow users to access information on a fee per visit basis
Development of semantic search capabilities
Further development cloud computing software applications that would extend Googles revenues
beyond advertising
Development of Wi-Fi service that utilizes unused television frequencies
Increased presence in country markets experiencing rapid growth in Internet usage (e.g., China,
India, and other countries experiencing rapid economic growth)
External threats
Prominent Internet companies will make acquisitions or develop technology that allows them to
avoid use of Googles search engine
Microsofts Bing could be integrated into Microsoft Windows, Explorer, Outlook, and Office
products and would eliminate the need to visit www.google.com or use a Google browser-based
search tool
Integration of search functionality into cloud computing applications could eliminate the need for
a stand-alone search tool
Microsofts Azure cloud computing initiative may attract loyal Office users preferring cloud
applications
Entrepreneurial computer programmers may develop a semantic search engine superior to
Googles text matching techniques and PageRank
Wireless device manufacturers may internally develop search capabilities for their products
Conclusion
All things considered, the four SWOT lists indicate that Googles near-term situation is attractive and
that there is further room for growth in revenues and operating profits However, longer-term,
Googles growth and profitability are vulnerable to the transformational shift due to acquisitions
or develop technology that allows competitors to avoid use of Googles search engine and
extensive use of cloud computing initiative may attract loyal Office users preferring cloud
applications .However Google may have an opportunity further develop cloud computing software
applications which can enhance revenue.