Business Policy Ms.

Andleeb Abbas

Group Case MBA-II Section: C

GOOGLE INC. 2005

Before defining a specific strategy for Google, it is crucial for us to take a closer look at the industry and the business environment where they operate and do business.

Porters Five Forces:  Rivalry

y y y y y y

Rules/ethic has not been defined so the environment is easily exploited or manipulated. Currently there are only a few rivals (Microsoft, Yahoo). Switching costs for most of the search tools are nothing. Brand identity is important (if not paramount Google has made the language as a noun and a verb) Rival search tools are not dissimilar to Googles tool. Improving on the search engine and its features is a significant task for a large number of highly skilled IT technologists

 Threat of Substitutes y y y Buyer inclination to substitute is primarily driven by speed and accuracy of the result and also by the overt pushing of ads that are included with the search results and pages. Users of the search tool are demanding more services and complexity or sophistication with the search tool to remain loyal to its use. Ad Revenue is directly related to use - - even the loss of a small percentage of use can mean significant revenue loss to Google or the other search generating companies.

 Buying Power y y y Use of the search rankings is a significant leverage point by the owners of search tools in bargaining. Users of the search tool are becoming more sophisticated and demanding other services also for free. Substitutes are available and for the same price: free

Business Policy Ms. Andleeb Abbas

Group Case MBA-II Section: C

 Supplier Power y y y Google is regionally not globally dominant. Competition Elimination and Substitution: Microsoft embedding their search tool into their Explorer browser. Threat of forward integration Google search may not perform as well with new software releases from Microsoft and Apple.

 Barriers to Entry/Threat of Entry y y Yahoo & Microsoft have radically improved their search engines and can on pass/deploy their search tool through their products. There is no such thing as the perfect search engine thus a better search engine invented by another will critically affect Google mayhap even mortally as 40% of the company revenue comes from advertising which is driven through the search engine.

Business Policy Ms. Andleeb Abbas

Group Case MBA-II Section: C

EFE Matrix:

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2.28

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Threats m g gg w h kf E m w

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Opportunities Weight increasing demand for int 0. economies of scale 0.06 Rise in democracies 0.0 Increasing no. of internet 0.04 Strategic acquisitions 0.0 increase in R & D 0.0 U 009 m 0 06 Rising Population Rates 0.04 gL R 0.06

Rating Google 3 3

Weighte Weighte Weighte Rating d Rating d Rating d Rating Microsof Rating Score Score Score t Yahoo! Google Microsof Yahoo! 3 3 0.3 0.3 0.3 0. 8 0. 0. 0.04 0.04 0.04 3 3 0. 0. 0. 0.06 0.04 0.04 3 0.04 0.06 0.04

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Business Policy Ms. Andleeb Abbas

Group Case MBA-II Section: C

Marketing Strategy: Google Inc., starting from just a smart company, has become in a few years the world leading search engine, has developed winning applications such as Google Earth, Google Video, Google Maps, Gmail, and is enjoying a huge success. Google, starting from scratch, has won the challenge against a giant like Microsoft and against many of the previous search engines. Google introduced a smart, innovative and quite risky business model - Adwords - and the pay per click concept. The risk proved winning, and the innovative business model worked. Still today Adwords is the main source of revenues of Google Inc. In the following years, Google became a powerhouse with an impressive pipeline of new great products - Google Maps, Google Earth, Google Video and Gmail. Marketing Strategy to keep up its Business Growth In order to keep up its business growth, Google should focus on its core competencies. Simply stated, core competence is something a company does especially well relative to its competitors. Google had - and still has - a simple, clean, clear, minimalistic user interface. No frills, just the logo and the search box - easy and fast to load. And this was a key feature with the slow internet connections of the early years 1999 -2001 - while Yahoo and most of the other search engines were full of useless features and useless links, full of annoying banner ads, heavy and slow to load. Google had a clear understanding on psychology of perception, and how the interaction eye/brain works, while the bigger competitors didn't. Bottom line is: If the user visits a search engine, what he wants to get is simply that: just a search engine, a search engine, which is fast and reliable. Google has become the market leader in the search engine industry through its business focus on searches alone. By September 2006, Google was the Internets most-used search engine, performing almost half of all searches. Google believes in continuous innovation and its corporate culture gives its employees this opportunity, where creativity is supported and actually expected from employees. The so-called free days are a strong basis for having marketing competencies to produce product modifications. Google, although being the most successful Internet Company today, didn't get to where it is without takings risks--some of which have failed spectacularly. One such example is the Google Accelerator, which was supposed to speed up Web surfing, but you had to pay to get a Google Answer, and eventually people stopped asking. Moreover, the sales of Google Phone, Nexus One, did not reach the expected level, as for many people the switching costs were too high.

'

Business Policy Ms. Andleeb Abbas

Group Case MBA-II Section: C

Googles main aim should be to continue providing quality and convenience to its users, and introduce product modifications which are related to their core product, i.e. a fast and reliable search engine. Googles core competence is its strong search technology which gives accurate results to its users and that also at the right place without misleading them. Google should concentrate on making its search engine much more accurate, relevant and dependable which is most important thing as far as the users objective is concerned. Thus, Google should keep updating its technology and services with the same simplicity and comprehensiveness as it has been providing since its establishment

SWOT Analysis Strengths o It has established a brand name for itself and is considered to be the number one search engine on the web. o The speed and simplicity of its search engine is quite reliable and user friendly. o It is considered to be among the top 10 brands in the U.S. o It gets reputation by its popularity which proceeds by its word of mouth publicity, so it doesnt need to put much effort in marketing its search engine. o It has hired PhDs specially to work for enhancing the search engine algorithms which will render the search faster, relevant and more efficient. o It provides its search engine interface to 88 languages which is quite helpful for the locals of the countries. o It uses state-of-the-art technology to catalog the pages to give the most updated outcomes to its users. o It ranks the web pages with its Page-Rank technology that gives the users access to the important pages first. o The search engine also provides localized searching where the users get results according to their regions. o It provides services such as Groups, Email, News, Directory etc. o It has also acquired YouTube which provides video services to users across the web, and which is regarded to be the number-one online video portal users.

Business Policy Ms. Andleeb Abbas

Group Case MBA-II Section: C

Weaknesses o It is dependent mostly on its search based advertising. o Contextual search algorithms are not 100% perfect and many a times make mistakes. o Although Google is a dominating player among search engine websites, only 50% to 65% of web search queries are answered accurately by it. o Google doesnt have highly personalized search by which it could charge users with switching cost if they decide to leave Googles services

Opportunities o It has vast opportunities for reaching new groups/segments and reaching for new contents. o It can add localized vendors paid advertisements on the localized search. o Google can become a mass-market portal like Yahoo and MSN and can increase switching cost for its users. o Google can enhance personalized and localized searching and can also add localized paid listings of advertisers.

Threats o Competition from firms like Yahoo, MSN and others. o Censorship imposed by some governments. o Federal lawsuit regarding the collection of search habits of the consumers o It can lose its simple and user-friendly interface if it decides to become a portal, for which it is favorite among its users. o It can get stuck in issues if it decides to acquire information regarding its users personal information.

Business Policy Ms. Andleeb Abbas

Group Case MBA-II Section: C

Operational Strategy: Operational level strategies are very narrow in focus and deals with day-to-day operational activities. It must operate within certain limits. Operational level strategies are usually formed from business level strategies which, in turn, are formed by corporate level strategies. The firm begins its operational strategy by determining its competitive advantage in services, and from its order winners and order qualifiers. Competitive advantages are the characteristics of the firm or things that it does better than other service firms (e.g., low cost, quality, service, or flexibility). In case of Google its quality and flexibility (reliability) of data in search engine are its competitive advantage. The firm's competitive advantage must be both an order qualifier and an order winner. The order qualifier is a characteristic that the service must possess in order to compete in the market. If the firm lacks this then the consumer will not even consider purchasing the firm's service. Google has the ability that it is order qualifier because most of the internet softwares use Google as search engine and people use it because its free of cost features. The order winner is the characteristic that will cause the consumer to purchase the firm's service over its competitors. Google ensures this by providing reliable and speedy searches example is of adding premium features such as GPS system in Google earth and then selling it. The firms operational strategy must be in line with marketing and finance strategies. Google is operating in software technology sector where innovation is the backbone for customer satisfaction. It is also mentioned in Googles mission statement that they will provide best user experience with technology. So there operational goal must be innovation. Currently, goggle used an expected employee time strategy of 70 20 10. It means that 70% of its employee time is used in performing specific job as web searcher and advertising, 20% time in related jobs and only 10% time in innovating new things. So it must device an operational change that its employees must concentrate on innovating new things by spending more time on creative juices conjure. This will make Google an innovative technological business. Moreover they must continue to focus on operational changes in quality and convince in there delivery systems according to customer needs.

Business Policy Ms. Andleeb Abbas

Group Case MBA-II Section: C

Financial Strategy: Financially Googles revenue is 10 times lower than Microsoft which shows that it is relatively marginal firm. But if we compare Yahoo with Google there revenues are closer to each other which show that Google is performing well against Yahoo. But Googles net income is very low than Yahoo. In year 2004, Yahoos income was $ 840 million as compared to Googles $399 million which shows that there are lots of operational expenses in Google. The net profit margin of Google is half that of Yahoo (2004). There is also 128% increase in Googles operating expenses (2003-2004). As Googles growth is remarkable so its costs are rising but as we know that share price is present value of future cash flows that will be generated. Thats why Google must follow revenue growth strategy which it is following; this will cause investors demand for its share and it will cause a raise in the share value in NASDAQ. So as revenue grows there will be high cash flow which will increase its share price. According to S&Ps: $300 level share price is justified but questioned how much immediate upside exists for investors. It means that how much its share price goes beyond $300 creating value for customers. As Google is an unleveraged company so it can take leverage to increase its operation and value. This leverage (loan) will have two effects; firstly, its share value will increase because loan amount in balance sheet will be reflected in companys rise in share price. Secondly, interest payments on loan will arise in income statement where it will reduce earnings before taxes (EBT), which will provide less provisioning to taxes and will provide tax shield. This will benefit the company overall. Another advantage of taking loan and becoming a leverage firm is that, since equity is most costly in raising capital and 84% of equity is residing inside company. Google found this way of reducing expensive equity by residing it inside company but after taking loan they will not have problem of raising expensive capital. Moreover the ownership of Google will reside within companys management.