Strategic Management Semester Project Page 0

A Strategic Analysis of
Google Inc.
By:
Fahad Imtiaz
Muhammad Awais
Numan Ali
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/!0A))$(G$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 .ni8ersity
tour 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 <7ac:#u<6 used an algorithm to follow the lin:s in a we;age and analyze all
the connections. The Page#an: algorithm generated a ;o;ularity inde= for each we
;age ased on the >uantity and >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. Aar8is 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 $arth demonstrated the com;any%s as;iration to mo8e
eyond sim;le we >ueries6 and its aility to merge ;layfulness with un;aralleled
functionality.
'undamentally6 Google%s usiness model is aout selling ad8ertising. To ma=imize
;roEts6 it is in Google%s interest to learn as much as it can aout its users. ,ith more
information6 it can sell more accurately targeted ads6 and therefore more e=;ensi8e
ones.
Tools
To identify the current ;osition and issues/challenges faced y Google we used two tools
iDe Porter - 'orces and S,"T. In coming te=t we will discuss them rieFy.
PORTERS 5 FORCES ANALYSIS
Porter%s & 'orces analysis is a framewor: for industry analysis and usiness strategy
de8elo;ment relati8e to the com;etitors of the firm GHuic:M7A6 +00IJ.
Supplie P!"e # LO$
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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 is
a 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 Gthe 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)0.e--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 of
com;any%s ;roducts and ser8ices.
Google has an access to I9N of the
world des:to; search mar:et users.
Google has O-&.I+ illion in cash
and only OM 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 +03M and will grow
Google%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 in8ol8ed
in 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!'u.i'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 new
and ;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 a
com;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 I
;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 futureP 0ow 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
MicrosoftP
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 and
ac>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.
Re2!&&e.3)'i!.-
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3. 'aceoo: has een seen as an emerging com;etitor of Google. 'aceoo: has
grown with unelie8ale s;eed and has now larger ase of users among all social
networ:ing wesites. More users mean more customers for ad8ertisements.
Google%s ;re8ious attem;t to manage a social networ:ing wesites ha8e failed.
As mentioned in S,"T analysis there is still an o;;ortunity in growing GoogleQ
as a com;etiti8e social networ:ing wesite. Google has co8ered almost all the
as;ects of an online user lifecycle. The only remaining as;ect is a wellDmanaged
and attracti8e social networ:ing wesite. If Google need to maintain it%s only
re8enue stream6 iDe we ad8ertisement they need to ma:e sure that they remain
on the to; regarding users% ase.
+. Google needs to ma:e sure that it only ac>uires or ma:es alliances with the
com;anies that Et well with its own cor;orate strategy and to identify the :ey
;roducts and ;ut more focus on them. $Dg Google at the moment is maintaining
two social networ:ing wesites iDe "r:ut and GoogleQ. ,hile I am writing this6
Google has announced to shut down the "r:ut. This seems to e a good mo8e as
there is no sense in maintaining two similar ;roducts and waste the com;any%s
resources.
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Fi/ue 4 %!!/le- I..!()'i!. E2!-y-'e&
Amide=terity
Amide=terity is the aility of eing e>ually ade;t with each hand Gor6 to a limited
degree6 feetJ. The word <amide=trous< is deri8ed from the )atin roots ami6 meaning
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<oth6< and de=t6 meaning <right.< Thus6 <amide=trous< is literally <right on oth sidesC.
In usiness jargon6 amide=terity re;resents <the aility to do two seemingly o;;osing
things e>ually well.< In sim;le terms6 a Erm is good at today5s o;erations and is ;oised
to do well in the future as well.
Google is a contem;orary e=am;le of amide=terity as it e=;lores new a8enues loo: at
Google )as while e=;loiting its su;erior functionality through adwords and adsense.
)oo:ing through the lens of Google5s I0D+0D30 Gthe way Google em;loyees allocate their
scarce resources6 timeJ6 I0N of Google5s eKorts is directed at e=;loitation of their
current oKerings while M0N are s;ent on e=;loring new a8enues or 8istas.
Google is e=;loring and e=;loiting its inno8ations oth inside the Erm as well as through
a set of networ: ;artners. 7ased on recent data from Google6 we :now that adwords
and adsense contriute roughly e>ual to Google5s to;line. 0owe8er Google is yet to
come u; with the ;roduct or set of ;roduct that could earn the signiEcant amount of
re8enue for them. As already mentioned Google%s iggest worry is to e=;lore the new
a8enues of growth and re8enue. The mere source of we ad8ertisement will not suRce
to sur8i8e in future.
3.3 Re2!&&e.3)'i!.-
3. Google%s other com;etitor6 Microsoft6 is >uite good in de8elo;ing di8ersiEed set of
;roducts to maintain se8eral streams of re8enue. Microsoft%s ,indows "S still
holds the largest share among P! users so does there "Rce Suite. Although
Google has de8elo;ed !hrome "S for P! users ut they ha8e een oser8ed a it
lazy in ;romoting it. A more focus in mar:eting and ;romoting the !hrome "S will
hel; in gaining more shares and will earn more re8enues.
+. Microsoft also has ac>uired (o:ia%s moile de8ices usiness to add another set of
;roducts into their ;ortfolio. Similarly6 Google ac>uired Motorola%s moile de8ices
usiness ut they failed to manage it and sold e8entually. They must understand
the need of multi;le re8enue streams as soon as ;ossile. As Google already
owned Android6 moile o;erating system software6 a rather focused de8ices%
strategy will earn immediate gains.
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