A research project
1.1.0 HISTORY OF GOOGLE
Google began in January 1996, as a research project by Larry Page, who was soon joined by Sergey Brin, when they were both PhD students at Stanford University in California. They hypothesized that a search engine that analyzed the relationships between websites would produce better ranking of results than existing techniques, which ranked results according to the number of times the search term appeared on a page. Their search engine was originally nicknamed “BackRub” because the system checked backlinks to estimate the importance of a site. A small search engine called Rankdex was already exploring a similar strategy.
Convinced that the pages with the most links to them from other highly relevant web pages must be the most relevant pages associated with the search, Page and Brin tested their thesis as part of their studies, and laid the foundation for their search engine. Originally, the search engine used the Stanford University website with the domain google.stanford.edu. The domain google.com was registered on 15 September 1997, and the company was incorporated as Google Inc. on 4 September 1998 at a friend’s garage in Menlo Park, California. The total initial investment raised for the new company amounted to almost $1.1 million, including a $100,000 check by Andy Bechtolsheim, one of the founders of Sun Microsystems.
Both Brin and Page had been against using advertising pop-ups in a search engine, or an “advertising funded search engines” model, and they wrote a research paper in 1998 on the topic while still students. However, they soon changed their minds and early on allowed simple text ads.
In March 1999, the company moved into offices in Palo Alto, home to several other noted Silicon Valley technology startups. After quickly outgrowing two other sites, the company leased a complex of buildings in Mountain View, California at 1600 Amphitheatre Parkway from Silicon Graphics (SGI) in 2003. The company has remained at this location ever since, and the complex has since come to be known as
the googolplex (a play on the word googolplex). In 2006, Google bought the property from SGI for $319 million.
1.1.1 Name of Google
The name “Google” originated from a misspelling of the word “googol”, which refers to 10100, the number represented by a 1 followed by one hundred zeros. Having found its way increasingly into everyday language, the verb “google” was added to the Merriam Webster Collegiate Dictionary and the Oxford English Dictionary in 2006, meaning “to use the Google search engine to obtain information on the Internet.”
1.1.2 Growth of Google
While the primary business interest is in the web content arena, Google has begun experimenting with other markets, such as radio and print publications. On 17 January 2006, Google announced the purchase of a radio advertising company “dMarc”, which provides an automated system that allows companies to advertise on the radio. This will allow Google to combine two niche advertising media-the Internet and radio-with Google’s ability to laser-focus on the tastes of consumers. Google has also begun an experiment in selling advertisements from its advertisers in offline newspapers and magazines, with select advertisements in the Chicago Sun-Times. They have been filling unsold space in the newspaper that would have normally been used for in-house advertisements.
1.2.0 GOOGLE PRODUCTS AND SERVICES
Google product development philosophy involves rapid and continuous innovation, with frequent releases of early-stage products that they then iterate and improve. Google often make products available early in their development stages by posting them on Google Labs, at test locations online or directly on Google.com. If their users find a product useful, they promote it to “beta” status for additional testing. Once they are satisfied that a product is of high quality and utility, they remove the beta label and make it a core Google product. Their main products and services are described below.
1.2.1 Google.com – Search and Personalization
They are focused on building products and services on the Google web sites that benefit their users and let them find relevant information quickly and easily. These products and services include:
Google Web Search, In addition to providing easy access to billions of Web pages, they have integrated special features into Google Web Search to help people find exactly what they are looking for on the web.
Google Image Search, Google Image Search is a searchable index of images found across the web. To extend the usefulness of Google Image Search, Google offers advanced features, such as searching by image size, format and coloration and restricting searches to specific web sites or domains.
Google Video, Google Video lets users upload, find, view and share video content worldwide.
iGoogle and Personalized Search, iGoogle connects users to the information that is most useful and important to them in an easy-to-use and customizable format. Users add gadgets and themes created by Google and developers to create a powerful and personalized homepage and arrange the content the way they want.
Information created by a single user becomes much more valuable when shared and combined with information from other people or places. Therefore their strategy for products Google develop in this space is simple: develop tools for their users to create, share and communicate any information generated by the user, thus making the information more useful and manageable. Examples of products Google have developed with this strategy in mind include:
Google Docs, Google Docs allows their users to create, view and edit documents, spreadsheets, and presentations from anywhere using a browser. These documents are useful to their users as they are accessible anywhere internet access is available, manageable as they are stored within their servers and automatically backed up, and shareable in that they allow real time editing with co-workers and friends over the internet.
Gmail, Gmail is Google’s free webmail service that comes with built-in Google search technology to allow searching of emails and over seven gigabytes of storage, allowing users to keep their important messages, files and pictures. Google serve small text ads that are relevant to the messages in Gmail.
Orkut, Orkut enables users to search and connect to other users through networks of trusted friends. Users can create a profile, personal mailboxes, post photos and join or manage online communities.
Google Sites, Google Sites allows users to easily create, update and publish content online without technical expertise, with control over who can see and update the site. Google Sites supports a variety of information such as videos, calendars, presentations, spreadsheets, discussions and texts.
YouTube, YouTube is an online community that lets users worldwide uploads, share, watch, rate, and comment on videos, from user generated, niche professional, to premium videos. YouTube is also a video platform providing general purpose video resources to the web community. YouTube videos are embedded in blogs, social networks and web applications, and YouTube programming interfaces are utilized by many registered developers to create third-party products and services. In addition, YouTube offers a range of video and interactive formats for advertisers to reach their intended audience.
Google Toolbar, Google Toolbar is a free application that adds a Google search box to web browsers (Internet Explorer and Firefox) and improves user web experience through features such as a pop-up blocker that blocks pop-up advertising, an autofill feature that completes web forms with information saved on a user’s computer, and customizable buttons that let users search their favorite web sites and stay updated on their favorite feeds.
Google Chrome, Google Chrome is an open-source browser that combines a minimal design with technologies to make the web faster, safer, and easier to navigate.
Google Desktop, Google Desktop lets people perform a full-text search on the contents of their own computer, including email, files, instant messenger chats and web browser history. Users can view web pages they have visited even when they are not online. Google Desktop also includes a customizable Sidebar that includes modules for weather, stock tickers and news.
1.2.4 Google GEO-Maps, Earth and Local
Google Earth, Google Earth lets users see and explore the world and beyond from their desktop. Users can fly virtually to a specific location and learn about that area through detailed satellite and aerial images, 3D topography, street maps and millions of data points describing the location of businesses, schools, parks and other points of interest around the globe. Google Earth includes Sky, an astronomical imagery library with images of over 100 million stars and 200 million galaxies, and Ocean, with a detailed bathymetric map of the earth’s ocean floors.
Google Maps, Google Maps helps people navigate map information. Users can look up addresses, search for businesses, and get point-to-point driving directions-all plotted on an interactive street map or on satellite imagery. Google Maps includes Street View, 360-degree street-level imagery available in several regions around the world, and Google Transit, which provides up-to-date information on local transit options in many cities.
1.3.0 GOOGLE FINANCIAL STATUS TO DATE
The first funding for Google as a company was secured in August 1998 in the form of a $100,000 USD contribution from Andy Bechtolsheim, co-founder of Sun Microsystems, given to a corporation which did not yet exist.
On June 7, 1999, a round of equity funding totaling $25 million was announced; the major investors being rival venture capital firms Kleiner Perkins Caufield & Byers and Sequoia Capital.
In October 2003, while discussing a possible initial public offering of shares (IPO), Microsoft approached the company about a possible partnership or merger. However, no such deal ever materialized. In January 2004, Google announced the hiring of Morgan Stanley and Goldman Sachs Group to arrange an IPO. The IPO was projected to raise as much as $4 billion. On April 29, 2004, Google made an S-1 form SEC filing for an IPO to raise as much as $2,718,281,828.
In May 2004, Google officially cut Goldman Sachs from the IPO, leaving Morgan Stanley and Credit Suisse First Boston as the joint underwriters. They chose the unconventional way of allocating the initial offering through an auction (specifically, a “Dutch auction”), so that “anyone” would be able to participate in the offering. The smallest required account balances at most authorized online brokers that are allowed to participate in an IPO, however, are around $100,000. In the run-up to the IPO the company was forced to slash the price and size of the offering, but the process did not run into any technical difficulties or result in any significant legal challenges. The initial offering of shares was sold for $85 per share. The public valued it at $100.34 at the close of the first day of trading, which saw 22,351,900 shares change hands.
Google’s initial public offering took place on August 19, 2004. A total of 19,605,052 shares were offered at a price of $85 per share. The sale raised US$1.67 billion, and gave Google a market capitalization of more than $23 billion. The vast majority of Google’s 271 million shares remained under Google’s control. Many of Google’s employees became instant paper millionaires. Yahoo!, a competitor of Google, also benefited from the IPO because it owns 2.7 million shares of Google.
Google’s revenue growth rate has been slowing, but for the first time since it went public, the company’s quarter-to-quarter revenue declined.
The company, as is customary, reported results that most business only dreams of, recession or not. Its net income grew 8 percent to $1.42 billion and its revenue, excluding commissions paid to advertising partners, grew 10 percent to $4.07 billion. It generated free cash flow of $2 billion for the quarter, the vast majority of it derived from money advertisers pay Google when people click on ads next to search results.
But everything is most definitely not coming up roses. Google’s revenue, after ascending steadily quarter after quarter, peaked in the fourth quarter and declined 3 percent in the first quarter. Google’s business is still relatively strong, and it’s been hit by the recession less than many in the tech world, but it’s been hit nonetheless.
1.4.0 CULTURE AND EMPLOYEES
Google take great pride in their company culture and embrace it as one of their fundamental strengths. Their culture encourages the iteration of ideas to address complex technical challenges. In addition, Google embrace individual thinking and creativity. As an example, Google encourage their engineers to devote as much as 20% of their time to work on independent projects. Many of their significant new products have come from these independent projects, including Google News, AdSense for content and Orkut.
Google began as a technology company and have evolved into a software, technology, internet, advertising and media company all rolled into one. Google take technology innovation very seriously. Google compete aggressively for talent, and its people drive their innovation, technology development and operations. Google strive to hire the best computer scientists and engineers to help us solve very significant challenges across systems design, artificial intelligence, machine learning, data mining, networking, software engineering, testing, distributed systems, cluster design and other areas. Google work hard to provide an environment where these talented people can have fulfilling jobs and produce technological innovations that have a positive effect on the world through daily use by millions of people.
Google have assembled what Google believe is a highly talented group of employees. Despite their rapid growth, Google constantly seek to maintain a small-company feel that promotes interaction and the exchange of ideas among employees. Google try to minimize corporate hierarchy to facilitate meaningful communication among employees at all levels and across departments. Google believe that considering multiple viewpoints is critical to developing effective solutions, and Google attempt to build consensus in making decisions. While teamwork is one of their core values, Google also significantly reward individual accomplishments that contribute to their overall success. As Google grow, Google expect to continue to provide compensation structures that are more similar to those offered by start-ups than established companies. Google focus on very significant rewards for individuals and teams that build amazing things that provide significant value to us, their advertisers and their users.
At December 31, 2008, Google had 20,222 employees, consisting of 7,254 in research and development, 8,002 in sales and marketing, 3,109 in general and administrative and 1,857 in operations. All of Google’s employees are also equity holders, with significant collective employee ownership. As a result, many employees are highly motivated to make the company more successful.
1.5.0 GOOGLE BUSINESS MODEL
As with its technology, Google has chosen to ignore conventional wisdom in designing its business. The company started with seed money from angel investors and brought together two competing venture capital firms to fund its first equity round. While the dotcom boom exploded around it and competitors spent millions on marketing campaigns to “build brand,” Google focused instead on quietly building a better search engine.
The word quickly spread from one satisfied user to another. With superior search technology and a high volume of traffic at its Google.com site, Google’s managers identified two initial opportunities for generating revenue:
- Search services
1.5.1 Google grows and business blooms
Over time, these two business lines evolved into complementary networks. Google AdWords advertisers create ads to drive qualified traffic to their sites and generate leads. Google publishing partners deliver those ads targeted to relevant search results powered by Google AdSense. With AdSense, the publisher shares in the revenue generated when readers click on the ads.
For sites wishing to have more control over their intranet or site searches, Google developed the Google Search Appliance, a scalable and secure appliance that delivers accurate search results across any number of documents.
Google continues to think about ways in which technology can improve upon existing ways of doing business. New areas are explored, ideas prototyped and budding services nurtured to make them more useful to advertisers and publishers. However, no matter how distant Google’s business model grows from its origins, the root remains providing useful and relevant information to those who are the most important part of the ecosystem – the millions of individuals around the world who rely on Google search to provide the answers they are seeking.
1.5.2 Google AdWords for Advertisers
Google designed AdWords for advertisers who want to reach a qualified audience as efficiently as possible. Advertisers select their own target keywords and only pay when customers click on their ads. It’s easy to create ad text and manage online advertising accounts with no large upfront payment required. All that’s needed is five minutes and a credit card. The ads appear across Google’s growing roster of partners, including thousands of sites from America Online to the Washington Post, and are targeted to relevant search and content pages.
Google’s experienced sales and service team optimize campaigns for our larger advertisers. Our staff of AdWords experts work with advertisers to select the appropriate keywords and generate the matching creative, then carefully monitor the campaign to improve its performance over time by winnowing keywords and rewriting copy based on what is most effective. There’s no limit to the number of keywords that an advertiser can select and each keyword can be matched with a different creative execution. Recent advertisers include Amazon, Cisco Systems and Staples.
Google provides all of its advertisers with a full complement of reporting services to enable fine tuning of campaigns and real-time intelligence about which components are performing best. Advertisers can further increase efficiencies by targeting their campaigns to specific geographies or languages.
1.5.3 Google AdSense and advertisers
Google believes relevant advertising can be as useful as search results or other forms of content. And that advertising can enhance the experience for visitors to a publisher’s website, while helping publishers recover some of their investment in creating content of value. Google AdSenseâ„¢ combines Google Search technology with our base of keyword advertisers to deliver ads that precisely target search results or the content on a site’s pages, no matter how specialized the subject matter. Advertisers, publishers, and information seekers all profit as a result.
Signing up for AdSense is easy — it only takes a few minutes to apply. And our sales team helps customize the program for sites receiving more than 20 million page views a month.
- AdSense serves relevant ads on content pages search result and content pages as well as dormant domain pages. Google Search Services enable publishers to provide Google web search on their own pages – results that can be used to generate revenue with the AdSense for Search program The Google Search Appliance, a scalable and secure device that provides Google quality search across an individual website or intranet.
- Google Wireless Services deliver Google search results via PDAs, wireless phones and other mobile devices powered by many of the world’s leading wireless service providers.
.1.0 GOOGLE GLOBAL MARKET SHARE
Not only does Google continue to dominate the global search market, it’s also growing faster than any of its competitors, according to data from comScore.
The audience measurement firm estimates that Google sites notched up a total of 76.7 billion searches during the month of July 2009, an increase of 58 percent over July 2008. Google’s search product therefore continues to govern the global search landscape, accounting for over 67 percent of all queries worldwide, comScore suggests.
In comparison, Yahoo and Microsoft — which agreed to a ten-year search partnership in July — attracted a joint total of 12.2 billion queries through their search services, which represents just 10.7 percent of queries globally. Microsoft’s product did, however, experience substantial year-on-year growth of 41 percent.
2.2.0 GOOGLE KEY TECHNOLOGIES
Google web search technology uses a combination of techniques to determine the importance of a web page independent of a particular search query and to determine the relevance of that page to a particular search query.
2.2.1 PageRank Technology
PageRank reflects our view of the importance of web pages by considering more than 500 million variables and 2 billion terms. Pages that we believe are important pages receive a higher PageRank and are more likely to appear at the top of the search results.
PageRank also considers the importance of each page that casts a vote, as votes from some pages are considered to have greater value, thus giving the linked page greater value. We have always taken a pragmatic approach to help improve search quality and create useful products, and our technology uses the collective intelligence of the web to determine a page’s importance.
2.2.2 Hypertext-Matching Analysis
Our search engine also analyzes page content. However, instead of simply scanning for page-based text (which can be manipulated by site publishers through meta-tags), our technology analyzes the full content of a page and factors in fonts, subdivisions and the precise location of each word. We also analyze the content of neighboring web pages to ensure the results returned are the most relevant to a user’s query.
Our innovations don’t stop at the desktop. To give people access to the information they need, whenever and wherever they need it, we continue to develop new mobile applications and services that are more accessible and customizable. And we’re partnering with industry-leading carriers and device manufacturers to deliver these innovative services globally. We’re working with many of these industry leaders through the Open Handset Alliance to develop Android, the first complete, open, and free mobile platform, which will offer people a less expensive and better mobile experience.
2.2.3 Life of a Google Query
The life span of a Google query normally lasts less than half a second, yet involves a number of different steps that must be completed before results can be delivered to a person seeking information.
Google provides their products and services using their homegrown software and hardware infrastructure, which provides substantial computing resources at low cost. Google currently use a combination of off-the-shelf and custom software running on clusters of commodity computers. Their considerable investment in developing this infrastructure has produced several benefits. This infrastructure simplifies the storage and processing of large amounts of data, eases the deployment and operation of large-scale global products and services, and automates much of the administration of large-scale clusters of computers. Although most of this infrastructure is not directly visible to their users, Google believe it is important for providing a high-quality user experience. It enables significant improvements in the relevance of their search and advertising results by allowing us to apply superior search and retrieval algorithms that are computationally intensive. Google believe the infrastructure also shortens their product development cycle and lets us pursue innovation more cost effectively.
2.3.0 QUALITY OF PERSONNEL
Google is among the most successful Internet-based businesses and companies since the booming dotcoms years in late 1990s and remains to be a leader to date. The success of the Google is rooted on its outstanding organisational practices and core competencies. Google’s formula of success is not only its competent technology but also its aggressive ability to come-up with both innovative and profit-oriented projects. Innovation is very critical among the members of its workforce since it operates in global environment.Managing global environment requires managers the ability to manage change through innovation and creativity. The innovative capability of Google combined with integrated process and a supportive culture creates sustainable competitive advantage. Among the considered high-leverage innovators, Google excels in ideation with overall adeptness and competence across all four stages of the innovation value chain. For example, (2007) describes Google as search engine leader that creates new-fangled ideas with intense speed or what they call the “70-20-10 Rule” where the staff particularly engineers are encouraged to use 70 percent of their working time on central business functions, 20 percent on related business functions, and 10 percent on areas entirely of their own choice. Larger organisations like Google, in contrast to small ones are faster in adoption of innovations because of greater access to resources and need for strategic planning. Due to the stiff competition among Internet companies, the encouragement of innovation and creativity is inherent to Google. Innovation as a ground for doing business in the 21st century will be the consistent tugging force that the organisation must either strive to adopt or suffer the consequences of being left behind by competitors. The Googlers (employees) are motivated to contribute their suggestions, ideas, or anything that pertains to potential profit-gaining activities through various means like meetings, intranet, and other forms of communication. In product development, they emphasise on the feasibility and user-friendliness of relevant ideas. The feasibility is supported by Google’s aim of coming-up with something original and financially viable whereas the idea of user-friendliness works toward potential users. Through innovations, Google has expanded its services and features. Google today is no longer a search engine company but a web computing applications company. The upscale ability of Google is among its critical success factors that make it a sustainable competitive company in its specified industry.
On the aspect of HRM, Google has a distinct recruitment procedure that is bounded on the increased importance on valued intelligence and brainpower more than experience. (2003) identified recruiting as part of the overall management function of staffing. Conversely, (2004) emphasised that staffing requires both the process of attracting and selecting potential personnel with exceptional capabilities and competencies to fill-in the company position available at hand. Recruiting potential Googlers are based on academic proficiency and human intelligence. The diversity of skills and qualities of applicants is recognised because Google management believes that it can contribute on its progression. There are also unique advertising techniques in job postings, effective referral system, and campus recruitment. Generally, Google upholds the key HRM functions namely; attracting a quality workforce, developing a quality workforce, and maintaining a quality workforce.
2.4.0 GOOGLE CAPITAL BASE REVENUE STREAM
Google’s stock fell decidedly below the psychologically significant mark of $300 per share at one point. The stock has fallen 60% overall from its high near $720 and sits near its 2004-2005 prices. Despite this, Google remains a global leader in search, internet advertising, and has its finger on the pulse of innovative web services. Google’s earnings powerand Google’s search share remain intact in the long. Does that mean the shares necessarily imply a great risk-reward tradeoff now?
For perspective, let’s take a look at Google’s performance and its stock performance over a similar period.
Overall, Google’s stock grew at a 93% CAGR from its IPO in 2004 until 2007. Even including the precipitous drop in 2008, the stock has grown at a 30% CAGR. Since 2003, Google has grown its revenue at a 72.6% CAGR and its net income at a 109.1% CAGR. Roughly normalizing to the 2004-2008 time period, Google’s revenue and net income have grown at 62% and 80% CAGR, respectively.
It’s clear that Google’s stock grew relatively in line with its net income, in fact, even at its peak Google’s stock growth never outpaced its net income growth rate thus implying that wild multiple expansion was not responsible for investor returns over the last five years.
Unfortunately, with the changing economic outlook, the market seems to be pre-emptively punishing Google for slowing growth. If the current share price holds, the implication is that the Company will not grow net income from 2008 levels for another three years assuming that a stock’s return (30% CAGR) trends towards the long term growth rate of a company.
This return scenario seems compelling for a long term investor, but given that we remain dependent on growth for our returns as opposed to any fundamental valuation. It’s hard to ascertain whether or not the stock current price represents a reasonable entry point.
Now, let us try to look at the overall strengths and weaknesses of Google’s market, technology, personnel and capital base and revenue stream.
2.5.0 Google’s Strengths
- Google – Already number one search engine has established a brand name, in which its users trust. It’s dependable, reliable and fast.
- Google needs very little end user marketing as the name itself is getting word by mouth publicity.
- Google has a simple interface and it gives comprehensive results without confusing its users.
- Google has low operation cost as it uses low cost UNIX web servers for indexing millions of web pages across internet.
- Google has hired PhDs who are continuously working hard in order to enhance search algorithms and make searching faster, efficient and relevant.
- Google provides an interface to 177 languages to make it comfortable to search for its users in different countries.
- Google uses state of the art search technology to index pages regularly in order to give most updated results to its users.
- Google also weights the votes and ranks web pages with its PageRank technology to give its user access to most important pages first.
- Google is not biased towards advertisers. It clearly separates relevant advertisements and actual results by giving “Sponsored Links” tag to sponsored results when user searches to get information with some keyword. Moreover, it also ranks sponsored links to keep most relevant sponsored links on the top.
- Google offers localized search called “search by location” where users can get results showing vendors, products and services nearby their areas.
- Google also has a range of innovative additional services like Images, Groups, Directory, and News. Google didn’t complicate its website by making itself a portal; rather it kept tabs for these services on its homepage so users can easily navigate and that also keeps the website as simple as it was earlier.
- Google has also come up with solutions for wireless handheld devices, personalized toolbars, catalogues which are added essence strengths.
- Google quickly routes the user to the webpage and doesn’t linger for ad revenue.
2.6.0 Google’s Weaknesses
- Many spammers manipulate Google’s ranking technology by creating dummy sites with thousands of links to pages that they wanted Google to rank highly.
- Google’s link based ranking did not employ actual traffic analysis.
- Google’s Cost Per Click advertising charging and ranking policy is confusing and makes it difficult for marketers to predict where their ads would be positioned and how much they would cost.
- Google’s contextual advertising was perceived by marketers to be less effective in generating sales because visitors to web pages showing editorial content were less likely than searchers to be ready to buy.
- Contextual search algorithms are not 100% perfect and many a times make mistakes.
- Google’s localized search algorithms too sometimes result in errors due to automated indexing.
- Although Google is a dominating player among search engine websites, only 50% to 65% of web search queries are answered accurately by it.
- Google doesn’t have “sticky” like Yahoo! And MSN have which can attract users.
- Google doesn’t have highly personalized search by which it could charge users with switching cost if they decide to leave Google’s services.
Google have always believed that building a trusted, highly-recognized brand begins with providing high-quality products and services that make a notable difference in people’s lives. Its user base has grown primarily by word-of-mouth. Google’s early marketing efforts focused on feeding this word-of-mouth momentum and used public relations efforts to accelerate it. Through these efforts and people’s increased usage of Google worldwide, Google have been able to build their brand with relatively low marketing costs as a percentage of their revenues. Today, Google use the quality of their own products and services as their most effective marketing tool, and word-of-mouth momentum continues to drive consumer awareness and user loyalty worldwide. Google also engage in targeted marketing efforts, such as those Google deliver to their advertising clients, designed to inform potential advertisers, Google network members and enterprises of the benefits they can achieve through Google as well as targeted consumer marketing in certain geographies. In addition, Google sponsor industry conferences and have promoted the distribution of Google products to internet users in order to make their search services easier to access.
3.1.1 GOOGLE FACE SIGNIFICANT COMPETITION FROM MICROSOFT, YAHOO & AMAZON
Google operate in a market that is characterized by rapid change and converging, as well as new and disruptive technologies, and Google face formidable competition in every aspect of its business, particularly from companies that seek to connect people with information on the web and provide them with relevant advertising. Currently, Google consider their primary competitors to be Microsoft Corporation and Yahoo! Inc.
Microsoft has developed features that make web search a more integrated part of its Windows operating system and other desktop software products. Google expect that Microsoft will increasingly use its financial and engineering resources to compete with them. Microsoft has more employees and cash resources than Google do. Also, both Microsoft and Yahoo have longer operating histories and more established relationships with customers and end users. They can use their experience and resources against them in a variety of competitive ways, including by making acquisitions, investing more aggressively in research and development and competing more aggressively for advertisers and web sites. Microsoft and Yahoo also may have a greater ability to attract and retain users than Google do because they operate internet portals with a broad range of content products and services. If Microsoft or Yahoo is successful in providing similar or better web search results or more relevant advertisements, or in leveraging their platforms or products to make their web search or advertising services easier to access, Google could experience a significant decline in user traffic or the size of the Google Network. Any such decline could negatively affect their revenues.
In addition, Microsoft Corp., Yahoo Inc. and Amazon.com Inc. are joining a coalition that hopes to rally opposition to Google’s digital book ambitions and ultimately persuade a federal judge to block or revise the Internet search leader’s plans.
The group, to be called the Open Book Alliance, is being put together by the Internet Archive, a longtime critic of Google’s crusade to make digital copies of as many printed books as possible. A growing number of critics already have filed objections to Google’s book settlement, but none have the clout that the Open Book Alliance figures to wield with three of the world’s best-known technology companies on board.
Microsoft, Yahoo and Amazon all have financial reasons for objecting to the class-action lawsuit settlement that Google reached with authors and publishers 10 months ago. Amazon may have the most at stake, given that it’s a major book seller and is mining the Kindle for even more sales.
Now, let us look at the opportunities and threats Google’s market and from the compotators (Microsoft, Yahoo and Amazon).
3.2.0 Google’s Opportunities
- Google can increase switching cost by tracking users’ search histories with their permission and could remind users through emails for the relevant search updates as per their personal interest.
- Google can become a mass-market portal like Yahoo and MSN and can increase switching cost for its users.
- Google can add “sticky” like chat rooms and email systems to attract users and survive in tough competition.
- Google can enhance personalized and localized searching and can also add localized paid listings of advertisers.
- Google can start new services like multimedia, product search, private database, and print media.
- Google can also merge with an established mass-market portal to lock in large number of users and advertisers.
- Google can start giving full fledged services on hand held mobile devices to capture market beyond conventional internet.
- Google can dominate its compotators by acquiring the advertising outfit DoubleClick and enters into a vibrant advertising business for banners, videos, and other so-called display ads.
3.2.1 Google’s Threats
- Google partially depends upon some portals like AOL. Getting those contracts terminated, Google would lose considerable share of its revenue.
- There is no long time entry barrier in this business. Many competitors can emerge in coming years with same services, better interface and names and can catch up Google’s market.
- Google’s confusing Cost Per Click ranking and charging policy could disappoint its advertisers and company would start loosing many of them.
- Microsoft and Yahoo! Are financial stronger than Google does.
- Microsoft, Yahoo and Amazon all have financial reasons for objecting to the class-action lawsuit settlement that Google reached with authors and publishers.
4.1.0 GOOGLE MISSION STATEMENT
Google mission statement:
A mission statement is a statement that defines the essence or purpose of a company – what it stands for i.e. what broad products or services it intends to offer customers. With this in mind, I personally found Google highly focused on their company mission statement; hence it’s the most successful search engine in the world today. Google explains clearly below that the way to accomplish their mission is to put the needs of their users first. I certainly believe this is the main driving force for Google’s huge success over their compotators to date.
Why are we so focused on our users?
We believe that the most effective, and ultimately the most profitable, way to accomplish our mission is to put the needs of our users first. We’ve found that a high-quality user experience leads to strong word-of-mouth promotion. Our dedication to our users is reflected in these three key company-wide commitments:
- We will do our best to provide the most relevant and useful search results possible, independent of financial incentives. Our search results will be objective and we will not accept payment for their inclusion or ranking.
- We will do our best to provide the most relevant and useful advertising. Ads should not be an annoying interruption. If any element on a search result page is influenced by payment to us, we will make this fact clear to our users.
- We will never stop working to improve our user experience, our search technology, and other areas of information organization.
We believe that our user focus is the foundation of our success to date. We also believe that this focus is critical for the creation of long-term value. We do not intend to compromise our user focus for short-term economic gain.
4.2.0 APPRAISAL OF THE COMPANIES ACQUIRED BY GOOGLE
Google the giant and leading web search engine of the world, has acquired 52 (see appendix for details) companies to date (November, 2009). I have a strong feeling and believe that every single company that acquired by Google must be strategically fit and revenue potential.
Let me try to reason out myself on this matter by taking DoubleClick as an example, and how Google practically benefited in terms of strategic fitting and revenue potential to its business.
4.2.1 Google vs Microsoft: Vying for DoubleClick
Google and Microsoft are squaring off in a fight for the online ad outfit DoubleClick that shows Internet advertising is moving far beyond search. The three leading search engines-Google (GOOG), Yahoo! (YHOO), and Microsoft (MSFT)-are competing to become one-stop shops for companies that want to advertise across the Web. To achieve that goal, Net players need more than a ton of traffic on their own online properties and the ability to match up tiny text ads to search queries. They also need to sell ads on popular Web sites beyond their borders and obtain more user information.
4.2.2 Google’s DoubleClick Strategic Move
With its $3.1 billion acquisition, the Internet giant secures entry into the promising business of display advertising and thwarts Microsoft in online search.
In a call following the acquisition announcement, CEO Eric Schmidt characterized the deal as helping Google gain a greater foothold in the display advertising market. “It is accelerating our display advertising business,” said Schmidt.
DoubleClick has something that Google, for all its money and smarts, doesn’t: a vibrant advertising business for banners, videos, and other so-called display ads often intended more to promote brands than to generate immediate sales. “DoubleClick currently has relationships with virtually every major online publisher and more than half of the online ad agencies,” says Dave Morgan, chairman of TACODA, a targeted advertising network. DoubleClick counts Time Warner’s (TWX) Sports Illustrated, Friendster, and Viacom’s (VIA.B) MTV Networks among its customers. Google, on the other hand, has made much of its billions by serving tiny text ads related to searches for relatively smaller businesses hoping for some kind of immediate interaction with a customer.
4.2.3 Google Launches DoubleClick Ad Exchange
Google joins the display-ad game in earnest with the long-awaited arrival of its automated ad exchange, which offers benefits to both advertisers and publishers
Google is about to launch it’s most potent weapon to date in the battle over the $15 billion market for display ads-the pictorial banners and videos that support most major Web sites. On Sept. 18 the search giant will launch its new DoubleClick advertising exchange, a sort of stock exchange for online ads it has been developing since early last year.
Still, running an exchange puts Google front and center in another huge ad market beyond its mainstay search ads. With the launch of the new DoubleClick ad exchange, which includes a number of new features, Google hopes its display business will start to accelerate.
“It has been our vision to make Internet advertising better – less intrusive, more effective, and more useful. Together with DoubleClick, Google will make the Internet more efficient for end users, advertisers, and publishers,” said Sergey Brin, Google’s Co-Founder and President, Technology.
4.2.4 Real-Time, Last-Second Bidding
Google says the exchange will allow real-time bidding for advertising inventory through the use of automated software tools. A publisher may sell space its direct-sales team couldn’t sell to an ad network that offers $5 per thousand impressions, or viewings by visitors, known as CPMs. But another ad network could step in-even at the last second, using automated bidding technologies-and offer $10 because it believes it can deliver more potential customers to its advertiser or agency client. Then Google’s exchange can instantly run the more lucrative ad instead.
Early trial users say the exchange looks promising. Kevin Lee, CEO of search marketing firm Didit, says so far it appears to be “a step above [Yahoo’s] Right Media. We’re fairly pleased with it” because the DoubleClick exchange includes inventory from well-known sites, he told BusinessWeek earlier this year. “We like the concept of an ad exchange that gives access to these kinds of sites, and we’re willing to pay more for that.”
At this point let us see the Ad performance of DoubleClick in 2008 after Google acquired it on the next table.
4.2.5 Ad Server Market Structure
Given below is a list of top ad server vendors in 2008 with figures in millions of viewers published in a Attributor survey. Since 2008 Google controls estimated 69% of the online advertising market.
4.2.6 GOOGLE’S LAYOFF AND CANCELLATION OF PROJECTS AFFECTS ITS INNOVATION
The Innovative time off (ITO) policy encourages Google employees to spend 80% of their time on core projects, and roughly 20% (or one day per week) on “innovation” activities that speak to their personal interests and passions. These activities may benefit the company’s bottom line – as in the case of Gmail, Google News, AdSense and Orkut.
However, Google recently set the blogosphere abuzz by announcing that it was pulling the plug on several products.
The victims included Lively, a virtual world that was Google’s answer to Second Life; Dodgeball, a cellphone service aimed at young bar-hoppers who wanted to let their friends know where they were hanging out; Catalog Search, which scanned paper product catalogs so they could be searched online; and Notebook, a simple tool that allowed people to take notes on Web sites they had visited.
“We didn’t see that passionate hockey-stick growth in the user base,” said Bradley Horowitz, Google’s vice president for product management, “Management decided that the half-dozen people working on lively could be more productive elsewhere”.
Actually, it will be interesting to see what the long term effects of these changes in perspective will be on Google’s culture around launching new products out of 20% time projects and the veneration of side projects at the Googolplex. One expected change is that employees will be more conservative around what 20% projects they choose to work on so that they don’t end up wasting their time on the next Google Page Creator or Google Web Accelerator which is received with initial hype but quickly discontinued because it doesn’t see “hockey stick growth in user base”.
4.2.7 NEGATIVE ASPECTS OF GOOGLE’S CULTURE
A midst the successful reputation of Google in the Internet industry, there are few criticisms in the organisational culture of the Company. This case study specifies the following negative features: absence of clear management structure, poor employee relations and work ethics, and its informal work culture.
Google must have a core management structure. Although Google has plus as key figures, the rest of the staff are not strictly structured. Organisational management structure is a basic element in planning and decision-making. On the case of project engineers and even the rest of the workforce, the unclear definition of management structure can lead to organisational conflict. Recognising the diversity of skills and Googlers, conflict is a risk because employees have differing values and experience differing situations. The lack of hierarchy resulted to confusion about control and decision making power and practically affects overall working conditions. To address such, management theories serve as established body of knowledge that will guide the engineers and project managers in making excellent decisions for the benefit of the whole organisation. Similarly, the understanding of management structure is directly linked to enhanced organisational performance requiring Google’s management to review its organisational composition, job positions, and area of control.
On its HRM functions, Google is acknowledged with a unique recruitment process yet some aspects of the process are criticised. Some critics describes Google’s recruitment process is narrow. Companies worldwide undergo changes and utilise various job selection and recruitment methodologies due to some affecting factors (i.e. globalisation and technology innovations). For Google, there is a need to re-evaluate and study the HRM functions and policies particularly its recruitment process to meet the demands of the target market. A lot of organizations began to significantly switch their people-managing policies and systematise them in new directions. It is acknowledge that selection and recruitment of potential employees, like on the case of Googlers, is directed to the attainment and accomplishment of companies’ goals in the global scene. Knowledge, skills, and abilities (KSAs) that include job-related information and the necessary human abilities to perform certain job activities should be considered by Google HR team rather than academic proficiency alone. The importance of valid KSAs cannot be overstated, as the relationship between them and individual performance in the organisation is well-established. Most KSAs are gained through experience yet Google oversee this point. It is accepted that quality, competence and flexibility among the employees had efficiently replaced quantity of task accomplished and imperceptive obedience gained through extensive experience. Thus, Goggle should reconsider its recruitment and selection policies and practices.
At this point, I certainly agree with Steve Ballmer, CEO of Microsoft, on his remark against Google that he said “Google failed to make a success of efforts to diversify beyond search with Ads”. It is true, since Google’s 97% to 99% of its revenue comes from Ad, although this seems their business strategy and mission statement focus.
However, I might not agree with notion of Steve Ballmer, that Google strategic is “insane”. As we all know, Google is the most successful web search engine in the world and I strongly believe this success came from Google’s high skilled strategic management team that perfectly focused on their vision and mission, setting objective, crafting the strategy, implementing and executing the strategy and evaluating performance. That is why, today, Google is the fastest growing company as Steven Ballmer himself said it. Looking at the present growth rate of Google, it’s hard to call Google’s strategic is “insane” because it’s revenue/growth comes merely from the search with Ad, which I feel that is the main focus of the Company’s strategy and mission statement. Although I still believe that Google need to address some of the present problems that I have mentioned above, the fact is that Google is not only the most successful but also the global leading search engine today, while Mr. Steven’s company (Microsoft) is limping behind it.
Again, looking at the staffs personal project performance of Google although it’s true that Google has cancelled some projects and also forced to layoff due to the fact that their Innovation Off Time (IOT) 20% unfair policy which need to be reconsider immediately, on the other hand, their successful project such Gmail which is the most popular email with 146 million users in the world as on 14th July, 2009 has proved to be the best value added project in the Google’s strategy of email with Ad revenue scheme.
Let us compare some features of the most popular email providers and make out why Gmail scores way better than others. Yahoo and hotmail have legacy in their fields and Gmail is just newly born. Therefore it will be appropriate to compare premium services to free Gmail for an unbiased comparison:
What is the future of this perfect search engine, Google? As I personally call it a perfect search, what magic do we expect out of it in the future?
Would it be a machine that could understand speech, questions, phrases, what entities you’re talking about, concepts and gives the right answer? Would it be able to search all of the world’s information, [find] different ideas and concepts, and bring them back to you in a presentation that was really informative and coherent?
The expectation is high, but Google’s PhD experts have a lot do and there are a lot of different aspects of research that need to go into building that search engine if it is to meet all the above questions. The search engine needs to understand speech. it needs to understand images. it needs translation, so it can find the answer regardless of what language it’s written in. Google search needs a lot of artificial intelligence to be able to analyze what information is relevant and synthesize it. It also needs a great user interface and user experience to put it in context. And it probably need a certain amount of personalization, so the search engine relates to the person, to their background, what they already know about, what they looked for in the past.
“Perfect search engine would understand exactly what you mean and give back exactly what you want.”
- John Battelle, (2006), The Search, How Google and Its Rivals Rewrote the Rules of Business and Transformed Our Culture, Nicholas Brealey
- Kenneth C. Laudon, Jane P. Laudon (2006), Management Information System: Managing the Digital Firm, Tenth edition, Prentice Hall
- Michael E. Porter, (2002), Harvard Business Review On Advance in Strategy, Strategy and the Internet, Harvard Business school Publishing Corporation
- Mohanbir Sawhney, Deval Parikh (2002), Harvard Business Review On Advance in Strategy, Where Value Lives in a Networked World, Harvard Business school Publishing Corporation
- Dave Chaffey, (2007), E-Business and E-Commerce Management